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TMI Blog2020 (10) TMI 566X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee at Rs. 198,48,79,000/-. The AO came to the conclusion that income of the assessee is business income since such receipts were in the nature of trade or commerce and it exceeds Rs. 25 lakh. According to the AO, the respondent -assessee was not carrying out any charitable activities and was squarely covered by proviso 1 & 2 to Section 2(15) r/w Section 13(8) of the Act and ultimately came to the conclusion that the respondent-assessee is not eligible for any of the exemption claimed under Section 11 and 12 of the Act and accordingly passed assessment order in question. The respondent -assessee filed an Appeal before the CIT(A), which came to be dismissed, against which, the respondent -assessee filed an Appeal before the Tribunal being ITA No.1422/AHD/2017. 3.1. The record indicates that during the course of revision proceedings under Section 263 of the Act, the CIT(A) observed that respondent -assessee has claimed total deduction at Rs. 272,24,44,078/-. The CIT(A) came to the conclusion that while making computation of income, the carry forward of loss of Rs. 42,77,29,078/- remained to be added back to the total income of the assessee and relying upon the judgment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gujarat Town Planning and Urban Development Act, 1976 (hereinafter referred to as the "Town Planning Act"). The respondent-assessee is an Urban Development Authority constituted under Section 22 of the Town Planning Act, which reads as under: 22. Declaration Of Urban Development Area And Constitution Of Urban Development Authority: (1) Where the State Government is of opinion that the object of proper development or redevelopment of any urban area or group of urban areas in the State together with such adjacent areas as may be considered necessary, whether covered under a development area already declared as such under section 3 or not, will be best served by entrusting the work of development or redevelopment thereof to a special authority, instead of to an area development authority, the State Government may, by notification, declare such area to be an urban development area and constitute an authority for such area to be called the urban development authority of that area, and thereupon all the powers and functions of an area development authority relating to the development or redevelopment of a development area under this Act shall, in relation to such urban development a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consisting of such members as it deems fit. (5) The provisions of sub-sections (5) to (12) of section 5 shall apply in relation to an urban development authority as they apply in relation to an area development authority, with the modification that references to an area development authority in the said subsection shall be construed as references to an urban development authority.. 4.1. Section 23 of the Town Planning Act provides for powers and functions of urban development authority. Section 23 reads as under: 23. Powers And Function Of Urban Development Authority :- (1) 1 [The powers and functions of] an urban development authority shall be:- (i) To undertake the preparation of development plans under the provisions of this Act, for the urban development area; (ii) (ii) To undertake the preparation 2 [and execution] of town planning schemes under the provisions of this Act, if so directed by the State Government; (iii) (iii) To carry out surveys in the urban development area for the preparation of development plans or town planning schemes; (iv) (iv) To guide, direct and assist the local authority or authorities and other statutory authorities functioning in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ban Development Authority (supra) has extensively considered the provisions of the Town Planning Act and has observed thus: 11. While considering the aforesaid questions, the relevant provisions of the Gujarat Town Planning Act, under which, the Assessee has been constituted as Urban Development Authority and powers and functions of the Assessee as an Urban Development Authority are required to be considered, so as to appreciate whether the activities of the Assessee being Urban Development Authority can be said to be in the nature of trade, commerce or business ?? The relevant provisions of the Gujarat Town Planning Act,under which, the Assessee AUDA has been constituted as Urban Development Authority are as under: Section 2(viii): "Development", with all its grammatical variations and cognate expressions, means the carrying out of any building, engineering, mining, or other operations in, or over, or under land or the making of any material change in any building or land or in the use of any building or land, and includes layout and subdivision of any land; Section 2(xxviii):"Urban development authority" means an urban development authority constituted under section 22; Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trict panchayats functioning in the urban development area, or, as the case may be, part thereof, exofficio; (v) the Chief Town planner or his representative, exofficio; (vi) the Chief Engineer or Engineers (Public Health) of the local authority or authorities functioning in the urban development area or his or their nominee or nominees, exofficio; 5[(via) the Municipal Commissioner of the Municipal Corporation, if any, functioning in the urban development area, exofficio;] (vii) a member secretary to be appointed by the State Government who shall also bedesignated as the Chief Executive Authority of the Urban Development Authority. (5) The provisions of subsections (5) to (12) of section 5 shall apply in relation to an urban development authority as they apply in relation to an area development authority, with the modification that references to an area development authority in the said subsection shall be construed as references to an urban development authority. Section 23: Powers And Function Of Urban Development Authority :(1) [The powers and functions of] an urban development authority shall be: (i) To undertake the preparation of development plans under the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposals in the final development plan, if any. (2) A town planning scheme may be made in accordance with the provisions of this Act in respect of any land which is (i) In the course of development; 1 [(ii) likely to be used for residential or commercial or industrial or for building