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TMI Blog2017 (7) TMI 811X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Tribunal in holding so. - Decided in favour of assessee. - Tax Appeal No. 380, 381, 382 of 2017 - - - Dated:- 28-6-2017 - M. R. Shah And B. N. Karia, JJ. Mr M.R Bhatt, Sr Advocate with Mrs Mauna Bhatt, Advocate for the Appellant ORDER ( Per : Honourable Mr. Justice M. R. Shah ) 1. As common question of law and facts arise in this group of Appeals and as such arising out of impugned common judgment and order dated 10th January 2017 passed by the Income Tax Appellate Tribunal, Ahmedabad D Bench [ Tribunal for short], but with respect to different Assessment Years, all these Tax Appeals are decided and disposed of by this common order. 2. Feeling aggrieved and dissatisfied with the impugned common judgment and order passed by the learned Tribunal in ITA No. 278/AHD/2013, 498 2346/AHD/2014 [for Assessment Years 2009-2010 to 2011-2012], the Revenue has preferred the present Tax Appeals with the following proposed questions of law : [A] Whether on the facts and in the circumstances of the case, the Appellate Tribunal is justified in allowing the assessee s appeal, negating the finding of the CIT [A] as well as the Assessing Officer denying the benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t report thereon forwarded to it under sub-section [3] to be laid annually before the State Legislature. As per Section 30 of the Act, whenever any land is required by the Corporation for any purpose in furtherance of the objects of the Act, but the Corporation is unable to acquire it by agreement, the State Government may, upon an application of the Corporation in that behalf, order proceedings to be taken under the relevant land acquisition land for acquiring the same on behalf of the Corporation as it such lands were needed for a public purpose within the meaning of the relevant land acquisition law. As per Section 48 of the Act, if the State Government is satisfied that the purposes for which the Corporation was established under the Act have been substantially achieved so as to render its continuance unnecessary, it may by a notification in the Official Gazette declare that the Corporation shall be dissolved with effect from such date as may be specified in the said notification, and thereupon the Corporation shall stand dissolved accordingly. 3.4 That, the assessee-Corporation filed return of income for Assessment Years 2009-2010 to 2011-2012 by claiming itself as a Chari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned senior advocate has appearing on behalf of the Revenue. 9. Shri Manish Bhatt, learned counsel for the Revenue has vehemently submitted that in the facts and circumstances and looking to the activities carried out by the assessee, proviso to Section 2 [15] of the I.T Act shall be applicable, and therefore, the activities of the assessee cannot be said to be for charitable purposes . It is submitted that the second limb of proviso to Section 2 [15] of the Act shall be applicable, and therefore, the assessee is not entitled to exemption; as claimed under Section 11 of the IT Act. 10. It is further submitted by learned Sr. Advocate Shri Bhatt appearing on behalf of the Revenue that the learned Tribunal has materially erred in placing reliance upon the Speech of Hon ble the Finance Minister and the subsequent clarification issued by the Central Board of Direct Taxes [CBDT]. It is submitted that the learned Tribunal has ignored the fact that the activities of the assessee could not be called as activities towards relief of the poor, education, medical relief, preservation of environment [including watersheds, forests and wildlife] and preservation of monuments or places or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sr. Advocate appearing on behalf of the appellant-Revenue. 12. A short question which is posed for consideration of this Court is whether the activities carried out by the assessee can be said to be in the nature of trade, commerce or business for a Cess or fee, or for any other consideration and/or carrying on any activities in the nature of trade, commerce or business so as to attract proviso to Section 2 [15] of the Act and to deny the exemption claimed under Section 11 of the I.T Act ? 13. At the outset, it is required to be noted that while considering the aforesaid question, the relevant provisions of the Gujarat Industrial Development Act, 1962 under which the assessee has been established and constituted, which as such are referred to and considered by the learned Tribunal while passing the impugned common judgment and order, are required to be referred to. They are as under : 3. (1) For the purposes of securing and assisting in the rapid and orderly establishment, and organization of industries in industrial areas and industrial estates in the State of Gujarat 4[and for the purpose of establishing commercial centers in connection with the establishment and organ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termine at the time the moneys are borrowed, [Explanation.-The expression to borrow money with all its grammatical variations and cognate expressions includes, acceptance of deposits (not being deposits accepted under section 22) from the public for a specified period and on payment of interest thereon to the depositors at specified rates]. 