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TMI Blog2021 (1) TMI 680X X X X Extracts X X X X X X X X Extracts X X X X ..... atute to be charitable purpose and is as provided in the last limb of the definition given in section 2 (15) Assessee is the extended arm of the UP state and is discharging it statutory functions within the four corners of the Act. The assessee is part of welfare state and is discharging its duties and function as has been empowered by the Act and also by the Constitution of India for the advancement and welfare of general public. Assessee cannot be equated by with the private entrepreneur or coloniser or club or Association, as it is a state under Article 12 of the Constitution of India and has duties, towards all the citizens and resident of the area irrespective of caste, creed, religion, sex etc . The charging of cess or fees by the assessee is only an incidental activities to the main and primary activities of the assessee ,continues to be development etc for the benefit of general public . Moreover charging of fees, cess, etc by the assessee for its activities were duly authorised by the act, regulation and rules framed under the law - Discharge of duties by the state or by the state functioning cannot be termed as an activity which is trade, commercial or business. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther object public utility is a bigger set and activities of trade, commerce or business, may be incidentally forming part of advancement of any other object public utility. The reliance on the objects of the assessee by AO, cannot form basis of coming to the conclusion that the assessee was doing commercial activities. Therefore the finding of the assessing officer that the assessee was carrying out the commercial activities was without any basis. Interest income on the fixed deposit - The income even if any earned by way of the interest income on the fixed deposit is also required to be exempted under section 11 of the Act,as there is no other source of income of the assessee other than doing the charitable activities .For the purpose of exemption of interest income we may rely upon the full bench decision in the matter of Hewlett Packard Global Soft Ltd. 2017 (11) TMI 205 - KARNATAKA HIGH COURT] which on examining the exempt income under section 10, had allowed the exemption even on interest income , if there is no other source of income except the exempt income , as in present case - Appeal of assessee allowed. - ITA No. 256/Agra/2014, ITA No. 355/Agra/2014, ITA Nos. 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e action of Assessing Officer in completing the assessment under Chapter IV of the Income tax Act and invoking provisions of section 145(3) in the absence of any income under the head Profit and Gains of business or Profession or Income from other sources . The completion of assessment under Chapter IV and invoking provisions of section 145(3) is wholly illegal in the case of the appellant which is enjoying registration u/s 12AA. 5. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of ₹ 1,30,72,364/- out of addition of ₹ 20,28,52,965/- made by the Assessing Officer. The Ld. CIT(A) erroneously held that income is recognizable against receipts shown in the 'project development fund' a/c which are in respect of allotment money received during the year. The Ld.CIT(A) has erroneously confirmed the addition of entire receipts as income of the appellant. The authorities below have arbitrarily rejected the system of accounting consistently followed by the appellant from the date of its inception. In the absence of any amount reserved by the appellant as profit, holding entire amount of allotment money as income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... government. The addition is contrary to the facts available on record and is wholly illegal. 11. Because the appellant craves leave to alter/ modify grounds before or at the time of hearing of the appeal. ITA No. 355/Agra/2014 Following Grounds Were Raised by the revenue for the assessment year 2010 2011 1. The Ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 18,97,80,601- out of total addition of ₹ 20,28,52,965/- made by the AO on account of sale of shopping complexes, residential houses / commercial spaces etc. without appreciating the facts that the assessee never recognized revenue from the above sale in the past nor ever treated them as business receipts in his books of accounts. 2. The Id. CIT(A) has erred in law and on facts in deleting the addition on account of grant received from Govt. of ₹ 1,30,55,310/-and in holding that the entire receipt was capital receipt This amount was given by the state government to the assessee for carrying out civil works which is in the nature of business activity. The assessee spent an amount of ₹ 32,33,663/- on this works, therefore, proportionate part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y denying exemption u/s 11 of the I.T. Act. The same is again in utter disregard to the several judicial pronouncements including authoritative pronouncement of Hon ble Allahabad High Court in the case of Lucknow Development Authority [(2013) 38 taxmann.com 246 (All.)]. Ld. CIT(A) failed to appreciate that the appellant is also a statutory body constituted by the same statute viz. Uttar Pradesh Urban Planning And Development Act 1976 with the sole object of planned development of Jhansi City. 5. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of ₹ 3,26,00,848/- being the excess shown in the ' income and expenditure'account . The authorities below have erroneously disallowed the benefit of exemption u/s 11 of the I.T. Act claimed by the appellant. The disallowance is again in utter disregard to the authoritative judicial pronouncements. The exemption u/s 11 of the I.T. Act, being in accordance with report in 10B , may kindly be directed to be granted. 6. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of ₹ 6,31,13,830/- being the receipts shown in 'infrastructure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or at the time of hearing of the appeal. ITA No. 150/Agra/2017 The grounds of the assessee s are as under:- 1. Because the Ld. Commissioner of Income Tax (Appeals)-II, Agra, hereinafter referred to as CIT(A) erred, both in law and on facts, in holding that the Assessing Officer was justified in adopting status of the appellant as Society. 2. Because the Ld. CIT(A) erred, both in law and on facts, holding that the appellant is engaged in commercial activities by virtue of section 2(15) of the I. T. Act, as amended from 01.04.2009. Ld. CIT(A) failed to appreciate that the appellant is carrying on non commercial activities for which registration u/s 12A had been granted. The authorities below could not legally hold the charitable objects as of commercial nature during the subsistence of registration u/s 12A in view of authoritative judicial pronouncements and as such, the order of Ld. CIT(A) is erroneous and perverse. 3. Because the Ld. CIT(A) erred, both in law and on facts, in holding the activities of the appellant as that of commercial nature and consequentially denying exemption u/s 11 of the I.T. Act. The same is again in utter disregard to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Income Tax (Appeals)-II, Agra, hereinafter referred to as CIT(A) erred, both in law and on facts, in holding that the Assessing Officer was justified in adopting status of the appellant as Society. 2. Because the Ld. CIT(A) erred, both in law and on facts, holding that the appellant is engaged in commercial activities by virtue of section 2(15) of the I. T. Act, as amended from 01.04.2009. Ld. CIT(A) failed to appreciate that the appellant is carrying on non commercial activities for which registration u/s 12A had been granted. The authorities below could not legally hold the charitable objects as of commercial nature during the subsistence of registration u/s 12A in view of authoritative judicial pronouncements and as such, the order of Ld. CIT(A) is erroneous and perverse. 