TaxTMI 
TaxTMI 
2023 (6) TMI 1212
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....anning and Urban Development Act, 1976 (XXVII of 1976) and Rules made there under carrying Planned Development of areas as defined and designed by the Government of Gujarat and also infrastructural activities relating thereto such as construction of roads, bridges, drainage system, water connection for the benefit of public at large. The Assessee is registered u/s. 12AA of the Act and the assessee is engaged in the activities of urban development and town planning. For the Assessment Year 2014-15, the assessee filed its Return of Income on 15-09-2014 with Nil income. The case was taken up for scrutiny assessment. 2.1. During the assessment proceedings, the Assessing Officer noticed that the activities carried out by the assessee remained unchanged as those of the Assessment Year 2009-10, wherein the activities carried out of "advancement of other general public utility" in the nature of trade/commerce/business and therefore the provisions of Section 2(15) read with proviso 1 & 2 were held to be applicable with the facts of the assessee's case. Therefore the A.O. denied exemption u/s. 11 & 12 of the Act. This assessment is confirmed by Ld. CIT(A) and also ITAT dismissed the assess....
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....Therefore, the question no.1 is to be held in favour of the assessee and against the revenue. 15. Now, so far as another question which is posed for the consideration of this Court i.e. whether while collecting the cess or fees, activities of the assessee can be said to be rendering any services in relation to any trade, commerce or business is concerned, for the reasons stated above, merely because the assessee is collecting cess or fees which is regulatory in nature, the proviso to Section 2(15)of the Act shall not be applicable. As observed herein above neither there is element of profiteering nor the same can be said to be in the nature of trade, commerce or business. At this stage, decision of the Division Bench of this Court in the case of Sabarmati Ashram Gaushala Trust (supra) is required to be referred to. In the case before the Division Bench, the assessee Trust Sabarmati Ashram Gaushala Trust was engaged in the activity of breeding milk cattle; to improve the quality of cows and oxen and other related activities. The Assessing Officer denied the exemption to the trust under Section 11 of the Act on the ground that considerable income was generated from the activities o....
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....acts of the case. Ordinarily, Chambers of Commerce and similar organisations 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. 7. In consonance with such assurance given by the Finance Minister on the floor of the House, CBDT issued a Circular No. 11 of 2008 dated 19th December 2008 explaining the amendment as under : '3. The newly inserted proviso to section 2 (15) will apply only to entities whose purpose is advancement of any other object of general public utility ie., the fourth limb of the definition of charitable purpose contained in section 2 (15). Hence, such entities will not be eligible for exemption under section 11 or under section 10 (23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on any activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. 3.1 There are industry and trade associations who claim exemption from tax under section 11 on the ground that their objects are for c....
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...., fee and/or any other consideration. It is not aimed at excluding the genuine charitable trusts of general public utility but is aimed at excluding activities in the nature of trade, commerce or business which are masked as charitable purpose. 12. All these were the objects of the general public utility and would squarely fall under section 2 (15) of the Act. Profit making was neither the aim nor object of the Trust. It was not the principal activity. Merely because while carrying out the activities for the purpose of achieving the objects of the Trust, certain incidental surpluses were generated, would not render the activity in the nature of trade, commerce or business. As clarified by the CBDT in its Circular No. 11/2008 dated 19th December 2008 the proviso aims to attract those activities which are truly in the nature of trade, commerce or business but are carried out under the guise of activities in the nature of public utility. 15.1. Applying the aforesaid decision to the facts of the case on hand and the object and purpose for which the assessee is established/constituted under the provisions of the Gujarat Town Planning Act and collection of fees and cess is incidental....
