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TMI Blog2017 (9) TMI 1724X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the State. - Decided in favour of assessee. - D.B. Income Tax Appeal No. 218/2017 And D.B. Income Tax Appeal No. 113/2016 - - - Dated:- 6-9-2017 - Mr. K.S. Jhaveri And Mr. Inderjeet Singh JJ. For the Appellant(s) : Mr. Sameer Jain with Mr. Daksh Pareek For the Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana JUDGEMENT In both these appeals, the common question of law and facts are involved and as they relate to the same assessee, they are decided by the common judgment. 1. By way of these appeals, the appellant has assailed the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal of the department confirming the order of CIT(A). 2. Counsel for the appellant has framed the following substantial questions of law:- In appeal no. 218/2017 i) Whether on the facts and circumstances of the case and in law the Hon ble ITAT has erred in law in allowing the exemption u/s 11 of the Act by holding that the activities of the assessee are charitable in nature even though the amended provision of section 13(8) r.w. 1st and 2nd proviso of section 2(15) are attracted? ii) Whether on the facts and in circumstances of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owable only in the case of business or profession or in case of income from other sources? (vi) Whether on the facts and in the present circumstances of the case, the Ld. Tribunal in legally correct in allowing the net amount of ₹ 269,69,91,775/- of the development expenditure and development revenue treating it as capital expenditure as on account of change in accounting policy and further allowing a sum of ₹ 21,13,94,421/- out of establishment and administrative expenses to the extent of 5% of the total development expenditure related to such change. (vii) Whether on the facts in the present circumstances of the case, the Ld. Tribunal is legally correct in allowing ₹ 1,07,02,423/- on account of expenses on shooting range. (viii) Whether on the facts and in the present circumstances of the case, the Ld. Tribunal is legally correct in allowing ₹ 5,00,00,000/- being expenditure as contribution for deendayal Medical Hospital at Jaipur assuming them as donation to charitable institution, further doubly allowing the same. (ix) Whether on the facts and in the present circumstances of the case, the Ld. Tribunal is legally correct in allowing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered under the Chapter 243 and recently in view of amendment in Chapter 9. 7. He has also relied upon the decision of the Supreme Court in the case of Union of India Ors. vs. Shri R.C. Jain Ors. reported in AIR 1981 SC 951 wherein it has been held as under:- 3. Let us, therefore, concentrate and confine our attention and enquiry to the definition of 'Local Authority' in Section 3(31) of the General Clauses Act. A proper and careful scrutiny of the language of Section 3(31) suggests that an authority in order to be a local Authority, must be of like nature and character as a Municipal Committee, District Board or Body of Port Commissioners, possessing, therefore, many, if not all, of the distinctive attributes and characteristics of a Municipal Committee, District Board, or Body of Port Commissioners, but, possessing one essential feature, namely, that it is legally entitled to or entrusted by the Government with, the control and management of a municipal or local fund. What then are the distinctive attributes and characteristics, all or many of which a Municipal Committee, District Board or Body of Port Commissioners shares with any other local authority? Firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y tax to such extent, if any, as Parliament may by law provide in respect of a trade or business of any kind carried on by, or on behalf of, the Government of a State, or any operations connected therewith, or any property used or occupied for the purposes of such trade or business, or any income accruing or arising in connection therewith (3) Nothing in clause ( 2 ) shall apply to any trade or business, or to any class of trade or business, which Parliament may by law declare to be incidental to the ordinary functions of government 11. He contended that benefit of exemption or any benefit under the Income Tax Act cannot be granted to the local authority. He has also taken us to the Article 243 read with Schedule 12 and also the order of the CIT(A) has observed as under:- During the assessment proceedings the AO noted from the Income Expenditure Account that the appellant had treated the land available with it as stock in trade for the year under reference. He further found that opening stock of the land was shown at 112.11 crore and closing stock at 107.06 crore. He asked the appellant to provide the details of working out such valuation. In response