TaxTMI 
TaxTMI 
2024 (7) TMI 848
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....e Tax Act, 1961 [Act]. The aforenoted statutory provision enables the CBDT to certify the specified income of a body or authority constituted under a Central, State or Provincial enactment or one which is created by the Union or the State Governments with the object of regulating and administering any activity for the benefit of the general public and which is not engaged in any commercial activity to be exempt from taxation with the income so specified not being liable to be included in its total income of the previous year. 2. The impugned order has come to be passed based on an application made in November 2011 by NOIDA for being accorded the requisite certification under Section 10 (46) of the Act. The record would reflect that since the said application had remained pending for a considerable period of time, the petitioner was constrained to approach this Court by way of W.P.(C) 5574/2020 which came to be disposed of on 24 August 2020 with the Court directing the CBDT to decide the petitioner's application within 12 weeks. 3. As would be evident from a reading of the order impugned before us, the CBDT has principally drawn an adverse inference in light of NOIDA having ex....
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.... eschew any activity which is in the nature of commercial activity, otherwise it defeats the purpose of the provisions of the Act. 7.3 The financial statements furnished by the Authority shows that there are huge Loans and approximately Rs. 5,000 crores that have been advanced in FY 2018-19 and more than Rs. 5000 Crores in FY 2017-18 to various entities including private parties, which have no direct, immediate and fundamental connection with the role, objective, function and duties of the applicant. The applicant has earned huge interest income to the tune of Rs. 793 crores in AY 2018-19 and approx Rs. 350 crores in AY 2017-18. It is pertinent to mention that the money and funds received by the applicant are to be used for only planned development of the Municipal Services which shall be in the nature of public good. In fact, it is observed that the applicant Authority has advanced loans to private parties like M/s Amarpali Silicon City out of its funds. The activities of advancing such loans is in contravention of section 20 (2) of the UPID Act which provides that the fund shall be applied towards meeting the expenses incurred by the Authority in the administration of th....
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.... reference to meeting with your good self on 28.11.2014. Please find the list of income sought to be notified for the purpose of section 10 (46) of the Income Tax Act, 1961. Following income are requested to be notified for the purpose of section 10 (46): a. Grants received from the State Government b. Moneys received from the disposal/90 years lease of immovable properties c. Moneys received by the way of lease rent & fees or any other charges from the disposal/ 90 years lease of immovable properties d. The amount of interest earned on the funds deposited in the banks e. The amount of interest /penalties received on the deferred payment received from the Allotees of various immovable properties. f. Water, sewerage and other municipal charges from the Allotees of various immovable properties. Thanking You. Yours faithfully For New Okhla lndustrial Development Authority Authorised Signatory G.P. Singh Finance Controller NOIDA" 7. In a related development, the Allahabad High Court while ruling on ITA No. 107/2016 and other connected cases in CIT(E), Lucknow vs. M/s Yamuna Expressway Industrial Development A....
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....e consumed/utilised for meeting the expenses incurred by the "Industrial Development Authorities" in administration of UPIAD Act, 1976 and not for any other purpose. 59. Thus, whatever amount is received by "Industrial Development Authorities" under different heads, whether tax, rent, fee, sale consideration, etc., it has to be used in discharge of objectives and functions provided under UPIAD Act, 1976, for the benefit of general public. xxxx xxxx xxxx 71. The entire discussion, if we summarise, can be placed in a small arena of judicial analysis, that is, a body or institution which is functioning for advancement of objects of general public utility and its activities are not in the nature of trade, business or commerce and also not a sheer profit making, such institution is entitled to claim itself to be constituted for "charitable purposes" and seek registration under section 12A (1) of the Act, 1961." 8. Reverting to the application that was made by the writ petitioner, the CBDT in terms of its letter of 03 September 2013 sought an explanation with respect to the petitioner qualifying the requirements of Section 10 (46). This was responded to by t....