3. Because the Ld. CIT(A) erred, both in law and on facts, in holding the activities of the appellant as that of commercial nature and consequentially denying exemption u/s 11 of the I.T. Act. The same is again in utter disregard to the several judicial pronouncements including authoritative pronouncement of Hon ble Allahabad High Court in the case of Lucknow Development Authority [(2013) 38 taxm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that appellant has raised 11 grounds in the present appeal out of which, the assesseeis not pressing down 1 ,2 and 4 of the grounds of appeal. As a assessee is not pressing these ground , therefore these grounds are dismissed as not pressed. 5. During the course of argument, both the parties, have agreed that the ground No. 3 is a basic and common ground in all the assessee appeal which is required to be decided first and the remaining ground are consequential in nature. 6. The facts are that the assessee under appeal is a body corporate constituted under Uttar Pradesh Urban Planning Development Act, 1973. The assessee was filing return of income in the status of Local Authority and claiming exemption u/s.10(20A) earlier. Later, vide Finance Act, 2002, section 10(20A) has been deleted and an explanation to section 10(20) has been added defining the term Local Authority . As per this definition, the assessee (appellant) in the present case has been excluded from being assessed as Local Authority w.e.f. 01.04.2003. 7. Subsequently, the assessee (appellant) has been given registration u/s.12AA by the CIT-II, Agra w.e.f. 01.04.2003 vide order dated 21.10.2010 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture statement, from which following facts emerge out, each indicating that the activities of the assessee are hit by newly introduced first proviso to section 2(15) :- a. The assessee is engaged in acquiring land from the farmers, converting the land use, plotting the land and selling it at higher price thereby making a profit. The assessee also sells such land to colonizers and builders for further development and constructions.. These activities are clearly in the nature of trade and commerce and therefore the same attracts proviso to section 2(15) of I.T.Act. b. The assessee converts a lease hold land to Free Hold Land thereby increasing its value and rendering it useful for further sale and development by builders and colonizers and common people. The assessee earned ₹ 2,11,24,087/- (Part of schedule 8 of Annual Statement) during the relevant Assessment Year from such activities. This activity clearly attracts the new proviso as it is an activity of rendering service in relation to a trade, commerce or business. c. The assessee sold master plan book and tender forms and earned a income of ₹ 3,59,600/-. It has earned an amount of ₹ 19,20,460/- as de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee invests the surplus money in FDRs and other deposits like any regular businessman and earned ₹ 3,51,83,751/- as interest income. This is a commercial activity which attracts the proviso to section 2(15). So, from the discussion above it is clearly established that above activities of the assessee are in the nature of trade, commerce or business or they are rendering service in relation to trade, business or commerce. The perusal of balance sheet, Profit and loss account, Income and Expenditure account and report in form 103 along with UP Urban Planning and Development Act, 1973, leads to inescapable conclusion that the activities of the assessee were hit by newly introduced first proviso to section 2(15). The activities of the assessee are also aimed at earning profit, which is neither incidental nor by-product of assessee and the activities of purchase and sale of assessee makes it to be a commercial organization. 12. During the course of assessment proceedings, the assessee was asked by the assessing officer as to the applicability of the proviso to section 12A and disallowance of the exemption claimed under section 11 and 13 of the Act as the activities of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5) w.e.f. 01.04.2009. A proposal for cancellation of registration ws 12A was also sent to Ld. Commissioner of Income Tax-II, Agra who, after considering the proposal cancelled the registration u/s 12A. However, the order of Ld. Commissioner of Income Tax was cancelled by Hon'ble ITAT vide its order dated 11.01.2013 Thereafter, proposal on the identical lines was sent to the Ld. Chief Commissioner of Income Tax, Kanpur for getting Special Audit u/s 142A. The special audit was conducted and report of the Special auditor is on record. The Special auditor too, beyond his authority, has made comments on the nature of activities. 5. The fundamental issue to be considered, in the light of facts and circumstances above, is whether, the assessing officer can legally examine the objects or the activities ignoring registration granted u/s 12A. It has been held by the apex court in Asstt. CIT Vs Surat City Gymkhana ((2008) 170 Taxmann 612 (SC)], the Hon ble High Court in Iiira Lai Bhagwati Vs CIT ((2000) 246 ITR 188 (Guj.) (HC)/ and by the Hon'ble ITAT in Mumbai Metropolitan Region Development Authority vs DDIT (ITA No. 5584 and 5062 /Mum /2009 dated 29.06.2012] that the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecorded by the learned CIT appeal which were to the following effect: 7.5.1 After considering the discussion made by the AO in the assessment order and the written submission of the Ld. AR, I find that the dispute about the nature of activities of the assessee (appellant) Authority has arisen because of the amendment in section 2(15) inserting a proviso w.e.f. 01.04.2009 and further bringing an amendment w.r.e.f. 01.04.2009 inserting a sub-section (8) in section 13. On the basis of these new provisions, the AO has held the activity of the assessee (appellant) as being in the nature or in relation to trade, commerce or business and taxing the income from such activity under the head Income from Business or Profession . However, as per the argument put up by the Ld. AR, once the registration u/s 12A is in force in respect of a trust/institution, the AO is bound to complete the assessment after allowing exemption under section 11 and it has been forcefully argued by him that the AO has illegally assumed the power of CIT provided in section 12AA for examining the nature and activities of the assessee (appellant) Authority. In his view, the power of the AO are restricted in this r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fill the criteria for charitable purpose, it has been held by him that the assessee cannot be allowed exemption u/s 11 after invoking the newly inserted provision of section 13(8) w.r.e.f. 01.04.2009 as I have already discussed in para 7.1. As regards to the contention of the Ld. AR about the assessee(appellant)being a publically owned institution and statutory body and no parts of its receipt of whatever nature going to the public during its subsistence and after its dissolution also, no part of its profit going to private hand, the AO has relied upon the decisions in respect of certain other Development Authorities i.e. Jammu Development Authority and Jalandhar Development Authority for whom cancellation of registration u/s 12A and denying exemption of income u/s 11 was confirmed by the Hon ble ITAT Amritsar and similarly in respect of Indore Development Authority also, cancellation of registration u/s 12A was confirmed by the Hon ble ITAT Indore. As regards to nontaxability of a publically owned institution and statutory body of a State Govt., the AO has specifically referred to a decision of Hon ble Supreme Court in case of Adityapur Industrial Area Development Authority vs. Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engaged in the activities of trade business and for this purpose , profit to go in private hand is not an important criterion as in the case of Adityapur Industrial Area Development Authority also, the profit did not go to private hand but it has been held as liable to be taxed because of its nature of activities. Therefore, the AO has heavily relied upon this decision along with the decisions in case of Jammu Development Authority, Jalandhar Development Authority and Indore Development Authority. 