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TMI Blog2010 (12) TMI 672X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee was assessed under the status of "Trust". A return of loss of Rs. 86,04,66,931 was filed. The main objects of the assessee, as recorded by the Assessing Officer, are to establish, develop and manage industrial estates at certain places as selected by the State Government. The locations so developed are to be made available to several industrial undertakings to establish their business enterprise. The Assessing Officer has mentioned that therefore the assessee's business is to develop lands and to allot the land for industrial use and also to facilitate in establishing industries. The assessee has claimed that the income is exempt u/s.11 of the Act. On the other hand, as per Assessing Officer, the income is assessable u/s.11(4) of the Act. As per Assessing Officer, since the assessee has enjoyed income from the business of developing of land for industrial purposes and allotted the land to industries on lease as well as charging consideration in case of transfer of land, therefore, not entitled for the deduction u/s. 11 of the Act. Therefore this appeal revolves on the preliminary issue that whether the income of the assessee is assessable u/s.11(4) of the I.T.Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anted for ninety-nine years, therefore, the said lease being a long-term lease amounted to transfer of capital assets within the meaning of section 45 of the Act. It was further elaborated that the appellant has to be assessed as a Charitable Institution as prescribed u/s.11 of the Act. The net consideration arising on transfer of assets being utilized for acquiring another capital assets has to be dealt with as per section 11(1A) of the Act and for this reason the income on transfer should be deemed to have been applied for charitable purposes. Other instances have also been quoted that in some cases, advance money was received as instalments of premium in respect of which lease-hold rights were to be transferred. As per the contention of the assessee, such instalments were only advance payments made by the allottees who have agreed to take the plots. Those instalments were not in the nature of income and the assessee had to execute a lease-deed in respect of those plots. Finally, it has also been vehemently contested that as per the guidelines, the surplus has to be deposited with Gujarat State Financial Services Limited. It was made clear that during the year under consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver the income as shown in accounts of the Appellant, as per CBDT Circular dated 19th June 1968". 7.1 It was argued that the assessee had challenged the order of Learned CIT(Appeals) wherein it was held that the income of the assessee is assessable as business income by invoking the provisions of section 11(4) of the Act. It was further clarified that if the assessee succeeds on this main ground that the provisions of section 11(4) were inapplicable, then there would be no necessity to compute the income and, consequently, the reliance placed by Learned CIT(Appeals) on Board's Circular becomes redundant. However, considering the legality of the issue raised by the assessee, the Tribunal has admitted the additional grounds. The discussion made while accepting the additional ground has also revealed that the computation of income as per the CBDT Circular would only be relevant if a finding is given that the provisions of section 11(4) should be applicable on the facts of the case. Therefore, considering the overall situation and the arguments of both the sides, we deem it proper to first decide the applicability of the provisions of section 11(4) of the Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ujarat Government for the benevolent purpose of securing the orderly establishment of industries in specified industrial area. In such industrial estates, a planned development of industries is to be carried out by the assessee. Emphatically it was mentioned that GIDC being a legal entity created by the Government of Gujarat under GID Act, therefore, in case of Government of Gujarat decides for the supersession of GIDC u/s.47 of GID Act, or the assessee-corporation is dissolved u/s.48 of GID Act, then all the assets, i.e. properties, funds as well as liability shall vest with the Government of Gujarat. So, the activity of the assessee can be described in general that the Corporation is created for orderly establishment, growth and development of Industries in the state of Gujarat by carrying out the industrial policy of Government of Gujarat. The assessee is, thus, created for the purpose of general public utility which the assessee is statutorily required to carry out. On the basis of the discussion about the purpose for which the corporation was created and the background under which this Assessee-Corporation was established, it is understood that the assessee is not authorized t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in deciding the present appeal in hand. It was concluded that establishment of industries is one of the modes of development, therefore, the Assessee-Corporation was held as entitled to exemption u/s.10(20A) of the Act. It appears that on account of the aforesaid interpretation of the Hon'ble Apex Court, it had opened the door wide for exemption, therefore, it was thought proper by the Legislature to drop the section prospectively with effect from 01.04.2003 and the benefit of exemption was thereafter withdrawn. ... 8.4. To resolve the dispute we shall take up, one by one, the stand of the lower Authorities, hence, as far as the view taken the Assessing Officer was concerned, vide para-7, it was stated that the Assessee-Corporation was established to develop and manage industrial estates as selected by the State Government. So the Assessing Officer was of the view that the assessee's "business" is to develop lands and to allot them for industrial use so as to facilitate the allottees for their respective establishment of industries and in the process earned profit. Because of this reason, the Assessing Officer has held that the income is assessable u/s.11(4) of the I.T. Act. Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5P (LXX-6) dated 19/06/1998. 