TaxTMI 
TaxTMI 
2026 (5) TMI 1135
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.... a consolidated order. 2. The brief facts of the case are that the assessee, Gujarat Maritime Board, filed its return of income for Assessment Year 2017-18 claiming exemption under sections 11 and 12 of the Income-tax Act, 1961 ("the Act") and treating its capital expenditure as application of income. The case was selected for complete scrutiny and during the course of assessment proceedings the Assessing Officer examined in depth the nature of the assessee's statutory functions, its audited accounts, the sources of its receipts, the quantum of surplus generated, the pattern of its investments, the claim of depreciation on fixed assets and the treatment of tax deducted at source in the computation of income. 3. During assessment, the Assessing Officer observed that the assessee was constituted under the Gujarat Maritime Board Act, 1981 for development and management of minor ports in the State and that its objects fell within the limb of "advancement of any other object of general public utility". However, after analysing the income and expenditure account and various schedules, he found that the assessee was earning substantial receipts from port infrastructure facilities, m....
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....on, the claim of depreciation for the year under consideration was required to be disallowed. The Assessing Officer accordingly made an addition of Rs. 30,47,53,583/- and initiated penalty proceedings under section 270A for under-reporting of income on this account. 5.1. The Assessing Officer also examined the computation of income in relation to tax deducted at source and observed that the assessee had reduced or claimed benefit of TDS amounting to Rs. 49,69,11,568/- while the corresponding receipts were already included in gross income. The Assessing Officer was of the view that the assessee was assessed as an Association of Persons and that, under section 198 of the Act, tax deducted at source is deemed to be income received by the assessee, he held that the assessee could not again reduce that amount in computation. Accordingly, the Assessing Officer added the entire sum of Rs. 49,69,11,568/- to total income and penalty proceedings were again initiated. 5.2. On the basis of denial of exemption under sections 11 and 12, invocation of section 13(1)(d), disallowance of depreciation and addition of TDS, the Assessing Officer recomputed the total income at Rs. 4,75,88,42,670/-....
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....der sections 11 and 12 and invocation of section 13(1)(d) of the Act, the Commissioner (Appeals) noted that the Assessing Officer himself had stated that the additions were being made merely to "keep the issue alive" because similar matters were pending before higher courts, notwithstanding that the Tribunal had earlier decided in favour of the assessee. Considering the statutory character of the assessee, the nature of its functions and the principle of consistency, CIT(Appeals) held that there was no justification for again withdrawing exemption and invoking section 13(1)(d). Ld. CIT(A) therefore deleted the denial of exemption under sections 11 and 12 and set aside the application of section 13(1)(d) of the Act. 10. On the issue of dividend income, the Commissioner (Appeals) observed that there was no specific discussion in the assessment order and directed the Assessing Officer to verify the matter and take action in accordance with law. 10.1. The Ld. CIT(A) also dealt with the grievance relating to short grant of TDS credit of Rs. 1,55,50,896/- and directed the Assessing Officer to verify the figures from Form 26AS and allow further credit, if admissible, while giving ef....
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....iation as per Income-tax Act, 1961 which had never been claimed and granted as an application of income under Section 11(6) in same or any earlier previous year. ii. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 14. We observe that facts and issues for consideration are common all assessment years before us and accordingly our observations for assessment year 2017-18 will also apply to other years before us. We shall first discuss Grounds of Appeal raised by the Department: Ground Number 1: CIT(Appeals) erred in holding that the assessee is eligible for deduction u/s 11 and 12 of the Act ignoring that the assessee is hit by Proviso to section 2(15) r.w.s. 13(8) of the Act because the assessee is rendering services in a commercial manner and for profit motives 15. Before us. Ld. Departmental Representative submitted that in view of the latest and authoritative pronouncement of the Hon'ble Supreme Court in the case of ACIT (Exemptions) vs. Ahmedabad Urban Development Authority & others dated 19.10.2022, the legal position governing institution....
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....assessments could be made for other years by applying the law declared. Ld. Departmental Representative pointed out that by order dated 03.11.2022 the Hon'ble Supreme Court clarified that its conclusions were final only for the specific assessment years before it and that for other years the authorities were free to apply the law declared in the judgment after examining the facts of each year independently. On the strength of this clarification, the Ld. Departmental Representative argued that the Department is fully entitled to examine the assessee's activities year by year and to test them against the amended proviso to section 2(15) of the Act. 16.2 Coming to the facts of the present year, Ld. Departmental Representative submitted that a perusal of the income and expenditure account of the assessee clearly demonstrates that it is engaged in large-scale commercial operations. He placed before the Bench a tabulation showing that the assessee's total receipts for the year amounted to Rs. 747,91,16,269/-, comprising substantial receipts from port infrastructure, marine services, clearing and stevedoring, storage and land rentals, harbour craft rentals, ship recycling yard, ship bu....