7.5.3 Since in case of the present assessee , it is registered as charitable institution u/s 12A, the basic question to be decided is whether granting of registration u/s.12A /12AA to a trust/institution will take away the powers of the AO to determine the nature of the income earned by it, specifically of the trust or institution that is provided registration for charitable purposes for advancement of object of public utility, but during the course of assessment proceedings, the AO finds that the activities of such trust/institution are in the nature of or for providing service in relation to trade, business or commerce and their gross receipts from such activities are more than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year. 8.2 Explanatory note given in the Memorandum of Finance Bill 2012 for inserting a new proviso in section 10(23C) and bringing a new sub-section (8) in section 13 is as under: - Explanatorv Note to amendment Assessment of charitable organization in case commercial receipts exceed the specified threshold Sections 11 and 12 of the Act exempt income of any charitable trust or institution, if such income is applied for charitable purposes in India and such institution is registered under section 12AA of the Act. Section 10(23C) of Income Tax Act also provides exemption in respect of approved charitable funds or institutions. Section 2(15) of the Act provides definition of charitable purpose. It includes advancement of any other object of general public utility as charitable purpose provided that it does not involve carrying on of any activity in the nature of trade, commerce or business. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 009-10 and subsequent assessment years. [Clauses 5, 6, 58]. 8.3 In the above Explanatory Note, it has been clarified that if the purpose of a trust or institution does not remain charitable due to application of first proviso on account of exceeding commercial receipts threshold provided in second proviso in a previous year, then such trust / institution would not be entitled to get benefit of exemption in respect of its income for that previous year for which such proviso is applicable. Such denial of exemption shall be mandatory by operation of law and would not be dependent on any withdrawal of approval or cancellation of registration or a notification being rescinded. Keeping in view this objective, amendment has been done in section 10(23C), section 13 and section 143 of the Act to ensure that such organization does not get benefit of tax exemption in the year in which it s receipt from commercial activities exceeds the threshold whether or not the registration or approval granted or notification issued is cancelled, withdrawn or rescinded. In view of the above explanatory note, I find that the view of the AO that the registration u/s.12A is necessary but not es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e charitable purpose even if it incidentally involves the carrying on of commercial activities. 2.2 Relief of the poor encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the conditions stipulated under section 11 (4A) or the seventh proviso to section 10(23C) which are that:- (i) the business should be incidental to the attainment of the objectives of the entity, and (ii) separate books of account should be maintained in respect of such business. Similarly, entities whose object is education or medical relief would also continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity subject to the conditions mentioned above. 3. The newly inserted proviso to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, 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. 8.3 In the above circular, it has been made clear by the CBDT that proviso to section 2(15) will apply to entities whose purpose is 'advancement of any object of public utility i.e. fourth limb of the definition of the charitable purpose contained in section 2(15) and it is further clarified that such entities will not be eligible for exemption u/s.11 or u/s.10(23C) of the Act, if they carry on the commercial activities. However, it has been mentioned that whether any 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 nature, scope, extent and frequency of the activity and therefore, each case would be decided on its own facts and no generalization is possible. 15. The feeling aggrieved by the order passed by the lower authorities is before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in Uttar Pradesh Urban Planning and Development Act. 20. The appellant is neither carrying out any business on behalf of Government nor on the orders of Government. The buildings or the land developed by the appellant are sold without keeping any margin of profit. There is no motive a profit earning in either developing the land or selling the land or building developed by the assessee and therefore there is no ingredient of the business in the activities carried out by the appellant. The business is defined on several occasions by judicial authorities. The activities of the appellant does not fall under the category of business. 21. The activities of the appellant are incidental to the achievements of the objects and as such does not falls under the fourth limb of section 2(15) i.e. advancement of any other object of general public utility. The appellant is not carrying out activities in nature of trade, commerce or business for the reasons stated above. Further, the activities from which surplus is generated falls under the head OTHER SOURCES and as such no specified books of accounts are required to be maintained and consequentially provisions of section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal) The appellant is in appeal against the order of Ld. CIT(A). The appellant has submitted number of synopsis during the course of hearing on different dates. The assessee begs to file summarized synopsis which is as under:- The appellant is a development authority and enjoying registration u/s 12A in terms of order of Hon ble ITAT placed at (Page 144-156 of the PB No. 1). The return declaring NIL income was filed alongwith statutory Form 10B, claiming exemption u/s 11 of the I.T. Act. Form 10B is placed at (page 65 of the PB No. 1). While completing the assessment, exemption u/s 11 has been denied and other additions have been made by the Assessing Officer. The Ld. CIT(A) has allowed partial relief against which the appellant is in appeal. The appellant has taken following grounds of appeal:- . Ground wise submissions in brief, are as under: 1. 1. Ground no. 1 is not pressed 2. 2. Ground no. 2 is not pressed 3. Ground no. 4 is not pressed 4. Vide Ground nos. 3 7, the appellant has challenged the legallity of findings of authorities below in holding the activities of the appellant as of commercial nature wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State Government any-area within the State requires to be developed according to plan it may, by notification in the Gazette. declare the area to be a development area. 2 After declaration u/s 3 of the UPUPD Act, the State Government under section 4 of the UPUPD Act, may constitute Development Authority for the purposes of the Act to promote and secure the development of the development area according to the Plan. Copy of notification with regard to the area for the development of Jhansi City is on record. 3 Section 8 of the UPUPD Act provides for preparation of Master Plan and Zonal Development plan. 4 Sub section (2) of section 10 of the UPUPD Act requires that after preparation of Master Plan, the same shall be submitted to the State Government for its approval and the State Government may either approve the plan without modification or with such modification as it may consider necessary or reject the plan with the direction to the authority to prepare a fresh plan according to such direction. 