8.5. To deal with this question, in the present set of facts and circumstances as also considering the purpose for which this Corporation has been established, whether it was justifiable on the part of the Revenue Authorities to hold that the assessee had fallen within the ambits of the provisions of section 11(4) of the I.T.Act? We have meticulously examined the connected law. After the deletion of section 10(20A), the importance of section 11(4) had been visualized by the Revenue Department and, therefore now needs a detailed discussion. As far as the main provisions of Section 11 are concerned, it prescribes that the income from property held for charitable or religious purposes are not to be included in the total income of a person in receipt of such income. Section 11(1)(a), (b), (c) and (d) has described the nature of property and the income derived therefrom which are not required to be included in the total income. However, section 11(4) is an exception to the main exemption section which reads as follows: Section 11 (4) For the purposes of this section "property held under trust" includes a business undertaking so held, and where a claim is m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4) prescribes that the Assessing Officer has power to determine the income of such an undertaking in accordance with the provisions of this Act, and where any income so determined is in excess of the income as shown in the accounts of the undertaking, then such excess shall be deemed to be applied to purposes other than charitable or religious purposes. Accordingly, such an excess income is chargeable to tax, but the co-joint reading of both the sections as well as on independent reading of section 11(4) of the I.T.Act it appears that one must not overlook the purpose for which the income is applied. This section is very specific that such excess income shall be deemed to be applied to purposes other than charitable or religious purposes. This deeming section has its own limits because before its application it has to be held that an undertaking is a business undertaking. Therefore, to resolve this controversy, we are of the opinion that twin conditions are necessary to be fulfilled, the first one is that the Assessing Officer should give a conclusive finding that the undertaking in question is a business undertaking and the second finding that the excess income so computed has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of levying tax. It comes into operation when a claim is made that the income of the business undertaking of a trust shall not be included in the total income of the person in receipt thereof. Such a claim can only be made u/s.11(1) of the I.T.Act. When such a claim is made, the ITO has been authorized to determine the income. Where the income is so determined is in excess of the income as shown in the account books of the undertaking, then such excess shall be deemed to have been applied to the purposes other than charitable or religious purposes. An important remark has been made by the Hon'ble Court that there is no indication in sub-section (4) that it was intended to be in derogation of or to supersede or supplant any other provision of section 11. An expenditure which is not meant for charitable purposes is liable to be dealt with by sub-section(3) of section 11 of the Act. So, as per the Hon'ble Court, such a case will not be covered by section 11(4). The purpose of enactment has also been dealt with by the Hon'ble Court in the following manner: Under sub-section (4), the ITO can determine the income and compare it with the income appearing in the accounts. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of excessive waste, sale of waste, trade discount and cash credit. On verification of facts, the Tribunal has considered them not sustainable. Once on appraisal of facts the four items of additions were excluded, then the Tribunal has held that section 11(4) was also not applicable. In that context, the Hon'ble Madras High Court has said that still it was to be seen whether the provisions of section 11(4) would be applicable, particularly when the assessed income was more than the returned income. If the income arising out of those four items were not included, as per the order of the Tribunal, then there would be no excessive income then what was returned. The Court has, therefore, held that when there was no excessive assessed income, over and above, the income returned by the assessee, the provisions of section 11(4) could not be applied. Therefore, one of the conditions for the application of section 11(4) is that there ought to be some excessive income, over and above, the income as per the accounts of the assessee which can be held as deemed to have been applied other than charitable purposes. 8.10. There was a question before the Hon'ble Madras High Court in an another ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction that out of the several properties of a trust, if there is a property held by the trust carrying on business which is found to be not for the purposes of the charitable objects, then by invoking section 11(4) that income can be taxed. 8.12 From the above discussion, it evolves that the income derived from a business undertaking held by a trust is not to be granted exemption absolutely and without condition. This section, thus, prohibits the exclusion of the business income though there may be difference of opinion about the computation of such a business income between the Trustee and the Assessing Officer. For example, an item of expenditure genuinely incurred may be held by the Assessing Officer as excessive or capital in nature and, hence, liable to be disallowed. Such an amount can therefore be chargeable to tax in the year of income for which the computation was made. On account of this fact, this is merely a machinery section through which a computation is to be made in respect of the income which is excessive and earned from business activity and not meant for the purposes of the trust and on the basis of such a finding the same can be deemed to be a taxabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s incidental to the ordinary function of Government of the State. Upholding the view of the High Court, it was concluded that the said assessee could not claim exemption from Union taxation under Article 289(1) of the Constitution. One must appreciate that there is no two opinion or slightest hesitation in understanding the law that such an authority, as is in the case of the assessee, the body incorporated is not the State but an independent Corporation. Though undisputedly, such a Corporation functions under the strict governance of a State but income of the Corporation cannot be said to be the income of the State. This distinction has to be borne in mind. Only because of this reason, the assessee is not claiming itself a local authority, now strictly classified vide Explanation to Sec.10(20) reads