thereof t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the valuation of stock in trade. (iii) Whether closing stock is to be further increased by the addition of ₹ 11,74,15,986/- during the year. (iv) Whether the increase in the value of opening and closing stock by 147% is justified. The assessee has taken the value of opening stock of lands at ₹ 1,12,11,12,783/-. The AO have increased the value of the opening stock by 147.57% and further made addition of 30% for administration establishment charges and 20% to cover maintenance cost. Thus value of opening stock is recalculated at ₹ 4,32,98,69,111/-. Thus the value of opening stock is increased by ₹ 3,20,87,56,328/- (4,32,98,69,111- 1,12,11,12,783). On the above basis the AO have reworked out the value of closing stock at ₹ 4,46,26,09,367/- Thus the value of closing stock is increased by ₹ 3,39,19,25,266/- (4,46,26,09,367- 1,07,06,84,101) The above calculation made contains an error even as per method adopted by AO i.e. increase in the value of the opening stock at ₹ 3,20,87,56,328/- is included in closing stock without considering that, part of the land was sold during the year. The correct calculation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the above it is clear that the administrative, establishment and maintenance cost does not form part of the closing stock. The same has to be charged to profit loss account in the year in which it is incurred. Therefore the addition of ₹ 6,57,52,952/- (3,52,24,796+3,05,28,156) made by the AO in the valuation of closing stock in trade as well as ₹ 1,48,43,97,609/- (79,52,13,005+68,91,84,604) in opening stock is incorrect and be deleted. In the regard the ld. AR placed reliance on the following decisions:- A.L.A. Firmv. CIT 189 ITR 285 (SC) Sanjeev Woolen Mills v. CIT [2005] 149 Taxman 431/279 ITR 434(SC) Investment Ltd. v. CIT 77 ITR 533(SC) 12. He contended that the CIT(A) has seriously committed an error in passing the order and the department has taken a contrary stand to what has been taken before Assessing Officer. He has also strongly relied upon the decision of the Supreme Court in the case of Adityapur Industrial Area Development Authority vs. Union of India Ors. reported in 2006 (5) SCC 100 wherein it has been held as under:- Similarly, the decision in New Delhi Municipal Council v. State of Punjab and Ors. (supra) does not advance t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : (1995)5SCC251 Municipal Commissioner of Dum Dum Municipality and Ors. v. Indian Tourism Development Corporation and Ors., MANU/SC/1179/1994 Central Warehousing Corporation v. Municipal Corporation and : [1982]2SCR1 Western Coalfields Ltd. v. Special Area Development Authority, Korba and Anr. and Bharat Aluminium Company Ltd. v. Special Area Development Authority, Korba and Ors. MANU/MP/0056/1978 Having considered all aspects of the matter we hold that the High Court is right in concluding that the appellant/Authority could not claim exemption from Union taxation under Article 289(1) of the Constitution of India. The impugned notice issued by the Income Tax Authorities was, therefore, valid and legal and could not be successfully challenged in the writ petition. Accordingly, this appeal is dismissed but without any order as to costs. 13. Therefore, he contended that the exemption cannot be claimed only in the income of the State Government. 14. Taking into consideration he has also taken us to the different part of the judgment and contention raised by the parties and ultimately that the issue is squarely covered against the assessee. He has also relied upon the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been laid down by the B Hon'ble Supreme Court in the case of CIT vs. Surat Art Silk Cloth Manufacturers Association (1997) 121 ITR and CIT vs. Andhra Pradesh State Road Transport Corp. (1986) 159 ITR 1. In the case of Surat Art Silk Cloth Manufacturers Association, it was held as under:- Since the income and property of the assessee were liable to be applied solely and exclusively for the promotion of the objects set out in the Memorandum and no part of such income or property could be distributed amongst the Members in any form or utilized for their benefit either during its operational existence or on its winding up or dissolution as such the object was a charitable one. 15. It is true that the functions which are carried out by the assessee are statutory functions and carry on for the benefit of the State Government for urban development therefore, in our considered opinion, the functions carried out by the authority is a supreme function and fall within the activity of the State Government. 16. In that view of the matter, the judgments which are strongly relied upon by counsel for the department are of no help in the facts of the case as the case relied up ..... 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