22. The Corporation may accept deposits on such conditions as it deems fit 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 objects of this Act. 23. (1) The Corporation shall make provision for such reserve and other specially denominated funds and in such manner and to such extent as the State Government may, from time to time, direct. (2) The management of the funds referred to in-sub-section (1), the sums to be transferred from time to time to the credit thereof and the application of money comprised therein, shall be determined by the Corporation. (3) None of the funds referred to in sub-section (1) shall be utilized for any purpose other than that for which it was constituted, without the previous approval of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the objects of this Act, the State Government may, upon such conditions as may be agreed upon between it and the Corporation, place at the disposal of the Corporation any lands vested in the State Government. (2) After any such land has been developed by, or under the control and supervision of the Corporation, it shall be dealt with by the Corporation in accordance, with the regulations made, and directions given by the State Government in this behalf. (3) If any land placed at the disposal of the Corporation under sub-section (1) is required at any time thereafter by the State Government, the Corporation shall replace it at the disposal of the State Government upon such terms and conditions as the State Government may after consultation with the Corporation determine. 48. (1) The State Government if satisfied that the purposes for which the Corporation was established under this Act have been substantially achieved so as to render its continuance unnecessary, it may by notification in the Official Gazette declare that the Corporation shall be dissolved with effect from such date as may be specified in the notification, and thereupon the Corporation shall sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so to Section 2 [15] of the Act shall not be applicable, and therefore, the assessee is entitled to exemption under Section 11 of the Act. 16.1 In para 12.2 to 15.1 of the said decision, the Division Bench of this Court has observed and held as under :- 12.2 Whether the activities of the appellant AUDA can be said to be in the nature of trade, commerce or business as occurring in the first proviso to Section 2(15) of the Act, few decisions of the Hon'ble Supreme Court as well as other High Courts are required to be referred to at this stage. 12.3 In the case of Khoday Distilleries Ltd Ors. vs. State of Karnataka Ors., reported in (1995) 1 SCC 574, the Hon'ble Supreme Court had an occasion to consider the word trade . In the said decision, the Hon'ble Supreme Court has held that the primary meaning of the word trade is the exchange of goods for goods or goods for money . 12.4.In the case of State of Andhra Pradesh vs. Abdul Bakhi Bros., reported in 1964(5) STC 644 (SC) while considering the word business , the Hon'ble Supreme Court has held that the word business was of indefinite import and in a taxing statute, it is used in sense o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iso to section 2(15) of the Act must be read in the context of the intent and purport of section 2(15) of the Act and cannot be interpreted to mean any activity which is carried on in an organized manner. The purpose and the dominant object for which an institution carries on its activities is material to determine whether the same is business or not. The purport of the first proviso to section 2(15) of the Act is not to exclude entities which are essentially for charitable purpose but are conducting some activities for a consideration or a fee. The object of introducing the first proviso is to exclude organizations which are carrying on regular business from the scope of charitable purpose. The purpose of introducing the proviso to Section 2(15) of the Act can be understood from the Budget Speech of the Finance Minister while introducing the Finance Bill 2008. The relevant extract to the Speech is as under : Charitable purpose includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate that expenditure on salaries and depreciation exceeds the surplus as generated from holding coaching classes. In addition, the petitioner institute provides study material and other academic support such as facilities of a library without any material additional costs. The Supreme Court in the case of State of Andhra Pradesh v. H. Abdul Bakhi and Bros. (supra) held as under: The expression business though extensively used a word of indefinite import, in taxing statutes it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure. (Underlining added) 72. There is nothing on record to indicate the assertion of the petitioner that its activities are not fuelled by profit motive is incorrect. Absence of profit motive, though not conclusive, does indicate that the petitioner is not carrying on any business. 