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....39;, placed the term by placing it in juxtaposition with 'impossibility' and assigned it a narrow meaning. With respect to the learned judges deciding Major Radha Krishan v. Union of India case (1996) 3 SCC 507 ; [1996] SCC (L and S) 761 we find ourselves not persuaded to assign such a narrow meaning to the term. 'Impracticable' is not defined either in the Act or in the Rules. In such a situation, to quote from Principles of Statutory Interpretation (Chief Justice G.P. Singh, 7th Edn., 1999, pages 258-59): When a word is not defined in the Act itself, it is permissible to refer to dictionaries to find out the general sense in which that word is understood in common parlance. However, in selecting one out of the various meanings of a word, regard must always be had to the context as it is a fundamental rule that 'the meanings of words and expressions used in an Act must take their colour from the context in which they appear'. Therefore, 'when the context makes the meaning of a word quite clear, it becomes unnecessary to search for and select a particular meaning out of the diverse meanings a word is capable of, according to lexicographers'.....
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....h was to establish and manage industrial estate on selected basis and to develop industrial area selected by the State Government and for this purpose acquire and transfer land by way of sale, lease, etc,. The contention of the petitioner therein that the Corporation established would be a trading one or a commercial corporation was rejected in the following words: "16. The petitioners contended that the Corporation was a trading one. The reasons given were that the Corporation could sell property, namely, transfer land ; that the Corporation had borrowing powers ; and that the Corporation was entitled to moneys by way of rents and profits. Reliance was placed on the report of the Corporation and in particular on the income and expenditure of the Corporation to show that it was making profits. 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 Corp....
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....he 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 agent of the development and growth of industrial towns by establishing and developing industrial estates and industrial areas. We are of opinion that the Corporation is not a trading one." 17. There are a number of decisions of the Delhi High Court on interpretation of the expression "in the nature of trade, commerce or business" in the proviso to section 2 (15) of the Act, for an institution carrying on the aforesaid activities is not a charitable institution under the residual category of advancement of any other object of general public utility. In Institute of Chartered Accountants of India v. DGIT (Exemptions) (2012) 347 ITR 99 (Delhi) referring to the meaning of the terms "commerce" and "business", it was held as under (page 123): "Section 2 (15) defines the term 'charitab....
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....business activity is with the intent to earn profit. For several enactments, concept and principle of "economic activity" and not profit motive has gained acceptance as in cases relating to taxability under the sales tax, excise duty, value added tax, etc. as these are not taxes on income, but the taxable event occurs because of the economic activity involved. The charge or incidence of tax can be on the "economic activity", whereas under the Act, i.e., the Income-tax Act, the charge is on income. The word "business", it was observed, is an etymological chameleon and it suits its meaning to the context in which it is found. It is not a term of legal art. This, as observed above, is equally true when we judicially interpret and define the expression "commercial activity" in the context of an enactment. xxxx xxxx xxxx 22. Now we would turn to the two decisions in the case of the petitioner itself. The first decision is by the Allahabad High Court in CIT (Exemption) v. Yamuna Expressway Industrial Development Authority/Greater Noida Industrial Development Authority reported in (2017) 395 ITR 18 (All). This was a case relating to registration under section 12AA read w....
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....need not be granted exemption. 28. Bar and negative stipulation in sub-clause (b) should not be interpreted as forbidding charging of fee, service charge or consideration while regulating and administering the activities for which the authority/body is established in general public interest. This would be impracticable and extremely restrictive and archaic interpretation. A more realistic, pragmatic and reasonable interpretation of the expression "any commercial activity" would be more acceptable and in consonance with the legislation in question. 29. At the same time it is apparent that all and every authority/body established by or under the statutory enactments or by Central or State Governments with the object of regulating and administering any activity for the benefit of public are not entitled to claim exemption, for otherwise sub-clause (b) of section 10 (46) would become superfluous and obtuse. We have to delineate and define the scope and ambit of disqualification envisaged by the words "any commercial activity" in sub-clause (b) of the said section. In the absence of any clear statutory definition elucidating these words, we have to outline a definitive....