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....aim of income receipts being reflected in the balance sheet: (e) to claim of application of income from project specific grants; (f) to claim of capital expenses as application of income etc. As certain grounds of appeal pertain to these issues." 4. Aggrieved against the appellate order, the Revenue is in appeal before us raising the following Grounds of Appeal: ITA No. 2434/Ahd/2017 1. The Ld. CITCA) has erred in the law and on facts in considering the activity of the assessee as engaged in the development of urban area of Ahmedabad which is in the nature of advancement of general public utility not hit by the newly introduced first and second proviso to sec.2(15) of the Act. 2. The Ld CIT(A) has erred in the law and on facts in allowing the benefit of exemptions u/s 11 without considering the fact that the assessee is involved in widespread commercial activities in nature of business and the activity of the assessee is covered under first and second proviso to sec.2(15) of the Act. 3. The Ld CIT(A) has erred in the law and on facts in deleting the addition of Rs. 246,26,73,000/- and grants of Rs. 148,61,17,000/- considering that a capital expenditure by a person need....
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....sthan Housing Board, Mangalore Urban Development Authority; Mathura Vrindavan Development Authority, Meerut Development Authority, Belgaum Development Authority". Moradabad Urban Development Authority, Yamuna Expressway Industrial Development Authority, Greater Noida Industrial Development Authority, New Okhla Industrial Development Authority and Karnataka Industrial Areas Development Board are rejected." 6. The relevant operative portion of the Hon'ble Supreme Court judgment are as follows: ".....D. What kinds of income or receipts may not be characterized as derived from trade, commerce, business or in relation to such activities, for a consideration (i) Statutory corporations, authorities or bodies 176. It would be essential now to deal with certain kinds of receipts which GPU charities, typically statutory housing boards, regulatory authorities and corporations may be entitled to, if mandated to collect or receive. During the course of hearing, learned counsels highlighted that statutory boards, and corporations have to recover the cost of providing essential goods and services in public interest, and also fund large scale development and maintain public property. These wo....
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....jarat Industrial Development Corporation (supra) have declared that these bodies are involved in 'development' and are not essentially engaged in trading. In Shri Ramtanu Cooperative Housing Society (supra) this court, by a five judge bench, held that the Maharashtra Industrial Development Corporation is not a trading concern, and observed as follows: "These features of transfer of land, or borrowing of moneys or receipt of rents and profits will by themselves neither be the indicia nor the decisive attributes of the trading character of the Corporation. Ordinarily, a Corporation is established by shareholders with their capital. The shareholders have their Directors for the regulation and management of the Corporation Such a Corporation set up by the shareholders carries on business and is intended for making profits. When profits are earned by such a Corporation they are distributed to shareholders by way of dividends or kept in reserve funds. In the present case, these attributes of a trading Corporation are absent. The Corporation is established by the Act for carrying out the purposes of the Act. The purposes of the Act are development of industries in the State. The Corpora....
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....hich may have excess of income over expenditure. ************** ******** ********* 20. The underlying concept of a trading Corporation is buying and selling. There is no aspect of buying or selling by the Corporation in the present case. The Corporation carries out the purposes of the Act, namely, development of industries in this State. The construction of buildings, the establishment of industries by letting buildings on hire or sale, the acquisition and transfer of land in relation to establishment of industrial estate or development of industrial areas and of setting up of industries cannot be said to be dealing in land or buildings for the obvious reason that the State is carrying out the objects of the Act with the Corporation as an agent in setting up industries in the State. The Act aims at building an industrial town and the Corporation carries out the objects of the Act. The hard core of a trading Corporation is its commercial character. Commerce connotes transactions of purchase and sale of commodities, dealing in goods. The forms of business transactions may be varied but the real character is buying and selling. The true character of the Corporation in the present c....
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....e manner in which GPU charities has been dealt with under the definition clause, i.e., Section 2(15), indicates that even though trading or commercial activity or service in relation to trade, commerce or business appears to be barred - nevertheless the ban is lifted somewhat by the proviso which enables such activities to be carried out if they are intrinsically part of the activity of achieving the object of general public utility. Furthermore, in the case of GPU charities there is a quantified limit of the overall receipts, which is permissible from such commercial activity. In the case of local authorities and corporations covered by Section 10(46) no such activities are seemingly permitted. 189. As was observed in the earlier part of this judgment - while considering whether for the period 01.0.2003 - 31.05.2011, statutory boards, corporations, etc. could have lawfully claimed to be GPU charities, this court has observed that the nature of such corporations is not to generate profit but to make available goods and other services for the benefit of public weal. If such corporations (falling within the description of Section 10(46)) applied to the Central Government for exempt....
