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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 ..... ction 260-A of the Income Tax Act, 1961 (hereinafter referred to as the Act for the sake of brevity) the appellant Revenue has challenged the order dated 16.12.2019 passed by the Income Tax Appellate Tribunal, C Bench, Ahmedabad in ITA No.978/AHD/2017 for AY 2012-13. 3.0. The following noteworthy facts emerge from the record of the appeal. 3.1. That the respondent assessee filed it return of income for the Assessment Year 2012-13 on 18.09.2012 and declared total income as NIL. On assessment being made under Section 143(3) of the Act, the Assessing Officer by its order dated 16.3.2015 assessed the total income of the respondent assessee at ₹ 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw, the Hon ble ITAT is justified in allowing benefit of exemptions u/s. 11 and 12 of the Act without appreciating that in quantum appeal the decision of the Hon ble High Court in T.A. No. 300 of 2018 which has not been accepted and further SLP has been preferred before the Hon ble Supreme Court which is pending ? 4. The case put forward and substantial questions of law raised in this appeal are squarely covered by the judgment of this Court in the case of the respondent-assessee itself for AY 2009-10 reported in 396 ITR 323 (Guj). Before adverting to the substantial question of law raised in this appeal, it would be appropriate to refer to relevant provisions of the 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 suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ominees, exofficio; 5[(vi-a) the Municipal Commissioner of the Municipal Corporation, if any, functioning in the urban development area, ex-officio;] (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. (4A) Notwithstanding anything contained in sub-section (4), the State Government, to deal with the situation arising out of natural calamity or disaster or disaster, may by notification constitute the urban development authority or reconstitute any existing urban development authority constituted under sub-section (1),consisting of any urban development area declared as such under sub-section (1), 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent authority shall have its office at such place as the State Government may specify in this behalf . 6.0. It also deserves to be noted that the assessee also undertakes task of framing and implementing the Town Planning Scheme in the area which is do not fall within any other local authority as defined under the Town Planning Act. In the present appeal also, the same question which arise for consideration of this Court as observed by the Division Bench in the case of Ahmedabad Urban Development Authority (supra) is whether activity of assessee respondent, AUDA can be said to be in the nature of trade, commerce and business and hence it could not be regarded as activity for charitable purpose in view of proviso to Section 2(15). This Court in the case of Ahmedabad Urban 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an development area.] (3) Every urban development authority constituted under subsection (1) shall be a body corporate by the name aforesaid, having perpetual succession and a common seal, with power to acquire, hold and dispose of property, both movable and immovable, and to contract, and by the said name sue and be sued. (4) The urban development authority shall consist of the following members namely: (i) a Chairman to be appointed by the State Government; (ii) such persons, not exceeding3[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)4[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 Corporati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orm such other functions as are supplemental, incidental or consequential to any of the foregoing powers and functions or as may be directed by the State Government. (2) The urban development authority may, with the approval of the State Government, delegate 5 [any of its powers and functions] to the local authority or authorities functioning in the urban development area. (3) The urban development authority shall have its office at such place as the State Government may specify in this behalf. Section 40. Making And Contents Of A Town Planning Scheme : (1) Subject to the provision of this Act or any other law for the time being in force, the appropriate authority may make one or more town planning schemes for the development area or any part thereof, regard being had to the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of providing infrastructural facilities; (c) the land allotted for the purposes referred to in paragraphs (ii) and (iii) of subclause (a) shall not be changed by variation of schemes for the purposes other than public purpose;]] (k) the imposition of conditions and restrictions in regard to the open space to be maintained around buildings, the percentage of building area for a plot, the number, size, height and character of building allowed in specified areas, the purposes to which buildings or specified areas may or may not be appropriated, the subdivision of plots, the discontinuance of objectionable uses of lands in any area in specified periods, parkings space and loading and unloading space for any building and the sizes or locations of projections and advertisement signs; (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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it as the Accountant General has in connection with Government accounts and in particular shall have the right to demand the production of books, accounts, connected vouchers and other documents and papers and to inspect the office of the appropriate authority. (4) The accounts of an authority as certified by the Accountant General or any other person authorised by him in this behalf, together with the audit report thereon, shall be forwarded annually to the State Government. 12. From the aforesaid provisions of the Town Planning Act, it can be gathered that Assessee has been constituted as Urban Development Authority under the provisions of Section 22 of the Town Planning Act. The purpose and object of constitution of the Urban Development Authority is proper development or redevelopment 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, exoffi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Last Fifteen percent is earmarked under the Town Planning Scheme for sale, by appropriate authority for residential, commercial or industrial use. The appropriate authority / Urban Development Authority is permitted to sale the said plots / lands to the extent of 15% of the total area to meet with the expenditure towards drainage, roads, gardens, schools, markets, water supply etc. So that maximum price can be fetched and the same can be utilized for the development of the Urban Development Area and so as to avoid any allegation of favoritism and nepotism, the plots are sold by public auction. It is required to be noted the entire amount realized by the assessee being Urban Development Authority either by selling plots or by recovery of some fees / charges, Urban Authority is required 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, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urring 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. 5.1. The Division Bench after considering the catena of decision on the subject, has further observed thus: 14. Considering 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions provided under the proviso are satisfied, any entity, even if involved in advancement of any other object of general public utility by virtue to proviso, would be excluded from the definition of charitable trust. However, for the application of the proviso, what is necessary is that the entity should be involved 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 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to the principle of mutuality. However, if such organizations have dealings with nonmembers, their claim to be chargeable organizations would now be governed by the additional conditions stipulated in the proviso to section 2 (15). 3.2 In the final analysis, however, whether the assessee has for its object 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, c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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