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....at an authority/body satisfying the requirements of sub-clause (a) would not incur disentitlement under sub-clause (b) when it charges and receives money by way of fee, reimbursement or even consideration as rent or for transfer of rights in movable and immovable properties directly connected and having nexus with regulatory and administrative functions that they are obliged and mandated to perform and execute. Not to charge any fee or consideration for services rendered or for rights granted, specially from those who can afford, would be contrary to general public interest specified and stipulated in sub-clause (a) of section 10 (46) of the Act. 33. Therefore, we do not agree with the respondents that interpretation of the expression "any commercial activity" would include within its ambit and scope any activity for which fee, service charges or consideration is charged and paid. Equally, we would also not accept the specious and wide definition predicated only on the end use of the funds/income, and not the commercial manner in which income/funds are generated. The determinative test to be applied is to examine and answer whether or not the activity for which fee, servic....
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....e have also referred to the functions and objectives for which the petitioner is established. The said activities necessarily require money and funds, which are received from the State Government. The 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. The 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." 10. The judgment rendered in GNIDA was assailed by the respondents before the Suprem....
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....o which shall be credited- (a) all moneys received by the Authority from the State Government by way to grants, loans advances or otherwise; (b) all moneys borrowed by the Authority from sources other than the State Government by way of loans or debentures; (c) all fees, tolls and charges received by the Authority under this Act; (d) all moneys received by the Authority from the disposal of lands, buildings and other properties movable and immovable; and (e) all moneys received by the Authority by way of rents and profits or in any other manner or from any other sources (2) The fund shall be applied towards meeting the expenses incurred by the Authority in the administration of this Act for no other purposes. (3) Subject to any directions of the State Government, the Authority may keep in current account of any Scheduled Bank such sum of money out of its funds as it may think necessary for meeting its expected current requirements and invest any surplus money in such manner as it thinks fit. (4) The state Government may, after due appropriation made by Legislature by law in that behalf, make such grants, advanc....
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....t it was making profits. 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, State Electricity Board and the Housing Board. The functions and powers of the Corporation indicate that the Corporation is acting as a wing of the State Government in establishing industrial estates and developing industrial areas, acquiring property for those purposes, construct....
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....n 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 agent of the development and growth of industrial towns by establishing and developing industrial estates and industrial areas. We are of opinion that the Corporation is not a trading one." 15. Our attention was also drawn to a more recent decision rendered by the Supreme Court in CIT vs. Ah....
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....policy or scheme, for how the goods and services are to be distributed; in what proportion the surpluses, or profits, can be permissively garnered; are there are limits within which plots, rates or costs are to be worked out; whether the function in which the body is engaged in, is normally something a Government or State is expected to engage in, having regard to provisions of the Constitution and the enacted laws, and the observations of this Court in NDMC [NDMC v. State of Punjab, (1997) 7 SCC 339] ; whether in case surplus or gains accrue, the corporation, body or authority is permitted to distribute it, and if so, only to the Government or State; the extent to which the State or its instrumentalities have control over the corporation or its bodies, and whether it is subject to directions by the Government, etc. concerned. 206.4.6. As long as the statutory body, corporation, authority, etc. concerned while actually furthering a GPU object, carries out activities that entail some trade, commerce or business, which generates profit (i.e. amounts that are significantly higher than the cost), and the quantum of such receipts are within the prescribed limit [20% as mandated....
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....ime, in every case, the assessing authorities would have to apply their minds and scrutinise the records, to determine if, and to what extent, the consideration or amounts charged are significantly higher than the cost and a nominal markup. 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. 276. 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. whether it is at cost with a nominal markup or significantly higher, to determine if it falls within the mischief of "commercial activity". However, in the case of such notified bodies, there is no quantified limit in Section 10 (46). Therefore, the Central Government would have to decide on a case-by-case basis whether and to what extent, exemption can be awarded to ....