5 The procedure for preparation and approval of plan has been mentioned in section 11 of the UPUPD Act. 6 Section 12 of the UPUPD Act pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The special audit in this case was also conducted u/s 142(2A) vide authorization letter No. DCIT-1/Agra/JDA/2012-13 dated 22.03.2013. The report in this case was submitted on 22.06.2013. The report is placed at page 1 123 of the paper book-I . The special auditor examined the books of accounts and had given findings on the books of accounts on various pages. At page 51 of the Paper book , the special auditor has commented on whether the income of the assessee falls within scope of section 2(15) and in continuation at page 54 of the Paper book has observed that the activities are in the nature of business activities and the same cannot be said to be for charitable purposes within the meaning of section 2(15) of the Income Tax Act, 1961 . In this connection, it is respectfully submitted that the special auditor has no authority to examine the applicability of section 2(15) for holding the activities of the appellant as business activities. The responsibility of the auditor was limited to the examination of books of accounts as envisaged in section 142(2A). The observations on the activities are irrelevant and unreliable. The authorities below have relied upon his obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egorically held that provisions of section 2(15) in so far as the nature of the activities are not applicable and as such exemption u/s 11 should be allowed. The order is placed at Page 1 3 of Judicial Index Paper Book dated 23.02.2018 (Relevant Para 3,4,5, 6). The Ld CIT(A) has again relied upon the comments of special auditor on Point no. 3 at page 51 of the Paper Book. Despite the objections by the assessee that the special auditor has no legal authority to decide the application of section 2(15) of the Act and the Ld. CIT(A) having admitted that it is his (special auditor) opinion over the issue, has decided to adjudicate after examining the Act and various decision as discussed by the Ld. CIT(A). It is again submitted that neither the statute nor the decisions relied upon by Ld CIT(A), no where states that collection of fees, toll and various charges are in relation to any trade, commerce or business. The finding of Ld. CIT(A) that these income are earned from purchase and sale of land and construction of flat and selling them at profit are in the nature of trade, commerce or business are wholly imaginary as well as contrary to the facts of the case. Ld. CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 329 ITR 404 Kerala HC [ Page No. 48 ] Andhra Pradesh State Seed Certification Agency vs CCIT[2012]28 Taxmann.com 288(AP) [ Page No. 50 ] Himachal Pradesh Environment Protection Pollution Control Board Vs CIT[2010] 42 SOT 343(Chd) [ Page No. 57 ] Entertainment Society of Goa vs CIT [2013] 34 Taxman.com 210 (Panji) [ Page No. 61 ] M/s VanitaSamaj Vs DIT(E) ITA No.1034/Mum/2012 ITAT Mumbai dt. 26.02.2014 [ Page No. 71 ] Rajasthan Housing Board vs. CIT [2012] 21 taxman.com 77 (ITAT Jaipur) [ Page No. 72 ] Adityapur Industrial Area Development Authority vs.Union of India [2006] 283 ITR 97 SC [ Page No.72 ] The nature of activities of development authorities constituted by the Act have been examined by Hon ble jurisdictional High Court as well as various benches of Hon ble ITAT. It has been consistently held that the activities of the appellant are not of commercial nature. The appellant relies upon the following judgments : (i) Lucknow Development Authority [(2013) 38 Taxmann.com 246All.)] (Relevant Para 27-28) (JOPB No. 1) (ii) Moradabad Development Authority [(2016) 71 Taxmann.com 339 (ITAT, Delhi)] (Relevant para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Book No. 1) . Hon ble ITAT in Moradabad Development Authority, Jaipur Development Authority, Bangalore Development Authority (Supra) have analyzed applicability of judicial pronouncement of Hon ble Supreme Court and Hon ble J K High Court and have found that above judicial pronouncement is not applicable to the development authorities having registration u/s 12A. The objects and activities of the appellant, are identical with those of the authorities referred above . The issue being covered, the exemption u/s 11 may kindly be directed to be allowed. Submissions of Revenue 26. On behalf of the revenue ld CIT DR had made elaborate submissions supporting the case of the assessing officer as well as of the Commissioner appeal. The first argument raised by the revenue that the case of the assessee falls within the provision to section 2{15} of the income tax act. Our attention was drawn to the provision of the said section and the emphasis was drawn that the activities of the assessee are in the nature of trade commercial business and the other activities rendered by the assessee were for fee or cess . Further it was submitted, that the application of the amount received b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the objectives of the trust as was allowable to the intuitions u/s 11(4A) carrying the activity under the all the limbs of section 2(15) of the Act is no more available to the institutions carrying on the advancement of object of public utility. The institutions carrying out the object of public utility have been barred from doing any activity in the nature of trade, commerce or business for claiming their activity for charitable Purposes . Secondly this bar is irrespective of application of income from such commercial activity. That it will be immaterial whether the income from the commercial activity is utilized or ploughed back to such activity serving object of public utility. However, the restriction imposed by the above amendment is/was applicable only in respect of fourth limb of section 2(15) of the Act i.e. for the institutions or trusts carrying out the activity of advancement of any other object of general public utility. Hence, the restriction put by section 11(4A) was still applicable to the other limbs in the definition of charitable purposes u/s 2(15) of the Act. 38. 39. The CBDT issued a circular dated 19.12.2008, paragraph-3 whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of s. 2(15) would be well advised to eschew any activity which is in the nature of trade, commerce or business or rendering of any service in relation to any trade, commerce or business. (emphasis supplied by us) 40. The above explanation given by the CBDT that the newly amended s. 2(15) will apply only to the entities whose purpose is 'advancement of any other object of general public utility' and that such entities will not be eligible for exemption under s. 11 or under s. 10(23C) of the Act, if they carry on commercial activities irrespective of application of income from such activity has not gone well with the interpretation given by the High Courts. The Jurisdictional Punjab Haryana High Court has discussed at length the effect of newly inserted proviso to section 2(15) of the 1961 Act w.e.f. 1.4.2009 while referring to several case laws of other High Courts of the country and held that by the insertion of the proviso, the position has restored/reverted to legal position as declared by the Hon'ble Supreme court in 'Surat Art Silk Cloth Mfgr. Assn ' Case (supra) while interpreting the unamended provisions of 1961 Act. The Hon'ble High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Institute of Chartered Accountants of India v. DGIT (Exemptions), [2013] 358 ITR 91/217 Taxman 152/35 taxmann.com 140 (Delhi) wherein it has been held that while construing the term business for the purpose of Section 2(15) of the Act the object and purpose of the Section must be kept in mind and a broad and extended definition of business would not be applicable for the purpose of interpreting and applying the first proviso to Section 2(15) of the Act. The object of introducing the first proviso is to exclude organizations which are carrying on regular business from the scope of charitable purpose. The expressions business , trade or commerce as used in the first proviso must, thus, be interpreted restrictively and where the dominant object of an organisation is charitable, any incidental activity for furtherance of the object would not fall within the expressions business , trade or commerce . Although, it is