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....and in denying exemption is fully justified and deserves to be upheld. 18. In response, the counsel for the assessee submitted that the elaborate judgment of the Supreme Court in the Ahmedabad Urban Development Authority batch of appeals furnishes a comprehensive legal framework which squarely supports the claim of Gujarat Maritime Board for exemption under sections 11 and 12 of the Act and demonstrates that it is not ipso facto hit by the proviso to section 2(15) of the Act. The counsel for the assessee submitted that AUDA itself was a statutory authority constituted under the Gujarat Town Planning and Urban Development Act, 1976 for preparing and executing town-planning schemes and that, despite the Assessing Officer, the Commissioner (Appeals) and the Tribunal having denied its claim by invoking the proviso to section 2(15) of the Act, the Supreme Court undertook a wide-ranging analysis of the legislative history of that provision and its interaction with sections 10, 11, 12 and 13 of the Act. The counsel for the assessee referring to paragraphs 133 to 138, submitted that the Hon'ble Supreme Court traced the amendments to section 2(15) from 2008 to 2015 and clarified that....
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.... denying exemption. The counsel then drew particular attention to relevant paragraphs where the Court dealt at length with statutory corporations and authorities. It was submitted that Hon'ble Supreme Court has held that statutory bodies supplying essential public services should not ordinarily have their receipts treated as commercial, because doing so would defeat the very object of general public utility. Paragraph 179 was highlighted as being of decisive importance for Gujarat Maritime Board, because there the Supreme Court referred to its earlier ruling in CIT v. Gujarat Maritime Board and categorically rejected the Revenue's contention that once a body ceases to be a "local authority" under section 10(20) it cannot seek exemption under section 11 of the Act. The Hon'ble Supreme Court held that sections 10(20) and 11 of the Act operate in different spheres and that even if the Board was not a local authority, it could still claim exemption under section 11 by satisfying section 2(15) of the Act. The Hon'ble Supreme Court also relied on the decision in Andhra Pradesh Road Transport Corporation to show that statutory corporations carrying out public functions can qualify as GPU ....
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....er sections 11 and 12 and not hit by the proviso to section 2(15) merely because it collects statutory charges in the course of performing its public maritime and port-development functions. 19. We have heard the rival contentions and perused the material on record. 20. The issue which arises for our adjudication is whether the assessee-a statutory authority constituted under a State enactment and entrusted with development and infrastructure-related public functions-is entitled to exemption under sections 11 and 12 of the Act, or whether its activities fall within the mischief of the proviso to section 2(15) of the Act so as to deny such exemption. The learned Departmental Representative has relied upon the amendments introduced in section 2(15), section 13(8) and allied provisions to contend that the assessee is engaged in activities generating substantial receipts and surplus and that such activities partake the character of trade, commerce or business. According to him, the charging of fees, levies or consideration for allotment of land and provision of amenities clearly attracts the proviso to section 2(15), and therefore the assessee ceases to be a charitable institutio....
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....elopment Authority reported in [2025] 179 taxmann.com 463 / [2025] 307 Taxman 382 (SC), the Hon'ble Supreme Court reiterated that the AUDA decision lays down the determinative tests for deciding whether a development authority serves a charitable purpose and that those principles must be applied to the admitted facts of each case. The remand in that case was occasioned only because the High Court had not analysed the factual matrix; significantly, the Supreme Court reaffirmed that AUDA governs the field and must guide all such adjudications. 20.3 Coming to the High Court decisions on this issue, we find that the Punjab & Haryana High Court in Commissioner of Income-tax v. Haryana Rural Development Fund Administration Board [2024] 165 taxmann.com 379 (P&H) has held that a Statutory board constituted for augmenting agricultural production and rural infrastructure, undertaking activities such as construction of roads, dispensaries, water supply, sanitation and storage facilities and collecting statutory fees for such purposes, was clearly engaged in advancement of objects of general public utility even under the amended definition in section 2(15) of the Act, and was therefore enti....
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....d certain heads of income highlighted by him during the course of hearing, the assessee falls within the mischief of the proviso to section 2(15) of the Act. The learned Departmental Representative has drawn our attention to the audited accounts of the assessee and submitted that the assessee earns substantial income from port charges, wharfage, berth hire, pilotage, vessel traffic services, lease rentals from port lands, interest income on deposits and other user charges. It was contended that the magnitude of such receipts, the consistent generation of surplus year after year and the accumulation of reserves demonstrate that the assessee is functioning on commercial lines akin to a business enterprise rather than as a charitable institution. According to him, the assessee competes with private port operators, levies market-linked tariffs and enters into concession agreements with private entities, which, in his submission, establishes that its dominant character is commercial and profit-oriented. 23. We have carefully considered these submissions and examined the factual material placed on record, including the financial statements and the break-up of receipts relied upon by t....