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....n's letter dated 7.5.2019 requesting for release of further amounts towards CIRP Cost. 6. Minutes of Meeting (held on 17.08.2013), dated 23.08.2013, issued by the Chief Secretary, Government of Uttar Pradesh, directing NOIDA to provide a loan of Rs. 100 to Agra Development Authority for developing "Agra Inner ring road" 7. Minutes of Meeting (held on 17.07.2014), dated 08.08.2014, issued by the Chief Secretary, Government of Uttar Pradesh, directing NOIDA to provide a loan amount of Rs. 479 Crores to Uttar Pradesh State Industrial Development Corporation ("UPSIDC") for the establishment of theme park in Agra and True Translation. 8. Memorandum of Understanding dated 18.01.2019 between NOIDA and Uttar Pradesh State Bridge Corporation Limited ("UPSBC") for DPR and Construction of Elevated corridor from Delhi to Noida along Shahadara Drain. 9. Memorandum of Understanding dated 10.04.2008 between NOIDA and Uttar Pradesh Rajkiya Nirman Nigam ("UPRNN") for 'construction of boundary wall to secure Sector 95, Noida'. 10. Memorandum of Understanding dated 16.10.2014 between NOIDA and Uttar Pradesh Rajkiya Nirman Nigam ("UPRNN") for 'appointment ....
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....ing identical to GNIDA and YEIDA both of which are authorities which also owe their genesis to the UPID Act and have been accorded certification under Section 10 (46). According to learned Senior Counsel, there thus existed no rationale or justification for the petitioner having been denied identical reliefs. It was in the aforesaid context that Mr. Singh contended that the judgment rendered by this Court in GNIDA squarely applies and the impugned order is consequently liable to be quashed and set aside. 20. It was lastly submitted that during the course of consideration of the application that was originally made, the respondents had sought various clarifications from time to time and all of which were duly attended to with the petitioner clarifying that it was not undertaking any activities of a commercial nature. Our attention was drawn to the various responses which were placed for the consideration of the respondents and details whereof have been set forth in tabular form as under: - "QUERIES BY CBDT AND RESPONSES BY NOIDA QUA NATURE OF ACTIVITY S. PARTICULARS (of correspondence by the Department Revenue) RESPONSE (of NOIDA-Petitioner) 1. Revenue's letter ....
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....eking certification being found to have been established or constituted under a Central, State or Provincial Act, it has to be further established that the said entity has been created with the avowed objective of discharging functions for the benefit of the general public and is not engaged in any commercial activity. 22. Mr. Bhatia submitted that from the financial statements which were tendered by the petitioner it is apparent that it had advanced loans of more than INR 5,000 crores to various entities including private parties and which had no direct or fundamental connection with the objective and duties statutorily placed upon the petitioner. It was further submitted that the financial statements revealed that the petitioner had earned INR 793 crores in Assessment Year [AY] 2018-19 and INR 350 crores in AY 2017-18 as interest income. 23. Mr. Bhatia drew our attention to Section 6 of the UPID Act to contend that none of its provisions contemplate loans being advanced by the petitioner to other entities, whether they be governmental or otherwise. Learned counsel also relied upon Section 20 (2) of the UPID Act and on the basis whereof he submitted that the funds standing i....
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....ieving 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." 27. It was in the aforesaid backdrop that Mr. Bhatia submitted that since the petitioner had been found to be regularly and on a systematic basis engaging in advancement of loans and earning interest income, it becomes apparent that it was indulging in commercial activity and consequently would not satisfy the tests enumerated in Section 10 (46). 28. Having noticed the rival submissions which were addressed, we find that although a string of communications was exchanged between the petitioner and the respondents calling upon the former to provide all financial details, the petitioner does not appear to have been specifically placed on notice to answer or tender any explanation with respect to the amount of interest income that was earned from bonds, shares and fixed deposits. Insofar as this aspect is concerned, one must also bear in mind that such interest income was....
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....o allocate and transfer either by way of sale or lease or otherwise plots of land for industrial, commercial or residential purposes; (g) to regulate the erection of buildings and setting up of industries: and (h) to lay down the purpose for which a particular site or plot of land shall be used, namely for industrial or commercial or residential purpose or any other specified purpose in such area" 32. The power of the petitioner to sell, lease or otherwise transfer any land or building belonging to it stands conferred by virtue of Section 7. Section 11 enables the authority to levy such taxes with the previous approval of the State Government as it may consider necessary in respect of any site or building situate in the industrial development area. Chapter VII of the UPID Act proceeds to incorporate provisions pertaining to Finance, Accounts and Audit. The subject relating to the funds of the authority is regulated by Section 20 which reads as follows: - "Section 20: Fund of the Authority- (1) The authority shall have and maintain its own fund to which shall be credited- (a) all moneys received by the Authority from the State Governme....