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.... etc.), the purpose for which such public GPU charity, is set-up - whether for furthering the development or a charitable object or for carrying on trade, business or commerce or service in relation to such trade, etc.; (c) Rendition of service or providing any article or goods, by such boards, authority, corporation, etc., on cost or nominal mark-up basis would ipso facto not be activities in the nature of business, trade or commerce or service in relation to such business, trade or commerce; (d)where the controlling instrument, particularly a statute imposes certain responsibilities or duties upon the concerned body, such as fixation of rates on pre-determined statutory basis, or based on formulae regulated by law, or rules having the force of law, setting apart amenities for the purposes of development, charging fixed rates towards supply of water, providing sewage services, providing food-grains, medicines, and/or retaining monies in deposits or government securities and drawing interest therefrom or charging lease rent, ground rent, etc., per se, recovery of such charges, fee, interest, etc. cannot be characterized as "fee, cess or other consideration" for engaging in acti....
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....to be treated as receipts from trade, commerce or business. It is for those amounts, that the quantitative limit in proviso (ii) to Section 2(15) applies, and for which separate books of account will have to be maintained under other provisions of the IT Act. IV. Summation of conclusions 253. In view of the foregoing discussion and analysis, the following conclusions are recorded regarding the interpretation of the changed definition of "charitable purpose" (w.e.f. 01.04.2009), as well as the later amendments, and other related provisions of the IT Act. General test under Section 2(15) A.1. It is clarified that an assessee advancing general public utility cannot engage itself in any trade, commerce or business, or provide service in relation thereto for any consideration ("cess, or fee, or any other consideration"). A.2. However, in the course of achieving the object of general public utility, the concerned trust, society, or other such organization, can carry on trade, commerce or business or provide services in relation thereto for consideration, provided that (1) the activities of trade, commerce or business are connected ("actual carrying our..."inserted w.e.f. 01.04.....
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....bjects are essential for advancement of public purposes functions (and are accordingly restrained by way of statutory provisions), such receipts are prima facie to be excluded from the mischief of business or commercial receipts. This is in line with the larger bench judgments of this court in Ramtanu Cooperative Housing Society and NDMC (supra). B.2. However, at the same time, in every case, the assessing authorities would have to apply their minds and scrutinize the records, to determine if, and to what extent, the consideration or amounts charged are significantly higher than the cost and a nominal mark-up. If such is the case, then the receipts would indicate that the activities are in fact in the nature of "trade, commerce or business" and as a result, would have to comply with the quantified limit (as amended from time to time) in the proviso to Section 2(15) of the IT Act B.3. In clause (b) of Section 10(46) of the IT Act "commercial" has the same meaning as "trade, commerce, business in Section 2(15) of the IT Act Therefore, sums charged by such notified body, authority. Board, Trust or Commission (by whatever name called) will require similar consideration i. e., wheth....
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....and in Para 254, it has been precluded from examining the facts and assessing the concerned assessment years, in relation to the assesses in these appeals. It was urged that the conclusions recorded in the judgment and those in the said two paragraphs, preclude it from dealing with the assessments of parties before this court and furthermore, the dismissal of the revenue's appeals will preclude an examination of the merits for these assesses in future, as well. 4. A plain reading of the conclusions recorded in Para 253(A), (B), (C), (D) and (E) would disclose that this court consciously recorded its findings, with the intent of finally deciding the issues, for various organizations- Sh in relation to the assessment years in question, whereas in Para 253 (F), the court remitted the matter for examination and orders by the assessing officer. Similarly, the conclusion in Para 253 G. was conclusive with respect to the claim of private trusts, the appeals were dismissed. These conclusions are accurately reflected in the final, operative directions in Para 254. In Para 254 (i) to (iv), the conclusions recorded are against the revenue. However, in Para 254 (v), (vi), (vii) and (vii)....
