TaxTMI 
TaxTMI 
2023 (8) TMI 766
X X X X Extracts X X X X
X X X X Extracts X X X X
...., Scientific and Charitable Societies Registration Act, 1955 (on 27.10.2004) and registered u/s. 12AA of the Act as a charitable trust, is entitled to exemption u/s. 11 thereof in view of the amended section 2(15), i.e., by Finance Act, 2010 w.r.e.f. 01.4.2009, which reads asunder: "Definitions 2. In this Act, unless context otherwise requires,- (15) "Charitable purpose" includes relief of the poor, education, medical relief, 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 services 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 ten lakh rupees (*) or less in the previous year;" [(*)] enhanced to twenty-five l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....increasing upto an additional 15 lakh sq.ft. per annum for the next three years. The additional capacity was envisaged to be created by enjoining private sector participation, including through joint ventures. Further, Infopark area, Kochi was declared as an industrial area by GoK in April, 2010. The basis of the denial of it's claim for exemption by the Revenue is that the activity of letting built-up space and provision of amenities, the principal activity undertaken by the assessee in pursuance of it's objects, though otherwise qualifying as 'advancement of an object of general public utility' and, thus, a charitable purpose, is no longer so in view of the proviso to sec.2(15). 3.2 The second issue arising in the instant appeals is if depreciation is to be deducted in computing income liable for application for charitable purpose inasmuch as the cost of the capital assets, on which the same stands claimed, had already been allowed in full by way of application of income on the deployment of funds on their acquisition. The same, though a part of the statute w.e.f. AY 2015-2016 [s.11(6)] inasmuch as it amounts to a double relief, stands disapproved by the Hon'ble Apex Court....
X X X X Extracts X X X X
X X X X Extracts X X X X
....T(E) v. Sabarmati Ashram Gaushala Trust [2014] 362 ITR 539 (Guj). 4.3 Before us, it was a common contention of the parties that the issue is squarely covered by the recent decision by the Hon'ble Apex Court in Asst. CIT v. Ahmedabad Urban Development Authority [2022] 449 ITR 1(SC), placing a copy thereof on record. No assistance, however, from the parties, i.e., as to how the given activity/s and the assessee's modus operandi would stand to be considered, or require being understood, in light of the said decision, was forthcoming from the parties. This, despite this being precisely the reason the instant appeals, heard initially by the Tribunal on 31/01/2023, were released for hearing on the applicability of the said detailed judgment. The Hon'ble Apex Court having however held, in relation to a class/category of assessees, that provision of goods or services at cost or on a nominal mark-up basis, would not ipso facto amount to a consideration within the meaning of proviso to sec.2(15), the assessee was called upon by the Bench to place on record the statement of its gross receipts and income from year to year, and which was accordingly done, and the hearing, accordingly, closed....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... industrial areas, or regulation of any activity in the general public interest, supply of essential goods or services - such as water supply, sewage service, distributing medicines, of food grains (PDS entities), etc.; (b) While carrying on of such activities to achieve such objects (which are to be discerned from the objects and policy of the enactment; or in terms of the controlling 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 ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ying policy, and the nature of the functions, and activities, of the entity claiming to be a GPU charity. If in the course of its functioning it collects fees, or any consideration that merely cover its expenditure (including administrative and other costs plus a small proportion for provision) - such amounts are not consideration towards trade, commerce or business, or service in relation thereto. 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. (emphasis, supplied) 4.5 The assessee's - a self-governing body, case, quite clearly, falls under the latter category of cases, i.e., of entities engaged in providing other than essential services. The assessee's sole activity, and inspite lapse of a number of years, continues to be restricted to provision, in a systematic and organized manner though - being in fact not feasible otherwise, i.e., on the scale and in the manner it is to be pursued, of b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s costs, or at best with a nominal margin, or this is not the case, with it, as alleged, operating on commercial basis, charging lease rentals at market rates. It would be relevant to, before we undertake this examination, refer to the specific adjudication by the Hon'ble Apex Court; the bunch of appeals decided in Ahmedabad Urban Development Authority (supra) including some similar cases, which we reproduce as under: 253.....D. Trade promotion bodies Bodies involved in trade promotion (such as AEPC), or set up with the objects of purely advocating for, coordinating and assisting trading