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.... or immovable, and credit the same to its Fund. Of significance is clause (e) of Section 20(1) and which speaks of monies received by the authority by way of "rents and profits or in any other manner or from any other sources". The accounts of the petitioner are liable to be audited by the Accountant General, U.P. or the Comptroller and Auditor General of India. 34. Section 41 deals with the control that the State Government may exercise over an authority constituted under the Act. That provision, as borrowed from the Uttar Pradesh Urban Planning and Development Act, 1973 reads thus: - "41. Control by State Government - (1) The (Authority, the Chairmen or the Vice-Chairman) shall carry out such directions as may be issued to it from time to time by the State Government for the efficient administration of this Act. (2) If in, or in connection with the exercise of its power and discharge of its functions by the (Authority, the Chairman or the vice-Chairman) under this Act any dispute arises between the (Authority, the Chairman of the Vice Chairman) and the State Government the decision of the State Government on such dispute shall be final. (3) ....
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....ed statement reflective of the financials of the petitioner appears at page 1105 of our record. It becomes apparent from a perusal of the said financial statement that the assumption of the respondents that it was a profit-making entity or in the nature of a trading entity stands completely negated. This we observe considering the disclosures which appear therein and constitute evidence of the nominal margin between its income and expenditure. 37. Insofar as the various loans extended by it are concerned, the same was explained in the written note as being disbursements and loan facilities extended to various corporations of the State Government in terms of directions issued to it by the Government of Uttar Pradesh. It was in the aforesaid context that it had been argued that the petitioner being bound to act in terms of the directives of the State Government had no option but to act in accordance therewith. Details of the directives issued by the State Government to the petitioner have already been extracted hereinabove. It would be pertinent to recall that Section 41 of the U.P. ID Act empowers the State Government to issue such directions from time to time. 38. The petitio....
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....endered wholly unsustainable. 40. The Court finds that admittedly both GNIDA as well as YEIDA are authorities which stand constituted under the provisions of the UPID Act and stand created for the development of industrial development areas on lines identical to those which the petitioner is statutory obliged to pursue. It is also an admitted position before us that both GNIDA and YEIDA were ultimately granted the requisite certification contemplated under Section 10 (46) of the Act. From the explanation which has been proffered by the petitioners before us in these proceedings we are also inclined to accept their contention that the funding facilities which were extended to other governmental entities working under the aegis of the Government of U.P. was essentially to aid the development activities that the petitioner was liable to undertake in the industrial development area. Thus, in our considered opinion, the respondents clearly appear to have erred in viewing the extension of loans to such government entities as amounting to a commercial venture undertaken by the petitioners. 41. One of the allied issues which was raised by the respondents appears to be in respect of c....
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....State Government or loans and advances received but also all rents, profits and all other income derived from various sources. The income derived from other sources once credited to the Fund loses all characteristics of independence and becomes part of the larger corpus that the authority holds. It is this Fund so created and constructed which is then liable to be applied in accordance with Section 20 (2). We note that the respondents did not dispute the assertion that interest income had been ploughed back for the purposes of carrying out the statutory functions and duties cast upon the petitioner. In view of the above, we have no hesitation in holding that the respondents have taken a wholly erroneous view in denying exemption under Section 10 (46). 44. As is manifest from a reading of Section 10 (46), the statute creates a disqualification if it be found that the entity claiming exemption was engaged in commercial activity. As was aptly held by this Court in GNIDA, the expression 'commercial activity' is liable to draw colour from the word 'commerce'. It was in the aforesaid context that our Court pertinently held that the phrase 'commercial activity' would be an expression o....