not essential that an activity be carried on for profit motive in order to be considered as business, but existence of profit motive would be a vital indicator in determining whether an organisation is carrying on business or not. The Hon'ble High Court also r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a 'charitable purpose'. On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes. (emphasis supplied by us) 41. The crucial point for the entire discussion in the above case of 'India Trade Promotion Organization (supra)' was relating to the interpretation of section 2(15) r.w.s. 10(23C) (iv) of the Income Tax Act. The Hon'ble High Court has observed that the expression charitable purposes in context of section10 (23C) (iv) has a reference to income. It is only when an institute has an income that it will claim exemption from its inclusion in the total income. The Hon'ble Delhi High Court therefore held that merely because an institution which otherwise was established for a charitable purpose, receives income would not make it any less a charitable institution. That it is not the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the provisions of section 11(4A) of the Act and as interpreted by the Supreme Court in the case of 'Thanthi Trust' (supra) and several High Court decisions thereafter. Even with all due respect, in our humble opinion, the restriction put by newly inserted proviso was applicable only to the activity of 'any other object of general public utility' but not to the other limbs of the definition as provided u/s 2(15) of the Act. Hence, to say that the newly inserted proviso would make for all purposes the section 2(23)(iv) or section 11(4) of the Act redundant or otiose, in our humble view, may not be correct. Even the crucial words in the second limb of the proviso 'irrespective of the nature of use or application, or retention, of the income from such activity' are also required to be considered and the same, in our view, cannot be ignored. By the insertion of these words, intention of the government is to overcome the 'ultimate or end object or to say predominant object theory' as was laid down by the Hon'ble Supreme Court in the cases of 'Surat Art Silk Cloth Mfgr. Assn' (supra) and 'Thanthi Trust' (supra). To be more precise, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Finance Act, 2012, w.r.e.f. 1-4-2009 adding the following proviso added: 10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- (23C) any income received by any person on behalf of- ** ** ** (iv) any other fund or institution established for charitable purposes which may be approved by the prescribed authority , having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States; or (v) any trust (including any other legal obligation) or institution wholly for public religious purposes or wholly for public religious and charitable purposes, which may be approved by the prescribed authority , having regard to the manner in which the affairs of the trust or institution are administered and supervised for ensuring that the income accruing thereto is properly applied for the objects thereof; . Provided also that the income of a trust or institution referred to in sub-clause (iv) or subclause (v) shall be included in its total income of the previous year if the provisions of the first proviso to clause (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly introduced provisions of section 2(15) in the 1961 Act. However, in our view, that was perhaps never the intention of the parliament to restore the position to that was operative or as interpreted by the courts of law from the year 1961 to the year1983. That is why immediately in the next financial year vide Finance Act 2010 with retrospective effect from 1.4.2009, the date with effect from which the first proviso to section 2(15) was introduced, the second proviso was brought in with the sole purpose of diluting the rigours of the first proviso and to mitigate the hardship created to the institutes genuinely carrying out the object of general public utility. Since with the introduction of second proviso, the rigour of the first proviso was diluted to ensure appropriate balance being drawn between the object of preventing business activity in the garb of charity and at the same time protecting the activities undertaken by the genuine organization, hence the interpretation given by the courts taking into consideration the hardship caused by the first proviso , in our view, can not be applied as such at this stage, but the same is required to be looked into in the light of the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefits available to the trusts carrying on the advancement of any other object of general public utility which also involves the incidental activity in the nature of trade, commerce or business. Newly inserted proviso to section 10(23C) also controls or restricts the benefit available to the institutions claiming benefit thereunder, however none of the provisions, in our view, in any manner, makes the other section inoperative, otiose or redundant. On the other hand, in our view, adopting the interpretation as given by the courts to the first proviso to section 2(15) bereft of second proviso and ignoring section 13(8) of the Act and other related amendments brought into section 10(23C) and section 143(3) of the Act with retrospective effect from 1.4.2009, would make these provisions redundant, otiose and inoperative. 56. It is pertinent to point here that the hon'ble supreme court in the case of Thanthi Trust (supra) while interpreting the relevant provisions as they stood for the period from AY 1984-85 to AY 1991-92, denied the benefits of exemption to the assessee trust applying and adopting the literal interpretation of the more stringent provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limbs, to which the provisions of amended subsection 4A to section 11 continue to apply. 57. Another crucial phrase brought in the first proviso are irrespective of the nature of use or application, or retention, of income from such activity . The addition of the above crucial words obviously is to overcome the decision of the Hon'ble Supreme court in the case of Surat Art Silk Cloth Mfgr. Assn (supra) as well in the case of Thanthi Trust' (supra) wherein it was held that if all the surplus or profit from the business activity is invested or ploughed back into the assets of the assessee or applied to the main activity, the business will be a business incidental to the attainment of the objects of the trust. However, this proposition has been made inapplicable or to say bygone by the Legislature for the institutions carrying on object of general public utility by way inserting the crucial words irrespective of the nature of use or application, or retention, of the income from such activity in the first proviso to section 2(15) of the Act. 58. The Government realized need to curb the practice of business houses to claim exemption on the ground that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of section 11 (4) would be rendered wholly superfluous and meaningless. The High Courts of Delhi and Pb. Hry. followed the obove construction made by the Supreme Court in the caae of 'Surat Art Silk Cloth Manufacturers Assn.' (supra) 59. However, the Govt. very soon, even before the coming of above interpretations by the High Courts, realized the consequence that were likely to arise from the above amendment. Therefore, taking into consideration the harsh and strict meaning of the first proviso, it was felt that the plain and literal meaning to the first proviso would be of great hardship to the trust or institution which were genuinely carrying out the object of general public utility and that in the course of which it also generates some incidental or ancillary income. It was under such circumstances that the second proviso was brought in the next financial year itself with retrospective effect so as to make the first proviso to section 2(15) workable and to remove the ambiguity in the provisions of section 2(15) of the Act. Now with the insertion of second proviso, meaning and interpretation