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TMI Blog2020 (10) TMI 623X X X X Extracts X X X X X X X X Extracts X X X X ..... R. JUSTICE R.M.CHHAYA) 1.0. Heard Mr. Manish Bhatt, learned Senior Advocate assisted by Mrs. Mauna Bhatt, learned advocate for the appellant revenue. 2.0. By this appeal under Section 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 16.1.2020 passed by the Income Tax Appellate Tribunal, D Bench, Ahmedabad in ITA No.2431/AHD/2017 for AY 2011-12. 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 2011-12 on 12.09.2011 and declared total income as NIL. On assessment being made under Section 143(3) of the Act, the Assessing Officer by its order dated 23.12.2016 assessed the total income of the respondent assessee at ₹ 25,41,80,760/-. The AO came to the conclusion that assessee was engaged in the Area Development and Town Planning and carrying out the activity of general public utility. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and circumstances of the case and in law, the Hon ble Tribunal was justified in deleting the addition of General Development Expenditure Fund of ₹ 6,34,81,654/- considering that a capital expenditure by a person need not be a capital receipt of the person receiving that amount which is assessee has received for the discharge of its objects without considering the merit of the issue ? F. Whether on facts and circumstances of the case and in law, the Hon ble Tribunal was justified in allowing accumulation of ₹ 20,00,00,000/- u/s 11(2) of the Act and accumulation @ 15% of ₹ 6,37m77m889/- u/s 11(1)(a) of the Act without appreciating the fact that once the proviso of Section 2 (15) is applicable, the benefit of section 11(12) cannot be allowed further ? G. Whether on facts and circumstances of the case and in law, the Hon ble Tribunal was justified in deleting the addition of ₹ 5,92,358/- on account of expenditure on housing project considering the that a capital expenditure by a person need not to be a capital receipt of the person receiving that amount which the assessee has received from discharge of its objects without considering the merit of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclude such sub-divided urban development area in any other urban development area.] (3) Every urban development authority constituted under sub-section (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, ex-officio; (iv) the Presidents of the district panchayats functioning in the urban development area, or, as the case may be, part thereof, ex-officio; (v) the Chief Town planner or his representative, ex-officio; (vi) the Chief Engineer or Engineers (Public Health) of the local authority or authorities functioning in the urban development area or his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute works in connection with supply of water, disposal of sewerage and provision of other services and amenities; 4 [(vi-a) to levy and collect such fees for the execution of works referred to in clause (vi) and for provision of other services and amenities as may be prescribed by regulations;] (vii) (vii) To acquire, hold, manage and dispose of property, movable or immovable, as it may deem necessary; (viii) (viii) To enter into contracts, agreements or arrangements, with any local authority, person or organisation as the urban development authority may consider necessary for performing its functions; (ix) (ix) To carry any development works in the urban development area as may be assigned to it by the State Government from time to time; (x) To exercise such other powers and perform 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reas 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 area, be exercised and performed by such urban development authority1*** (2) Every notification issued under subsection (1) shall define the limits of the area to which it relates. 2[(2A) The State Government may, by notification in the Official Gazette, include in or exclude any area from an urban development area, amalgamate two or more urban development areas into one urban development area, subdivide any urban development area into different urban development areas and include such subdivided urban development a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her statutory authorities functioning in the urban development area in matters pertaining to the planning, development and use of urban land; (v) To control the development activities in accordance with the development plan in the urban development area; 3 [(va) to levy and collect such security fees for scrutiny of documents submitted to the appropriate authority for permission for development as may be prescribed by regulations;] (vi) To execute works in connection with supply of water, disposal of sewerage and provision of other services and amenities; 4 [(via) to levy and collect such fees for the execution of works referred to in clause (vi) and for provision of other services and amenities as may be prescribed by regulations;] (vii) To acquire, hold, manage and dispose of property, movable or immovable, as it may deem necessary; (viii) To enter into contracts, agreements or arrangements, with any local authority, person or organisation as the urban development authority may consider necessary for performing its functions; (ix) To carry any development works in the urban development area as may be assigned to it by the State Government from time to time; (x) To exercise such o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) The preservation of objects of historical or national interest or natural beauty, and of buildings actually used for religious purposes; (j) The reservation of land to the extent of ten per cent. or such percentage as near thereto as possible of the total area covered under the scheme, for the purpose of providing housing accommodation to the members of socially and economically backward classes of people; 2 [3 [(jj) (a) the allotment of land from the total area covered under the scheme, to the extent of. (i) Fifteen per cent. for roads, (ii) five per cent. for parks, play grounds, gardens and open space, (iii) five percent for social infrastructure such as school, dispensary, fire brigade, public utility place as earmarked in the Draft Town Planning Scheme, and (iv) fifteen per cent. for sale by appropriate authority for residential, commercial or industrial use depending upon the nature of development: Provided that the percentage of the allotment of land specified in paragraphs (i) to (iii) may be altered depending upon the nature of development and for the reasons to be recorded in writing; (b) the proceeds from the sale of land referred to in para (iv) of subclause (a) sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he State Government in this behalf, such sums of money out of its fund as may be prescribed and any money in excess of the said sum shall be invested in such manner as may be approved by the State Government. (4) The State Government may, make such grants, advances and loans to an appropriate authority as the State Government may deem necessary for the performance of its functions under this Act and all grants, loans and advances so made shall be made on such terms and conditions as the State Government may determine. Section 95:Accounts And Audit : (1) An appropriate authority shall maintain proper accounts and other relevant records and prepare an annual statement of accounts including the balance sheet in such form as the State Government may prescribe. (2) The accounts of an appropriate authority shall be subject to audit annually by the Accountant General of the State and any expenditure incurred by him in connection with such audit shall be payable by the authority to the Accountant General. (3) The Accountant General or any person appointed by him in connection with the audit of accounts of an appropriate authority shall have the same rights, privileges and authority in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, recreation grounds, schools, markets, greenbelts, dairies, transport facilities, public purposes of all kinds; drainage, inclusive of sewerage, surface or subsoil drainage and sewage disposal; Lighting; Water supply etc. The Town Planning Scheme also provide for historical or national interest or natural beauty, and of buildings actually used for religious purposes. The Scheme are also provide for reservation of land to the extent of ten percent, or such percentage as near thereto as possible of the total area covered under the scheme, for the purpose of providing housing accommodation to the members of socially and economically backward classes of people. As per Section 40(i)(jj) for the aforesaid purposes certain percentage of total area covered under the scheme are allotted earmarked. Fifteen percent of total area is llotted for the purpose of roads, five percent for parks, play grounds, gardens and open space, five percent for social infrastructure such as school, dispensary, fire brigade, public utility place as earmarked in the Draft Town Planning Scheme and Fifteen percent for sale by appropriate authority for residential, commercial or industrial use depending upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resaid and has observed that the activities of the Urban Development Authority / Area Development Authority while selling the land to the extent of 15% to the total area covered under the scheme cannot be said to be profitering. It is observed and held that sale upto 15% is from total area covered under the scheme and not in respect of every plot of land. In order to generate financial resources for the development of infrastructure, the salable plot for residential, commercial and industrial use are allotted by the appropriate authority. It is further observed that the provision of the Act have to be read as a whole and therefore, the provision of Section 40(3)(jj)(a)(iv) for sale is to be in consonance / conjointly with other statutory provisions and not in isolation.Under the circumstances, the learned Tribunal has committed gross error in considering the activities of the appellant Urban Development Authority for profiter by selling 15% of the total area and thereby has committed gross error in holding the activities of the assessee in the nature of trade, commerce or business. 12.2. Whether the activities of the appellant AUDA can be said to be in the nature of trade, comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. In the case before the Division Bench, the assessee Trust Sabarmati Ashram Gaushala Trust was engaged in the activity of breeding milk cattle; to improve the quality of cows and oxen and other related activities. The Assessing Officer denied the exemption to the trust under Section 11 of the Act on the ground that considerable income was generated from the activities of milk production and sale and therefore, considering the proviso to Section 2(15) of the Act, the said Trust assessee was denied the exemption under Section 11 of the Act. While holding that the activities of the assessee trust still can be said to be for charitable purpose within the meaning of Section 2(15) of the Act and same cannot be said to be in the nature of trade, commerce or business for which proviso to Section 2(15) of the Act is required to be applied. In para 6, 7, 8 and 12, it is observed and held as under: 6.The legal controversy in the present Tax Appeal centers around the first proviso. In the plain terms, the proviso provides for exclusion from the main object of the definition of the term Charitable purposes and applies only to cases of advancement of any other of general general publ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on any activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. 3.1 There are industry and trade associations who claim exemption from tax under section 11 on the ground that their objects are for charitable purpose as these are covered under any other object of general public utility. Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between the contributors and the participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act those activities which are truly in the nature of trade, commerce or business but are carried out under the guise of activities in the nature of public utility. 15.1. Applying the aforesaid decision to the facts of the case on hand and the object and purpose for which the assessee is established / constituted under the provisions of the Gujarat Town Planning Act and collection of fees and cess is incidental to the object and purpose of the Act, even the case would not fall under second part of proviso to Section 2(15) of the Act. 15.2. Considering the aforesaid facts and circumstances of the case, we are of opinion that the learned Tribunal has committed a grave error in holding the activities of the assessee in the nature of trade, commerce or business and consequently holding that the proviso to Section 2(15) of the Act shall be applicable and therefore, the assessee is not entitled to exemption under Section 11 of the Act. For the reasons stated above, it is held that the proviso to Section 2(15) of the Act shall not be applicable so far as assessee AUDA is concerned and as the activities of the assessee can be said to be providing general public utility services, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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