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....owers of the Corporation indicate that the Corporation is acting as a wing of the State Government in establishing industrial estates and developing industrial areas, acquiring property for those purposes, constructing buildings, allotting buildings, factory sheds to industrialists or industrial undertakings. It is obvious that the Corporation will receive moneys for disposal of land, buildings and other properties and also that the Corporation would receive rents and profits in appropriate cases. Receipts of these moneys arise not out of any business or trade but out of sole purpose of establishment, growth and development of industries. .. 19. There are two provisions of the Act which are not to be found in any trading Corporation. In the first place, the sums payable by any person to the Corporation are recoverable by it under this Act as an arrear of land revenue on the application of the Corporation. Secondly, on dissolution of the Corporation the assets vest in and the liabilities become enforceable against the State Government. 20. The underlying concept of a trading Corporation is buying and selling. There is no aspect of buying or selling by the Corporati....
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....hi) referring to the meaning of the terms "commerce" and "business", it was held as under (page 123): "Section 2 (15) defines the term 'charitable purpose'. Therefore, while construing the term 'business' for the said section, the object and purpose of the section has to be kept in mind. We do not think that a very broad and extended definition of the term 'business' is intended for the purpose of interpreting and applying the first proviso to section 2 (15) of the Act to include any transaction for a fee or money. An activity would be considered 'business' if it is undertaken with a profit motive, but in some cases this may not be determinative. Normally, the profit motive test should be 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 in fact in the nature of business. The test as prescribed in ....
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....Now we would turn to the two decisions in the case of the petitioner itself. The first decision is by the Allahabad High Court in CIT (Exemption) v. Yamuna Expressway Industrial Development Authority/Greater Noida Industrial Development Authority reported in (2017) 395 ITR 18 (All). This was a case relating to registration under section 12AA read with section 2 (15) of the Act. The nature of activities undertaken by the petitioner were extensively examined and considered and the contention raised by the Revenue was rejected. In other words, the petitioner was entitled to registration under section 12AA read with section 2 (15) of the Act. xxxx xxxx xxxx 25. Having considered varied and different dimensions and contours associated with the expression "commercial activity", we would like to pen down why and for what reason, we perceive and believe that a wider definition or criteria of "economic activity" should not be applied when we interpret the said expression "commercial activity" for the purpose of section 10 (46) of the Act. 47. Dealing specifically with Section 10 (46) the Court in GNIDA held: "26. Object and purpose behind section 10 (46) is to ....
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....ny activity for the benefit of public are not entitled to claim exemption, for otherwise sub-clause (b) of section 10 (46) would become superfluous and obtuse. We have to delineate and define the scope and ambit of disqualification envisaged by the words "any commercial activity" in sub-clause (b) of the said section. In the absence of any clear statutory definition elucidating these words, we have to outline a definitive and clear standard and test to be applied. 30. Any activity undertaken with profit motive and intent would be certainly commercial activity. Authorities/bodies set up or created by the Government with commercial purposes and objects are not entitled to exemption. This cannot be debated and challenged. Equally, reference to expansive and wider interpretative meaning attributed to the expression "charitable purpose" defined in section 2 (15), vide earlier judgments including Addl. CIT v. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1 (SC) would not be apposite and constitute affirmative precedent in view of the strict mandate and contrary language of sub-clause (b) of section 10 (46) of the Act. Any commercial activity undertaken with profi....
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.... then proceeded to negate the contention of the respondent there and who appear to have asserted that any activity for which a fee or consideration were charged or paid would fall within the ambit of the phrase 'commercial activity'. This is evident from the following passages of the said decision: "33. Therefore, we do not agree with the respondents that interpretation of the expression "any commercial activity" would include within its ambit and scope any activity for which fee, service charges or consideration is charged and paid. Equally, we would also not accept the specious and wide definition predicated only on the end use of the funds/income, and not the commercial manner in which income/funds are generated. The determinative test to be applied is to examine and answer whether or not the activity for which fee, service charge or consideration was charged and paid, was intrinsically associated, connected and had immediate nexus with the object of regulating and administering the activity for the benefit of general public. Further, the activity should also not run on commercial lines, i.e., with the profit motive and intent to earn profit but given the regulatory and....