which is more rational has to be arrived at. However, if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly exempt as stood canvassed by the Ld. Counsel for the assessee in the light of the various case laws including the decision of the Hon'ble Jurisdictional High Court of Punjab Haryana in the case of ' Tribune Trust' (supra) . In that event the argument that can be reasonably put is that the second proviso inserted by Finance Act 2010 with retrospective effect from 1.4.2009 allowing the carrying out of the business activity up to the prescribed limit of receipts from such activity would be applicable in those cases where an institution or trust is carrying out the activity of advancement of general public utility but at the same time its object is also to make profits as observed by the hon'ble Supreme Court in the case of 'Surat Art Silk Cloth Mfg. Association' (supra) in respect of the privy Council decision in the case of Trustees of the Tribune (supra) and then by the Hon'ble Pb. Hry. High court in respect of activities carried out by the Tribune Press Trust in the case of Tribune of the Trust (supra), in that event such institutions would also be eligible to claim exemption u/s 2(15) subject to the condition that their total receipts would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in respect of such persons doing different business will start only if their receipts during the year would cross the limit as prescribed from time to time. Even big institutions or companies will divide themselves into subsidiaries or smaller units ensuring that income of each of such taxable unit or entity should not increase the prescribed monetary limit of the receipts. Such an interpretation of the second proviso to section 2(15) would lead to absolute absurdity, confusion and unwanted and uncalled for consequences. Even it will be also an issue in dispute as which of the activity/activities of an assessee is/are towards the advancement of object of General Public Utility though may be with profit making object also and which of these is/are of a pure commercial venture. Thus. in our view, the different but related provisos of the Act are to be read in harmony with each other. The interpretation as canvassed for the period prior to the introduction of the second proviso, if adopted now, will render the newly inserted amended provisions of the Act as infructuous and redundant. 62. The issue relating to the effect of insertion of first and second provisos to sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 162/240 Taxman 407/70 taxmann.com 181 (Bom.) has duly taken note of the provisions of section 13(8) of the Act inserted vide Finance Act 2012 w.r.e.f. 1.4.2009 as well as the CBDT Circular No.21 of 2016 and though, held that merely because in one year income of assesseetrust exceeded prescribed limit provided under second proviso to section 2(15), that by itself, could not warrant cancellation of registration of trust, however, where the receipts are hit by the proviso to Section 2(15) of the Act, the benefit of exemption to its income for the previous year relevant to the subject assessment year will not be available. However it has been further held that if this happens on continuous/regular basis, it could justify further probe/inquiry before concluding that the trust is not genuine. 63. Though in the above referred to decisions of Mumbai Bench of the Tribunal and that of the Hon'ble Bombay High Court (supra), the question was whether the registration granted u/s 12 to the charitable institution can be cancelled if the monetary receipts from its business activity crosses the limit prescribed as per the second proviso to section 2(15) of the Income Tax Act and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of use or application, or retention, of the income from such activity introduced in the first proviso of section 2(15) of the Act. 69 (2). Now, coming to the provisions of section 10(23C)(iv) of the Act, the income received by any person, on behalf of any fund or institution established for charitable purposes which may be approved by the prescribed authority, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States exempt from taxation. Now for approval to claim exemption u/s 10(23C)(iv), the institute for the fund must fall in the definition of 'charitable purposes' which includes activity under all or any limb as discussed above and can not be said to be applicable solely for activity of General Public Utility. So far institutes established for the objects of relief to the poor, education yoga, medical relief, preservation of environment and preservation of monuments or places or objects of artistic or historic interest, their income may be claimed as exempt u/s 10(23C) (iv) if they otherwise fulfill the conditions as enumerated u/s 10(23C)(iv) of the Act. So far as the institute carrying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommercial activity has also been allowed and included while carrying out the advancement of object of general public utility also subject to the limit prescribed of the receipts. The second proviso of the section is in consonance of the provisions of section 11(4) (4A) of the Income Tax Act. 69(5). We may point out here that the provisions of sections 11(4) and 11 (4A) of the Act are general provisions and are applicable to all the institutions claiming exemption u/s 11 of the Act carrying out activity for charitable purposes. Definition of the 'Charitable purposes' as provided u/s 2(15) of the Income Tax Act includes relief to the poor, education yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility. Sub-section 4A do not bar the carrying on of business activity , however, puts restriction that such business should be incidental to the attainment of the objectives of the trust or institution and separate books of account are maintained. The restriction put by earlier sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment of the objectives of such trust or institution and separate books of account are to be maintained. Further, to claim exemption u/s 10(23C)(iv) of the Act, the fund or institutes must be established for charitable purpose and is approved/registered by the prescribed authority having regard to their objects and importance throughout India and otherwise fulfill the other conditions as enumerated u/s 10(23C) of the Income Tax Act. Here we may point out the restriction put by section 11(4A) or section 13(8) do not in any manner comes into play or otherwise restrict the business activity of the fund or institutions established for charitable purposes and claiming exemption u/s 10( 23C)(iv) of the Act. But the restriction inter alia created by the provisos to section 2(15) read with the newly inserted 18th proviso to section 10( 23C) (as reproduced above) and newly inserted proviso to section 143 (as inserted by Finance Act 2012 w.e.f. 1.4.2009) will apply that too only to the Institutions carrying on the activity of advancement of any other object of General public utility and not to the institutions established under other limbs of the definition of Charitable Purposes . Thus the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion from taxation u/s 11 of the Act. As discussed in the paras above of this order, any income received by a person on behalf of any fund or institutions established for charitable purposes as included in the first part of the definition as defined u/s 2(15) of the Act i.e. for the objects of relief to the poor, education yoga, medical relief, preservation of environment and preservation of monuments or places or objects of artistic or historic interest can be claimed as exempt from levy of tax u/s 10(23C)(iv) of the Act irrespective of the quantum of such income i.e without any cap or limit on such income subject to fulfilling the other conditions as prescribed therein such as approval of such fund or institution by the prescribed authority, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States. However, the trusts or institutions carrying on such activity or established to carry on such activity, as the case may be, that is falling in