as under : Section 10 (20) the income of a local authority which is chargeable under the head "Income from house property", "Capital gains" or "Income from other sources" or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service (not being water or electricity) within its own jurisdictional area or from the supply of water or electr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under the Gujarat Industrial Development Act, 1962. The appellant had the right to hold properties and the right to sue and be sued in its own name. Describing the functions of the Corporation, it was mentioned that proper planning is absolutely necessary for creation of an Industrial Area. Such as, roads, sanitation, park, other amenities, etc. are to be provided in a planned manner in an industrial area. As per the Hon'ble Apex Court, even an educational institution may have to be provided in such industrial complex. Therefore, development of an industrial area would have its direct impact on the development or improvement of that part of the city where such areas are located. Finally it was held that such authorities being constituted by law for facilitating all kinds of development of cities, towns and villages for public purposes, therefore should not be subjected to the liability to pay income tax, hence, entitled to exempt from tax u/s.10(20A) of the I.T.Act. The purpose of careful reading of this judgment is to ascertain the objects of the trust and also to verify whether such objects had fallen under the definition of section 2(15) of the I.T.Act. According to us, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee does not have two sets of accounts and the entire activities of the assessee was held as business activities. This is the main cause of grievance that though the activity of the assessee is to promote industry for the benefit of public at large and the income so generated on leasing out of the plots/land, the same has also been exclusively utilized for those listed objects of the Institution, therefore, there was no scope to invoke section 11(4) of the I.T.Act. There is no allegation of the Revenue Department that any part of the income of the GIDC was misappropriated or exploited other than the objects of the Trust. Only under a deeming provision it was held so. The fallacy on the part of the Revenue in holding so, as per our observation, is that first it was presumed that it was a business undertaking and then under a fiction the income was deemed as not applied for public benefit. 12. Before we conclude let us see whether at all there was an element of 'business' in the activity of this Corporation. The definition of the Term "Business" as per Sec. 2(13) is as under: Section 2(13) "business" includes any trade, commerce or manufacture or any adventure or concern in the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held taxable and, therefore, such an excess shall be deemed to be applied to purposes other than charitable purposes. In respect of such an income the undertaking cannot claim that the same should also not be included in the exempted total income. Applying this test on the present set of facts of the case, it is evident that though the Assessing Officer has computed the profits on transfer of land or plots but it was not the case that the profits so generated were not within the main provisions of section 11 of the I.T.Act. Even if the assessee has earned premium price on lease of plot and land for sale but if the entire expenditure and the profit earned therefrom was exclusively used for the laid down objects then to be covered by the main Sec.11. In the present case the undisputed fact was that the same was utilized for the purposes of the object of the trust. Rather, it is also worth to note that the surplus, if any, remained with the assessee has to be invested as per the guidelines and the norms set out under GID Act. Therefore, we are of the conscientious view that even if this undertaking may come within the purview of "business undertaking" but being no excess income was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hold that the profit so computed by the Assessing Officer cannot be said to be an excessive income not meant or utilized for the object of the trust for the purpose of invocation of section 11(4) of the I.T.Act. Therefore, the confirmation of the action of the Assessing Officer by Ld. CIT(A) is hereby reversed. 15. Ground Nos.5, 6 & 7 read as under: 5. The Learned Commissioner of Income Tax, (Appeals), Gandhinagar has also erred in law as well as on the facts of the case of the Appellant by holding that out of the Deposits shown under the head Current Liabilities & Provisions in the Balance Sheet of the Appellant, deposits obtained in connection with allotment of land or structure and pertaining to sale/lease/licence of land and structure be added in the income as business income of the Appellant. The Learned Commissioner of Income Tax, (Appeals), Gandhinagar has also erred in law as well as on the facts of the case of the Appellant by confirming disallowance made by the Learned Assessing Officer of Rs. 5,37,26,241/for unpaid amount as shown in the Tax Audit Report filed by the Appellant under protest, on the ground that provisions of Section 43B of the I.T.Act, 1961 are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nataka Urban Infrastructure Development & Finance Corporation 284 ITR 582 (Karn) 3. GujaratMunicipal Finance Board vs. DCIT 221 ITR 317 (Guj.) 4. CIT vs. Sitaldas Tirathdas 41 ITR 367 (SC) 5. CIT vs.DelhiStateIndustrial Development 162 Taxman 275 (Delhi)" 17.2. Certain unreported decisions cited were Gujarat State Disaster Management Authority ITAT "C" Bench Ahmedabad bearing ITA No.949/Ahd/2009 Assessment Year 2006-07 order dated 05/06/2009 and Gujarat Safai Kamdar Vikas Nigam ITAT "A" Bench Ahmedabad bearing ITA No.3232/Ahd/2008 Assessment Year 2005-06 order dated 17/04/2009. There was one more case of Hon'ble Gujarat High Court decided in the case of Gujarat Municipal Finance Board 221 ITR 317(Guj.) which has also been relied upon. On careful study of all these decisions, the subsidy in question was in the nature of grant-in-aid which was received by the assessee merely as a Nodal Disbursing Agency on behalf of the State Government. Undisputedly the assessee was not free to use the subsidy as per its own choice, therefore, such a subsidy cannot be held as an income of the assessee. Rather the courts have said that such a grant being diverted at source by an overriding ..... X X X X Extracts X X X X X X X X Extracts X X X X
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