purposes; or] (iii) Already built upon. Explanation: For the purpose of this subsection the expression "land likely to be used for building purposes" shall include any land likely to be used as, or for the purpose of providing, open spaces, roads, streets, parks, pleasure or recreation grounds, parking spaces or for the purpose of executing any work upon or under the land incidental to a town planning scheme, whether in the nature of a building work or not. (3) A town planning scheme may make provision for any of the following matters, namely: (a) The laying out or relaying out of land, either vacant or already built upon; (b) The filling up or reclamation of lowlying, swampy or unhealthy areas, or levelling up of land; (c) Layout of new streets or roads, construction, diversion, extension, alteration, improvement and closing up of streets and roads and discontinuance of communications; (d) The co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l) the suspension, so far as may be necessary, for the proper carrying out of the scheme, of any rule, byelaw, regulation, notification or order made or issued under any Act of the State Legislature or any of the Acts which the State Legislature is competent to amend: Provided that any suspension under this clause shall cease to operate in the event of the State Government refusing to sanction the preliminary scheme, or in the event of the withdrawal of the scheme under section 66, or on the coming into force of the final scheme; (m) such other matters not inconsistent with the objects of this Act as may be prescribed. Section 91: Fund Of The Appropriate Authority :(1) An appropriate authority shall have and maintain its own fund to which shall be credited (a) All moneys received by the authority by way of grants, loans,1[advances, fees, development charges or otherwise;] (b) All moneys derived from its undertakings, projections and other sources; (c) Such amount of contributions from local authorities as the State government may specify from time to time to be credited to the fund of the authority. (2) The fund of an appropriate authority shall be applied towards meeting (a) E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of urban area. Even Urban Development Authority consists of (i) a Chairman to be appointed by the State Government; (ii) such persons, not exceeding [four in number] who are members of the local authority or authorities functioning in the urban development area, as may be nominated by the State Government; (iii) Three officials of the State Government, to be nominated by that Government, exofficio; (iv) the Presidents of the district panchayats functioning in the urban development area, or, as the case may be, part thereof, exofficio; (v) the Chief Town planner or his representative, exofficio; (vi) the Chief Engineer or Engineers (Public Health) of the local authority or authorities functioning in the urban development area or his or their nominee or nominees, exofficio; 5[(via) the Municipal Commissioner of the Municipal Corporation, if any, functioning in the urban development area, exofficio;] (vii) a member secretary to be appointed by the State Government who shall also be designated as the Chief Executive Authority of the Urban Development Authority. Thus, the constitution of the Urban Development Authority is subject to the control of the State Government. The powers an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to use only for the purpose of development in the Urban Development Area and not for any other purpose. The learned Tribunal has observed and held that as the assessee is selling the plots, to the extent of 15% of total area, by public auction and gets maximum amount, it amounts to profitering and therefore, the activities of the Assessee can be said to be in the nature of business. However, while holding so, learned Tribunal has not properly appreciated the object and purpose of permitting the Urban Development Authority to sale the plots, maximum to the extent of 15% of the total area i.e. to meet with the expenditure for providing them infrastructural facilities like gardens, roads, lighting, water supply, drainage system etc. The learned Tribunal has also not properly appreciated the reasons for selling the plot by holding public auction i.e.; (1) to avoid any further allegation of favoritism and nepotism and (2) so that maximum market price can be fetched, which can be used for the development of the Urban Development Area. 12.1. At this stage decision of the Hon'ble Supreme Court in the case of Ahmedabad Green Belt Khedut Mandal (supra) ((2014) 7 SCC 357) is required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % 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 Section 11 of the Income Tax Act. Therefore, the question no.1 is to be held in favour of the assessee and against the revenue. 15. Now, so far as another question which is posed for the consideration of this Court i.e. whether while collecting the cess or fees, activities of the assessee can be said to be rendering any services in relation to any trade, commerce or business is concerned, for the reasons stated above, merely because the assessee is collecting cess or fees which is regulato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess or any activities of rendering service in relationto 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 charitable purpose will depend on the totality of the facts of the case. Ordinarily, Chambers of Commerce and similar organizations rendering services to their members would not be affected by the amendment and their activities would continue to be regarded as advancement of any other object of general public utility. 7.In consonance with such assurance given by the Finance Minister on the floor of the House, CBDT issued a Circular No. 11 of 2008 dated 19th December 2008 explaining the amendment as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 renders any service in relation to trade, commerce or business for a cess, fee and/or any other consideration. It is not aimed at excluding the genuine charitable trusts of general public utility but is aimed at excluding activities in the nature of trade, commerce or business which are masked as charitable purpose. 12.All these were the objects of the general public utility and would squarely fall under section 2 (15) of the Act. Profit making was neither the aim nor object of the Trust. It was not the principal activity. M ..... X X X X Extracts X X X X X X X X Extracts X X X X
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