the last limb of the definition of charitable purposes as defined u/s 2(15) of the Act i.e. for the advancement of any other object of public utility which also involv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of trade and commerce or business are ₹ 9.95 lacs, the institution will be treated as an institution for charitable purposes and its entire income exempt from taxation either u/s 11 or 10(23C) as the case may be, whereas, if there is a slight increase of Rs. six thousands only in such business income, say it crosses the limit of ₹ 10 lacs, i.e say at ₹ 10.01 lacs, then such trust or institution will be out of purview of the 'charitable purpose' and its entire income will be included in the total income, including the receipts which are not directly connected with the carrying of the incidental activity in the nature of trade, commerce or business. Such an anomaly will create utter confusion and will operate as restriction on the institution genuinely involved in carrying out the objects of general public utility. The Institutes which are rather carrying of the activity of general public utility on large scale will not be entitled to claim the benefit under the provisions of sections 11 12 of the Income Tax Act. Even the non-business income in the form of voluntary contribution and donations or directly relating to charitable activities (as discussed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , assessee is not entitled to exemption under section 11 of the Act. In that case it was held as under 65. Upon a co-joint reading of both the provisos to Section 2(15) of the Act, the legislative intent appears not to allow exemption to an assessee who may engage in an activity mentioned in the first proviso to Section 2(15) of the Act, if his receipts for a previous year exceed ₹ 10,00,000/-. At the same time that benefit is not to be denied to such an assessee it his receipts in the previous year do not exceed ₹ 10,00,000/-. 66. The activities of any assessee are conducted on a day- to-day basis and accounts are made up at the year end. Therefore, at the relevant time i.e. during the previous year relevant to an assessment year, it may not always be predicted or determined or be known whether the receipts (from activities have been specified in the first proviso to Section 2(15) of the Act) exceed the statutory limit of ₹ 10,00,000/- set in the second proviso to Section 2(15) of the Act. 67. Then Section 13(8) of the Act had also been incorporated with retrospective effect from 1.4.2009 i.e. the date of introduction of the first prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arves out a middle path by allowing the registration to stand but it's benefit to be deprived in assessment proceedings in certain specified circumstances. 29. The Ld.AR had also drawn our attention to the order passed by the assessing officer wherein the assessing officer has captured the various activities carried out by the assessee which, in the opinion of the assessing officer as well as of the Ld. DR were not perse charitable in nature , as t falls under last limb of definition given in section 2 (15) of the Income Tax Act. The Ld. DR had also drawn our attention to the special audit report done by the auditor to point out that the activities of the assessee are in the nature of trade commerce or business. It was submitted though the assessee may be exercising its jurisdiction and functions under the act it was constituted. It was submitted merely because the assessee was discharging its functions as per local/ state Act would not a reason to treat the assessee as charitable . The criteria to determine the activities of the assessee a charitable nature are provided under the Income Tax Act, therefore the activities of the assessee should meet the requirement of IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c difference in case referred to by the revenue and the case referred to by the assessee. The institution is not a government organization while the assessee is constituted by the Uttar Pradesh Government. It is therefore prayed that order passed by Hon ble ITAT, Ahmedabad bench, being the latest order, the same may kindly be followed. Analysis and Decision 31. We have considered the rival contention of the parties and perused the material available on record, including the judgments cited at bar during the course of hearing by both the parties. Section 2(15) has been reproduced herein above while recording the submissions of the assessee as well as the revenue. From the perusal of the section 2(15) it is amply clear that the charitable purpose includes relief of the poor, education, Yoga, medical relief preservation of environment (including water-Sheds, forests and wildlife) preservation of monuments or places or objects of artistic or historic interest and advancement of any other object of general public utility 32. Undoubtedly, the activities of the appellant, if at all, would fall in the last limb of the definition, of charitable Pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... township, even as it may involve in Main acquisition and disposal of land and its development. 34. The decision of the tribunal dated 5th December 2008 was challenged by the revenue before the Hon ble High Court and the Hon ble High Court violets order dated 29 August 2016 after relying upon the decision on the Lucknow development Authority had dismissed the appeal of the revenue. The important observation of the Hon ble High Court mentioned in paragraph 15 ,19 and 20 were as under : 15. Advancement of any other object of general public utility is a term of very wide connotation. There is no requirement for the purpose of Section 12 that Institution must be registered under Act, 1882 or Act, 1860. CIT added this condition on his own though we do not find any such condition provided under Section 12A or 12AA of Act, 1961. In order to consider whether creation of HPDA is for advancement of general public utility. Tribunal has looked into objects and purposes of U.P. Act, 1973 and also the purpose of acquisition of land by HPDA, which is only for public purpose and not personal one. 19. The findings and observations in the aforesaid judgment are squarely applicable in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jab Urban Planning Development Authority (supra), Improvement Trust Vs. CIT (Bhatinda)(supra) Haryana Urban Development, Panchkula Vs. CIT relied upon 13 by the Ld. DR have been rendered in the context of grant of registration u/s 12AA which stands on a slightly different footing as compared to cancellation of registration u/s 12AA(3). The grant of registration u/s 12AA(1)(b) requires satisfaction about the objects of the trust as well as genuineness of the activities, while for cancellation u/s 12AA(3) all that is insisted upon is the satisfaction as to whether the activities of the trust or institution are genuine or not and whether the activities are being carried on in accordance with the objects of the trust. Further we find that on the issue under adjudication in the present case, there are decisions of the Hon ble Tribunal in favour of the assessee as pointed out by the Ld. AR and in such a situation it is settled law that the view favourable to the assessee has to be taken. Moreover the decision of the Hon ble Madras High Court has precedence on the decisions of the Hon ble Tribunal on this issue following the principles of judicial precedence. 14. In view of the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic utility. 39. To attract the proviso to section 2(15) it is essential that the activities of the assessee should be in nature of trade, commerce or business or assessee is into rendering of services for trade , commerce or business . The assessing officer had examined the activities of the assessee in paragraph 2 at page 6 of the assessment order reproduced herein above ( para 8) and thereafter held that the activities of the assessee are in the nature of trade, commerce or business. 