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....Ld. CIT (A) erred in law and on facts in holding that the appellant cannot claim depreciation on fixed assets created out of grants given for specific purpose as application of income. 6 Ld. CIT (A) erred in law and on facts directing AO to treat funds received under provisions of GTPUD Act like Development charges. Betterment charges, Impact fees, Amenities fees, Scrutiny fees, Zoning fees as well amount received from premium on lease of Plot of land and receipts from sale of land/ shops etc. as income of the appellant irrespective of the fact that the appellant treated them as balance sheet item. 7 Ld. CIT (A) erred in law and on facts in holding that if funds received under various categories as per provisions of GTPUD Act are treated as capital receipts then appellant cannot claim accumulation @ 15% u/s 11(1)(a) on such receipts, cannot claim capital expenditure out of these receipts as money applied towards its objects as application of income and cannot claim depreciation on fixed assets created out of these receipts. 8 Ld. CIT (A) erred in law and on facts directing AO to verify & apply rate of depreciation on the basis of normal commercial principles & not as per sect....
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....le on record. The Hon'ble Supreme Court of India in Rajasthan & Gujarati Charitable Foundation Poona held that in case of assessee-charitable institution registered u/s. 12A, even though expenditure incurred for acquisition of capital assets was treated as application of income for charitable purposes u/s. 11(1)(a) of the Act, yet depreciation would be allowed on such assets so purchased before 01.04.2015. There was no specific provision in this behalf in the Income Tax Act and vide Finance Act No. 2/2014 amendment in Section 11(6) of the Act which became effective from the Assessment Year 2015-16, which amendment is prospective in nature. 13.1. Respectfully following the above Supreme Court judgment and the Assessment Year involved herein namely A.Y. 2014-15 depreciation is allowable to the capital assets and thus the grounds raised by the assessee is allowed in favour of the assessee. 14. Regarding Ground No. 8, Ld. CIT(A) directed A.O. to verify and apply rate of depreciation on the basis of normal commercial principles and not as per section 32 of the I.T. Act. In this connection, Ld. Senior Counsel drawn our attention to the decision of the Cuttack Bench in the case of Parad....
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.... to five years. In the instant case, the assessee in the assessment year in question as well as in some other assessment years have made spendings in excess of its receipts resulting in certain deficit. Owing to excess spending over receipts, a peculiar situation has arisen in the present case towards the manner of computation of quantum of deficit eligible to be carried forward for set off in subsequent assessment years having regard to statutory permission towards 15% accumulation under s.11(1)(a)/11(1)(b) of the Act without any time limit. 8.2 To delineate on the issue, it may be pertinent to note that in order to be eligible for claiming exemption, it is essential that the income of the trust is applied for charitable objects. A charitable trust or institution is required to apply at least 85% of income derived from trust property towards charitable purposes. If the income spent on charitable or religious purposes during the previous year falls short of 85% of the income derived during the year, such shortfall may be subjected to tax in certain circumstances. Hence, a statutory obligation has been cast on beneficiary trusts to utilize at least 85% of the income derived from t....
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.... of deficit. We thus have no hesitations to quash the observations of the first appellate authority towards exclusion of 15% of income for the purposes of determination of quantum of deficit to be carried forward for set off in ensuing years in accordance with law." 17.2. Ld. Senior Counsel further relied upon Pune Bench decision in the case of Maharshi Karve Stree Shikshan Samstha Karvenagar Vs. ITO wherein it has been held as follows: "IT: Exemption under section 11(1)(a) i.e... 15 per cent of income, is absolute exemption and application of section 11(2) does not extend to nullify said absolute exemption IT: Where in relevant assessment year application of income, is more than receipts of year, excess application of income i.e., expenditure in hands of assessee, can be carried forward to succeeding year" 17.3. Respectfully following the above ratio of the decisions of the Co-ordinate Benches of the Tribunals, we hereby set aside the order passed by the Ld. CIT(A) and held that when application of income is more than receipts of year, excess application of income i.e., expenditure in the hands of the assessee can be carried forward to succeeding Year. Thus the ground no. 9 ....