12.7. Identical question came to be considered by the Delhi High Court in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 2(15) by virtue of the Finance Act, 2008 was directed to prevent the unholy practice of pure trade, commerce and business entities from masking their activities and portraying them in the garb of an activity with the object of a general public utility. It is not designed to hit at those institutions, which had the advancement of the objects of general public utility at their hearts and were charity institutions. The attempt was to remove the masks from the entities, which were purely trade, commerce or business entities, and to expose their true identities. In the case of M/s G.S. 1 India (Supra), in para 21, 22 and 27, the Delhi High Court has observed and held as under : 21. ... As observed above, legal terms, trade, commerce or business in Section 2(15), mean activity undertaken with a view to make or earn profit. Profit motive is determinative and a critical factor to discern whether an activity is business, trade or commerce. The court further held : 22. Business activity has an important pervading element of self interest, though fair dealing should and can be present, whilst charity or charitable activity is antithesis of activity undertaken with profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor of Income Tax (Exemption) in WP(C) No.1872 of 2013 decided on 22.01.2015 has observed in para 58 as under: As defined in Section 2(15) cannot be construed literally and in absolute terms. It has to take colour and be considered in the context of Section 10(23C)(iv) of the said Act. It is also clear that if the literal interpretation is given to the proviso to Section 2(15) of the said Act, then the proviso would be at risk of running fowl of the principle of equality enshrined in Article 14 of the Constitution India. In order to save the Constitutional validity of the proviso, the same would have to be read down and interpreted in the context of Section 10(23C)(iv) because, in our view, the context requires such an interpretation. The correct interpretation of the proviso to Section 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. In both the activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid facts and circumstances and more particularly, considering the fact that the assessee is a statutory body Urban Development Authority constituted under the provisions of the Act, constituted to carry out the object and purpose of Town Planning Act and collects regulatory fees for the object of the Acts; no services are rendered to any particular trade, commerce or business; whatever the income is earned / received by the assessee even while selling the plots (to the extent of 15% of the total area covered under the Town Planning Scheme) is required to be used only for the purpose to carry out the object and purpose of Town Planning Act and to meet with expenditure while providing general utility service to the public such as electricity, road, drainage, water etc. and even the entire control is with State Government and even accounts are also subjected to audit and there is no element of profiteering at all, the activities of the assessee cannot be said to be in the nature of trade, commerce and business and therefore, proviso to Section 2(15)of the Act shall not be applicable so far as assessee is concerned and therefore, the assessee is entitled to exemption under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olved in carrying on activities in the nature of trade, commerce or business, or any activity of rendering services in relation to any trade, commerce or business, for a cess or fee or any other consideration. In such a situation, the nature, use or application, or retention of income from such activities would not be relevant. Under the circumstances, the important elements of application of proviso are that the entity should be involved in carrying on the activities of any trade, commerce or business or any activities of rendering service in relation to any trade, commerce or business, for a cess or fee or any other consideration. Such statutory amendment was explained by the Finance Ministers speech in the Parliament. Relevant portion of which reads as under : I once again assure the House that genuine charitable organizations will not in any way be affected. The CBDT will, following the usual practice, issue an explanatory circular containing guidelines for determining whether any entity is carrying on any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business. Whether the purpose is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the advancement of any other object of general public utility is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of general public utility will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assessees, who claim that their object is charitable purpose within the meaning of section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business. 8. What thus emerges from the statutory provisions, as explained in the speech of Finance Minister and the CBDT Circular, is that the activity of a trust would be excluded from the term charitable purpose if it is engaged in any activity in the nature of trade, commerce or business or ren ..... X X X X Extracts X X X X X X X X Extracts X X X X
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