2023 (4) TMI 32 - AT - Income Tax

Exemption u/s 11 - Activities carried out by the assessee are in the nature of business and are governed by the provisions of section 11 (4) of the Act and the first and second proviso to section 2 (15) - HELD THAT - As decided in assessee own case 2020 (7) TMI 272 - ITAT AHMEDABAD the activities carried out by the assessee is for advancement of any other object of general public utility without any intention of the profit motive after considering the provision of the Gujarat Maritime Board Act, 1981 and fact of the case, it cannot be said that the activities carried out by the assessee are in the nature of trade commerce or business. It is observed that predominant object of the assessee is to administer control on miner ports in the State of Gujarat and there is no profit motive as demonstrated by the provision of section 73, 74 and 75 of the Gujarat Maritime Board Act, 1981. The Gujarat Maritime Board is under legal obligation to apply the income which arises directly and substantially from the business held under trust for the development of minor ports in the state of Gujarat. Further after following the decision of Hon'ble Gujarat High Court in the case of AUDA 2022 (10) TMI 948 - SUPREME COURT and GIDC 2017 (7) TMI 811 - GUJARAT HIGH COURT , the fees collected by the assessee is incidental to the object and purpose of attainment of the main object for development of mining ports as enumerated in the provision of the Gujarat Maritime Board Act, 1981,therefore, we consider that activity of the assessee is for advancement of any other object of general public utility and not hit by the proviso to section 2(15) of the act, therefore, the assessee is entitled for exemption u/s. 11 - Appeal of the assessee is allowed. Assessee has violated section 11(2)(b) r.w.s. 11(5) - violation of provisions of section 11(5) of the Act on the ground that investments were made by the assessee in companies which were not public sector companies as defined in section 2(36A) - HELD THAT - Only the relevant income falling within the mischief of section 13(1)(d) of the Act will lose the benefit of exemption under section 11 and 12 of the Act and the balance of the total income of the trust will remain eligible for the benefit of exemption under section 11 of the Act. In other words, violation of section 13(1)(d) cannot lead to denial of exemption under section 11 and 12 of the Act, to the total income of the trust. Addition of TDS being outrightly deducted from income available for application purposes - whether the amount deducted as TDS should also be considered for the purpose of application of income? - HELD THAT - In the case of CIT v. Ganga Charity Trust Fund 1985 (10) TMI 67 - GUJARAT HIGH COURT held that payment of income-tax by assessee, a charitable trust, was a charge on income or outgoing which ought to be deducted before determining surplus income for purpose of application under section 11(1)(a) of the Act. Again, in the case of CIT v. Jayashree Charity Trust 1984 (12) TMI 30 - CALCUTTA HIGH COURT the High Court held that where net dividend received by assessee after deduction of tax at source was spent for charitable purposes, assessee was entitled to benefit of exemption on that portion of income which had been taken away by deduction of tax at source even though that amount had not been spent or accumulated for purposes of charity.

Summary

Issues Involved:
1. Nature of activities carried out by the assessee and applicability of Section 2(15) and Section 11(4) of the Act.
2. Violation of Section 11(2)(b) read with Section 11(5) of the Act.
3. Addition of TDS amount to income available for application purposes.
4. Non-grant of TDS credit.
5. Department's appeal regarding denial of benefits under Section 11 and 12, and allowance of depreciation.

Summary:

1. Nature of Activities and Applicability of Section 2(15) and Section 11(4):
The assessee, a Maritime Board, was constituted for the development and maintenance of minor ports and claimed its activities were charitable under Section 2(15). The AO contended that the activities were in the nature of business, thus not charitable, and denied exemptions under Sections 11 and 12. The CIT(A) upheld this view, referencing previous decisions. However, the ITAT observed that the issue had been decided in favor of the assessee in the preceding year by the Ahmedabad ITAT and confirmed by the Gujarat High Court. It was held that the activities were for the advancement of general public utility without profit motive. Therefore, the assessee was entitled to exemptions under Sections 11 and 12.

2. Violation of Section 11(2)(b) read with Section 11(5):
The AO observed that the assessee's investments in certain companies did not comply with Section 11(5) as these were not "public sector companies." Consequently, the AO applied Section 13(1)(d) and denied exemptions. The CIT(A) upheld this view. However, the ITAT noted that only the income from non-compliant investments should be taxed, not the entire income. The ITAT cited various High Court decisions supporting this view and allowed the appeal, stating that only the relevant income falling within the mischief of Section 13(1)(d) would lose the exemption.

3. Addition of TDS Amount to Income:
The AO added the TDS amount to the income, stating it was deemed income received under Section 198. The CIT(A) did not adjudicate this issue. The ITAT referred to High Court decisions which held that TDS should be considered for application of income and allowed the appeal, stating the AO erred in adding the TDS amount to the income.

4. Non-grant of TDS Credit:
The assessee's appeal for non-grant of TDS credit amounting to Rs. 45.31 crores was not pressed by the counsel. Consequently, the ITAT dismissed this ground as not pressed.

5. Department's Appeal:
The Department's appeal contested the allowance of benefits under Sections 11 and 12 and the allowance of depreciation. The ITAT dismissed the appeal regarding the denial of benefits, following its observations for the assessee's appeal. However, the ITAT allowed the Department's appeal regarding the allowance of depreciation, in light of the amendment to Section 11(6) by the Finance Act, 2015.

Conclusion:
The appeals of the assessee were partly allowed for both assessment years, and the Department's appeal was partly allowed for the assessment year 2016-17. The ITAT's order was pronounced in the open court on 29-03-2023.