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....utory purposes. On the contrary, the accounts show that surpluses are earmarked for port development, dredging projects, safety infrastructure, expansion of facilities, coastal protection works and creation of capital assets necessary for the performance of statutory obligations. The Hon'ble Supreme Court in AUDA has expressly recognised that even where statutory authorities generate surplus in the course of carrying out public utility functions, such surplus does not ipso facto render their activities commercial, so long as it is ploughed back into achieving the statutory objects and the activities themselves are intrinsically connected with those objects. 25. The learned Departmental Representative has also referred to concession agreements with private operators and leasing of port lands as indicative of commercial exploitation. We are however, unable to accept this contention in the abstract. The development of port infrastructure through public-private participation, grant of concessions for operation of terminals and leasing of land within port limits for port-related activities are now recognised modes adopted by statutory port authorities to fulfil their developmental ma....
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....s, lease rentals for port land, harbour craft charges and other port-related user fees. On an overall appreciation of the statutory scheme and the material on record, these receipts are found to arise directly from the discharge of statutory port management and regulatory functions. These services are inseparable from the obligation of the Board to ensure safe, efficient and regulated maritime operations. The charges levied are not the result of unfettered commercial pricing but are governed by statutory provisions, governmental resolutions and regulatory oversight. The Hon'ble Supreme Court in Ahmedabad Urban Development Authority (supra), particularly in paragraphs 153, 176 and 190(iv)(a), has clarified that recovery of fees or consideration in the course of performing statutory public functions does not, by itself, render the activity commercial, where such recovery is intrinsically linked to the execution of public utility objects. In the present case, there is no material to indicate that the Board carries on any activity unrelated to its statutory mandate or that the services rendered are driven by an independent profit motive divorced from port development and maritime regul....
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....ecorded a categorical finding that there is no discussion whatsoever in the assessment order dated 29.12.2019 regarding the basis or reasoning for denial of the said claim. The CIT(Appeals) has further observed that even in the written submissions filed before him, the Assessing Officer had not elaborated the factual or legal foundation for such disallowance. In these circumstances, the learned Commissioner (Appeals) held that the matter required fresh verification at the assessment stage and, accordingly, directed the Assessing Officer to examine the claim and to take necessary action in accordance with law after due verification. 29. In our considered view, the learned Commissioner (Appeals) has exercised his appellate jurisdiction correctly and in accordance with law in directing the Assessing Officer to verify the assessee's claim of deduction of dividend income of Rs. 10,60,42,236 and to pass a fresh order after carrying out necessary enquiries and after granting adequate opportunity to the assessee. 30. Accordingly, we find no infirmity in the order of Ld. CIT(A) so as to call for any interference. Ground Number 3: CIT(Appeals) erred in holding that AO was incorrect ....
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....rlier years. Prior to this, contradictory rulings existed, but current law upholds this restriction. Therefore, if a charitable trust claims one hundred percent cost of an asset as application of income under Section 11(1) of the Act, it cannot claim depreciation on that same asset in the same or future years. 33.1. Before us, the counsel for the assessee submitted that the issue may be set aside to the file of CIT(Appeals) for carrying out necessary verification and give appropriate relief with respect to cost of those assets for which the assessee never claimed application of income and therefore for which the assessee is entitled to claim depreciation thereon since the same does not amount to double deduction. 34. Accordingly, we are restoring the matter to the file of Assessing Officer for carrying out necessary verification and give appropriate relief in accordance with law. 35. In the result, Ground Number 1 of the appeal of the assessee is allowed for statistical purposes. Now we shall deal with the assessee's and Department's appeal for Assessment Year 2018-19 36. The assessee has raised the following Grounds of Appeal: i. Ld. CIT(A) erred in law and....
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.... v. This is further to certify that the tax effect involved in the present case is Rs. 84,73,02,571/- which is above the monitory limit specified in the CBDT's Circular no. 17/2019 dated 08.08 2019. 40. Ground Number 1 of the Department's appeal has already been decided while dealing with the Department's appeal in Ground Number 1 for assessment year 2017-18. 41. Accordingly, Ground Number 1 of the Department's appeal is dismissed. 42. Ground Numbers 2, 3 and 4 of the Department's appeal has already been decided while dealing with the Department's appeal in Ground Number 2 and 3 for assessment year 2017-18. 43. Accordingly, Numbers 2, 3 and 4 of the Department's appeal are allowed for statistical purposes subject to verification. Now we shall deal with the assessee's and Department's appeal for Assessment Year 2019-20 44. The assessee has raised the following Grounds of Appeal: i. Ld. CIT(A) erred in law and on facts in confirming addition of Rs. 45,87,24,415 being Depreciation as per Income-tax Act, 1961 which had never been claimed and granted as an application of income under Section 11(6) in same or any earlier previous year. ii. The ap....