organisations, can be said to be involved in advancement of objects of general public utility. However, if such organisations provide additional services such as courses meant to skill personnel, providing private rental spaces in fairs or trade shows, consulting services, etc. then income or receipts from such activities, would be business or commercial in nature. In that event, the claim for tax exemption would have to be again subjected to the rigors of the proviso to Section 2(15) of the IT Act. E. Non-statutory bodies E.1. In the present batch of cases, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee has vide letter dated 16.05.2023, as afore-noted, provided the summary of it's financial results over the years, as under: Table A Financial Year Assessment year Turnover Interest Income Total Turnover Depreciation Surplus/(Deficit) including interest % to turnover Cash surplus % to turnover 2008-09 2009-10 8,91,68,222 9,76,547 9,01,44,769 5,25,76,865 79,14,551 8.88 6,04,91,416 67.10 2009-10 2010-11 9,86,57,022 17,80,875 10,04,37,897 5,02,78,032 1,48,39,831 15.0 6,51,17,863 64.83 2010-11 2011-12 11,32,29,712 25,68,017 11,57,97,729 4,91,85,724 1,79,63,217 15.8 6,71,48,941 57.98 2011-12 2012-13 20,26,25,731 22,00,466 20,48,26,197 11,98,34,273 45,73,086 2.26 12,44,07,359 60.73 2012-13 2013-14 29,05,64,628 17,30,364 29,22,94,992 13,20,16,767 2,46,44,599 8.48 15,66,61,366 53.59 2013-14 2014-15 33,34,15,598 12,46,945 33,46,62,543 13,96,44,898 2,07,39,685 6.22 16,03,84,583 47.92 2014-15 2015-16 38,12,38,355 18,97,255 38,31,35,610 14,66,71,112 78,10,586 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e problem in raising revenue emanates from non-stability of cost. The output price, the rent rate in the instant case, cannot though be pegged on the basis of cost, which would be specific to each individual organization, but are, and can only be, market driven. The operating statement may thus exhibit either a surplus or deficit, i.e., depending on whether the cost increase has been contained or not. Then, there is also the question of volume. A lower off-take in quantitative terms may yield a lower profit, or even loss, as indirect cost, as, for example, establishment costs, are generally fixed or, atleast, largely so. This, to us, appears to be the case in the instant case. The Revenue states of the assessee charging lease rent at the market rate. Though this has been it's consistent stand, there has been no rebuttal thereof by the assessee at any stage. The assessee before us per its argument notes states that it is not so. This is however not supported by any facts and figures. The assessee has in fact during hearing admitted to charging rent even for parking space and, further, interest on delayed payment of rent. It is, thus, clearly operating on a commercial basis. Lower pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld be, as afore noted, a number of disparate reasons from year to year. It is, again, for this reason, i.e., of profit intent or motive or commerciality, being unable to be captured by a profit rate, which would vary from trade to trade, as indeed from time to time, that the statute also falls shy of providing profit as a criterion, and it suffices its purpose where the activity engaged in is in the nature of trade, commerce, or business - all terms of very wide import, i.e., on a commercial basis, even as explained in Ahmedabad UDA (supra) in the context of s.10(46). Why, we have found that a lease, which envisages charge of consideration over an extended time in future, on cost basis is inconsistent with the imperatives of such an activity. And to think that the assessee is providing lease even on 99 year lease basis! We may further add that the profit reported is after depreciation, which we observe as material. Sure, capital to the extent deployed in fixed assets, is subject to depreciation on their user, so that a capital allowance by way of depreciation is justified from an accounting standpoint; the income of a charitable trust being liable to be computed following the pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... account of the differential computation of income under the two heads of income, i.e., of business, and from house property, travelled to the higher courts, it has been unequivocally clarified for being decided in the conspectus of the case, so that decisions both ways, i.e., as business income, as indeed from house property, from the Hon'ble Apex Court obtain. The determinative test, as explained by it, being that the letting is being undertaken in an organized manner to turn the house property, i.e., land and building, into account. The test is satisfied in the instant case. The lease rentals are deployed to finance both creation of more built-up space, as per it's mandate, and which we observe to be at, besides Cochin, Thrissur, Ambalapuzha and Cherthala, as well as through charge of depreciation, sustain that existing. Further, we may clarify that this business is not a property held under trust, but one carried on the basis or by virtue of such property, being, for instance, 80 acres of land transferred from KINFRA; the capital infusion by GoI and GoK, etc. The income generated from it's business by the assessee, or, more precisely, the assets representing the same, again....