TaxTMI 
TaxTMI 
2023 (8) TMI 142
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....cting AO to treat grants received by the appellant which were not project specific or were given for generic purpose then to consider the same in the nature of voluntary donation to be included as the income of the appellant u/s 12 (1) of the Act. 3. Ld. CIT (A) erred in law and on facts holding the appellant as not entitled to claim (i) accumulation @ 15% u/s 11(l)(a) of the Act on specific grants (ii) claim capital expenditure out of these grants as application of income & (iii) claim depreciation on fixed assets created out of grants received for a specific purpose of for specific project as application of income. 4. Ld. CIT (A) erred in law and on facts directing AO to treat funds received as per provisions of GTPUD Act such as Development charges, Betterment charges, Impact fees, Amenities fees, Scrutiny fees, Zoning fees etc. as the income of appellant irrespective of their treatment as balance sheet item. 5. Ld. CIT (A) erred in law and on facts directing AO to treat receipts of premium on lease of plots of land and receipts from sale of land/ shops as income of the appellant irrespective of its treatment as balance sheet item. 6. Ld. CIT ....
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....al receipts (water supply), capital receipts (township), capital receipts (vambay), funds received from Gujarat Municipal Finance Board, funds from Ministry of Urban Development and premium on lease/ sale of plots/ shops/ flats as revenue receipts." We shall first take up the assessee's appeal for assessment year 2016- 17. 4. Before us, the counsel for the assessee submitted that he shall not be pressing for ground nos. 1 to 5. Accordingly, ground nos. 1-5 of the assessee's appeal are dismissed as not pressed. Ground No. 6 (i) (ld. CIT(A) erred in holding that the assessee is not entitled to accumulation @ 15% u/s. 11(1)(a) of the Act. 5. Before us, the counsel for the assessee submitted that this issue has been decided in favour of the assessee passed by ITAT in assessee's own case for assessment year 2014-15 in ITA No. 2434 and 2378/Ahd/2017. The counsel for the assessee invited our attention to page no. 23-25 of the order of ITAT (paras 17 to 17.3). 6. Before adjudicating on the issue, it would be useful to reproduce the observations made by ld. CIT(A) in this regard: "(vii) If the appellant has applied more than the income during the year then the A.O. i....
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....11(1)(a) of the Act, from income remaining after deducting amount applied for the objects of the assessee trust. 17.1. In this connection, Ld. Counsel drawn our attention to the decision of the Co-ordinate Bench in the case of Gnyan Dham Vapi Charitable Trust Vs. DCIT (Exemptions) in ITA No. 2208/Ahd/2018 dated 19-08-2020 observing as follows: "...8.1 Under s.11 of the Act, income derived from property held under trust wholly for charitable or relates purposes shall not be included in the total income subject to certain conditions. On a combined reading of Section 11(1)(a) and Section 11(2) of the Act, it emerges that the trust is allowed to accumulate 15% of its income without any time limit and balance 85% can be set apart for specified period 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 ha....
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....n an entitlement (opposed to an obligation) as suggested by first appellate authority is totally devoid of any logic. This would tantamount to application of concession conferred on assessee in a reverse manner and thus put the assessee in a worser position in the event of accelerated application of receipts for salutary purposes. The action directed by CIT(A) has the effect of deprivation of concession granted and is repugnant to the intended outcome. The Pune Bench of Tribunal in Maharshi Karve Stree Shikshan Samstha Karvenagar vs. ITO 174 ITD 591 (Pune) has also essentially held that relaxations conferred under s. 11(1)(a)/(b) r.w. Section 11(2) of the Act to the extent of 15% of income would not nullify the entitlement of such absolute nature by way of reduction in quantum 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 ....
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....responding expenditure against the same as well in accordance with law. The Ld. A.O. may carry out the necessary verification and allow the claim of the assessee as per the above directions. 11. In the result, Ground No. 6(ii) of assessee's appeal is allowed for statistical purposes. Ground No. 6 (iii) ld. CIT(A) erred in holding that the assessee is not entitled to claim depreciation on fixed asset created out of such funds 12. Before us, at the outset, the counsel for the assessee fairly conceded that w.e.f. assessment year 2015-16, the law has undergone a change and accordingly depreciation would not be allowed on such assets purchased after 01-04-2015. However, the counsel for the assessee submitted that in the interest of justice, the matter may be set aside to the file of Assessing Officer to check the applicabilitiy of provisions of section 11(6) of the Act to the extent, the assessee has not claimed such depreciation on fixed assets created out of grant given for a specific purpose. 13. Accordingly, in the interest of justice, the matter is being set aside to the file of Assessing Officer to check the eligibility of applicability of section 11(6) of the Act to t....
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....ery' in the working process of the assessee. The Ld. CIT(A) has not justified in holding that the income of exempt person has to be calculated on the basis of normal commercial principles and by Rule of accountancy. 16.1. Respectfully following the above judicial precedent, we hold that the assessee is entitled to claim the depreciation as 'plant and machinery' as the assessee in promoting public objects which are activities in the nature of trade, commerce or business but without commercial motive. Thus the ground no. 8 raised by the Assessee is hereby allowed." 20. Respectfully following the aforesaid decision passed by ITAT in assessee's own case for A.Y. 2014-15, we hold that assessee is entitled to claim depreciation as plant and machinery since the assessee is promoting public objects which are activities in the nature of trade, commerce or business but without a commercial motive 21. In the result, ground no. 8 of the assessee's appeal is allowed. Ground No. 9 22. Before us, the counsel for the assessee submitted that ground no. 9 of assessee's appeal is identical to ground no. 6(i) in the preceding paragraphs. 23. Accordingly, our observations with r....
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....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." 28. 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 would entail recovering charges or fees, interest and also receiving interest for ho....
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....d 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 Corporation consists of nominees of the State Government, Sta....
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..... ************** ******** ********* 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 case is to act as an architectural agen....
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.... 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 exemption, the t....
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.... instrument, such as memorandum of association 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 characterize....
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....to. However, amounts which are significantly higher than recovery of costs, have 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 ....
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....ement, supply of food grain, development and town planning, etc.) may resemble trade, commercial, or business activities. However, since their objects 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 ....