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....fer 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. The 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." 50. The Court in GNIDA had also cited with approval a decision handed down by the Allahabad High Court in respect of a similar claim laid by YEIDA in respect of its prayer for classification under Section 11 of the Act. The Allahabad High Court upon an extensive review of the provisions of the UPID Act in the YEIDA judgment, and which has been noticed by us hereinabove, had held as under: "61. The aforesaid observations appli....
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....ities are not in the nature of trade, business or commerce and also not a sheer profit making, such institution is entitled to claim itself to be constituted for "charitable purposes" and seek registration under section 12A (1) of the Act, 1961." 51. More recently, the Supreme Court in Ahmedabad Urban Development Authority, had an occasion to review Sections 2 (15) and 10 (46) of the Act. While dealing with statutory corporations, authorities or bodies and their claim for being treated as entities engaged in activities which could be viewed as charitable, the Supreme Court makes the following pertinent observations: "193. 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, the learned counsel 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 ....
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....ng the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-***(20-A) any income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both;"] . This Court had occasion to deal with the provision while it was in force in the GIDC case [Gujarat Industrial Development Corpn. v. CIT, (1997) 7 SCC 17 : 1997 Supp (3) SCR 466]. The Court had then emphasised that the expression "development" in Section 10 (20-A) should be understood widely; thus, all development programmes "relating to any industry" fell within the purview of "development". The Court also highlighted that nothing in the IT Act laid down how a corporation could be termed as a development corporation nor was there anything mandating that fee chargeable by such corporations was confined to non-industrial activities. 196. The decision in Gujarat Maritime Board [CIT v. Gujarat Maritime Board, (2007) 14 SCC 704 : (2007) 12 SCR 962] was rendered in the cont....
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....hall not be included- ***(46) any specified income arising to a body or authority or Board or Trust or Commission (by whatever name called) or a class thereof which- (a) has been established or constituted by or under a Central, State or Provincial Act, or constituted by the Central Government or a State Government, with the object of regulating or administering any activity for the benefit of the general public; (b) is not engaged in any commercial activity; and (c) is notified by the Central Government in the Official Gazette for the purposes of this clause.]. The conditions for applicability of Section 10 (46) i.e. that specified income or a class of specified income of ports, trusts or commissions, etc. established or constituted by or under Central or State enactments with the object of regulating or administering any activity in the general public, is on similar lines as in the case of GPU charities. Like in the case of GPU charities, there is a prohibition by Section 10 (46) (b) against such corporations, etc. engaging in commercial activity. This restriction has been introduced for the first time [as that prohibition was absent i....
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....ommercial activity" under Section 10 (46), it was held that the decisive test is whether the activities for which consideration in the form of fee, service charge, etc. is collected, is "intrinsically associated, connected and had minimum nexus with the object of regulating and administering the activity for the benefit of the public". It was also held that if the activity is not carried on commercial lines i.e. with the profit motive in mind, but the body is assigned an administrative role, having regard to the objects of the controlling statute or law, exemption cannot be denied under Section 10 (46). As juxtaposed, activities for profit or activities which clearly were motivated by profit - carried on by Government or statutory bodies, cannot avail of exemption. The judgment in Yamuna Expressway Industrial Development Authority [CIT v. Yamuna Expressway Industrial Development Authority, 2017 SCC OnLine All 3848 : (2017) 395 ITR 18] is along the similar lines. 201. As far as boards and corporations which are tasked with development of industrial areas, by statute, the judgments of this Court, in Shri Ramtanu Coop. Housing Society [Shri Ramtanu Coop. Housing Society Ltd. ....
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.... industries. 17. The Corporation has to provide amenities and facilities in industrial estates and industrial areas. Amenities of road, electricity, sewerage and other facilities in industrial estates and industrial areas are within the programme of work of the Corporation. The fund of the Corporation consists of moneys received from the State Government, all fees, costs and charges received by the Corporation, all moneys received by the Corporation from the disposal of lands, buildings and other properties and all moneys received by the Corporation by way of rents and profits or in any other manner. The Corporation shall have the authority to spend such sums out of the general funds of the Corporation or from reserve and other funds. The Corporation is to make provision for reserve and other specially denominated funds as the State Government may direct. The Corporation accepts deposits from persons, authorities or institutions to whom allotment or sale of land, buildings, or sheds is made or is likely to be made in furtherance of the object of the Act. A budget is prepared showing the estimated receipts and expenditure. The accounts of the Corporation are audited by an a....
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....ustrial Areas Development Act, 1966) tasked the boards with planning and development of industrial areas. Their personnel are appointed under the enactments and are deemed to be public servants. The State Government is empowered to acquire land, in exercise of eminent domain power, for their purposes; their audits are by the Accountant General of the State concerned, or auditors appointed by the State. They are authorised by law, to levy rates and charges, for the services they provide, on predetermined basis. In the light of these provisions, clearly, these boards and authorities perform objects of general public utility; and they are not driven by profit motive. 203. There is a twofold distinction between the now-deleted Section 10 (20-A) and the newly added Section 10 (46) (w.e.f. 1-6-2011). Firstly, that the erstwhile Section 10 (20-A) applied to a limited class of undertaking i.e. the bodies, or corporations, constituted by or under any law-confined to the planning and development of housing infrastructure. However, the newly added Section 10 (46) is wider in comparison and the activities of any body or authority or board constituted by or under any Central or State A....
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.... the above discussion, this Court is of the opinion that: 206.1. The fact that bodies which carry on statutory functions whose income was eligible to be considered for exemption under Section 10 (20-A) ceased to enjoy that benefit after deletion of that provision w.e.f. 1-4-2003, does not ipso facto preclude their claim for consideration for benefit as GPU category charities, under Section 11 read with Section 2 (15) of the Act. 206.2. Statutory corporations, boards, authorities, commissions, etc. (by whatsoever names called) in the housing development, town planning, industrial development sectors are involved in the advancement of objects of general public utility, therefore are entitled to be considered as charities in the GPU categories. 206.3. Such statutory corporations, boards, trusts, authorities, etc. may be involved in promoting public objects and also in the course of their pursuing their objects, involved or engaged in activities in the nature of trade, commerce or business. 206.4. The determinative tests to consider when determining whether such statutory bodies, boards, authorities, corporations, autonomous or self-governing governm....
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....nt or State is expected to engage in, having regard to provisions of the Constitution and the enacted laws, and the observations of this Court in NDMC [NDMC v. State of Punjab, (1997) 7 SCC 339] ; whether in case surplus or gains accrue, the corporation, body or authority is permitted to distribute it, and if so, only to the Government or State; the extent to which the State or its instrumentalities have control over the corporation or its bodies, and whether it is subject to directions by the Government, etc. concerned. 206.4.6. As long as the statutory body, corporation, authority, etc. concerned while actually furthering a GPU object, carries out activities that entail some trade, commerce or business, which generates profit (i.e. amounts that are significantly higher than the cost), and the quantum of such receipts are within the prescribed limit [20% as mandated by the second proviso to Section 2 (15)] - the statutory or government organisations concerned can be characterised as GPU charities. It goes without saying that the other conditions imposed by the seventh proviso to Section 10 (23-C) and by Section 11 have to necessarily be fulfilled. 206.5. As a con....
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....bserved, bodies like the petitioner, are intended to act as an "architectural agent" of development and growth. 53. In our considered opinion, the respondents have clearly erred in holding that the loans and advances extended by the petitioner would fall within the ambit of commercial activity. The aforesaid conclusion not only fails to bear in consideration the directives of the State Government which prompted and facilitated the said action, the grant of those loans has also not been established to have been motivated with a view to profiteer. As was noticed hereinabove, past precedents rendered in the context of Sections 2 (15) and 10 (46) guide us in this regard to apply the test of activities undertaken with a profit motive and intent. That clearly does not appear to be the case which obtains here. 54. We additionally find that some of those loans came to be extended to finance activities supportive and supplemental to the development activity that was liable to be undertaken by the petitioner. The finding in the impugned order that the petitioner had advanced loans to private entities such as M/s Amarpali Silicon City has been found to be factually incorrect. Equally de....