40. On the closer look of the activities of the assessee and reasoning of AO , it is clear that primarily the activities of the Assessee consist of acquiring the land from the farmers, converting the land use, plotting the land selling the land to coloniser and developer for construction activities. The assessee is discharging all these functions within the four corners of the Parent Act under which it was created, which ,in our view are statutory functions . The assessee is under an obligation to do all these activities as per the mandate given in section 9A of the act. Section 9A of UP act provides as under 9. Zonal Development plans.- (1) Simultaneously with the preparation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is necessary for the proper development of the zone or any area thereof according to plan and for presenting buildings being erected haphazardly, in such zone or area. 41. All the activities mentioned by the assessing officer in paragraph 2 at page 6 of the order, were done by the assessee pursuant to the fulfilment of its primary objects of its creation under state act and for the purposes of advancement public benefit. Similar view was taken by the Hon ble High Court in the matter of Yamuna Expressway Industrial Development Authority*[2017] 81 taxmann.com 208 (Allahabad) , wherein it was held as under : 71. Entire discussion, if we summarize, can be placed in a small arena of judicial analysis, that is, a body or institution which is functioning for advancement of objects of general public utility and its activities are not in the nature of trade, business or commerce and also not a sheer profit making, such institution is entitled to claim itself to be constituted for charitable purposes and seek registration under Section 12A(1) of Act, 1961. 42. We are also of considered view ,the assessee is the extended arm of the UP state and is discharging it stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Development Act, 1961 (3 of 1962) and in that context had referred to the functions performed by Maharashtra Development Corporation, which was to establish and manage industrial estate on selected basis and to develop industrial area selected by the State Government and for this purpose acquire and transfer land by way of sale, lease, etc. Contention of the petitioner therein that the Corporation established would be a trading one or a commercial corporation was rejected in the following words:- 16. The petitioners contended that the Corporation was a trading one. The reasons given were that the Corporation could sell property, namely, transfer land; that the Corporation had borrowing powers; and that the Corporation was entitled to moneys by way of rents and profits. Reliance was placed on the report of the Corporation and in particular on the income and expenditure of the Corporation to show that it was making profits. These features of transfer of land, or borrowing of moneys or receipt of rents and profits will by themselves neither be the indicia nor the decisive attributes of the trading character of the Corporation. Ordinarily, a Corporation is established by sharehold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act with the Corporation as an agent in setting up industries in the State. The Act aims at building an industrial town and the Corporation carries out the objects of the Act. The hard core of a trading Corporation is its commercial character. Commerce connotes transactions of purchase and sale of commodities, dealing in goods. The forms of business transactions may be varied but the real character is buying and selling. The true character of the Corporation in the present case is to act as an architectural agent of the development and growth of industrial towns by establishing and developing industrial estates and industrial areas. We are of opinion that the Corporation is not a trading one. 17. There are a number of decisions of the Delhi High Court on interpretation of the expression in the nature of trade, commerce or business in the proviso to Section 2(15) of the Act, for an institution carrying on the aforesaid activities is not a charitable institution under the residual category of advancement of any other object of general public utility. In Institute of Chartered Accountants of India v. DGIT (Exemptions) [2011] 13 taxmann.com 175/202 Taxman 1/[2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em. 46. In the case of the assessee, the activities were undertaken by the assessee, not for the purpose of earning the profit but, were done in discharge of its statutory duties for general welfare of public of developing land and building in a regulated, structured and planned manner. The charging of fees is only a by-product or incidental to main activity. We are further of view that for the purpose of regulating the activities of development, creation and maintenance of infrastructure , providing affordable housing etcit is necessary to charge some fees or cess , as said activities could not be discharged for free.Though there mayalways be an element of subsidy or cross subsidy in the functioning of state authorities to provide maximum benefit to the most deserving class or community . Admittedly the revenue is the foundation and basis of every state action. No state or authority can function without the availability or generation of revenue. Hence merely on account of charging of fee or cess would not irresistibly lead to the conclusion that the activities ceases to be charitable ,as it will fall in proviso to section 2(15) . In any caseearning of profit is not the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place. It is by looking at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alth, [2003] 2 All E.R.113, Lord Steyn put it thus: On the other hand, the adoption of a purposive approach to construction of statutes generally, and the 1990 Act in particular, is amply justified on wider grounds. In Cabell v Markham (1945) 148 F 2d 737 at 739 Learned Hand J explained the merits of purposive interpretation: Of course it is true that the words used, even in their literal sense, are the primary, and ordinarily the most reliable, source of interpreting the meaning of any writing: be it a statute, a contract, or anything else. But it is one of the surest indexes of a mature developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning. The pendulum has swung towards purposive methods of construction. This change was not initiated by the teleological approach of European Community jurisprudence, and the influence of European legal culture generally, but it has been accelerated by European ideas: see, however, a classic early statement of the purposive approach by Lord Blackburn in River Wear C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arance. Further, inconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which, by the steps identified above, is reasonably open and more closely conforms to the legislative intent. [Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297 at 320-321]. 24. It is thus clear on a reading of English, U.S., Australian and our own Supreme Court judgments that the Lakshman Rekha has in fact been extended to move away from the strictly literal rule of interpretation back to the rule of the old English case of Heydon, where the Court must have recourse to the purpose, object, text, and context of a particular provision before arriving at a judicial result. In fact, the wheel has turned full circle. It started out by the rule as stated in 1584 in Heydon s case, which was then waylaid by the literal interpretation rule laid down by the Privy Council and the House of Lords in the mid 1800s, and has come back to restate the rule somewhat in terms of what was most felicitously put over 400 years ago in Heydon s case. 47. Similarly the Hon ble Supreme Court in the matter ofMacquari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penal statutes has moved away from a mechanical incantation of strict construction. Several judgments were referred to and it was held that a purposive interpretation of such statutes is not ruled out. Ultimately, it was held that a fair construction of penal statutes based on purposive as well as literal interpretation is the correct modern day approach. 48. We are duty bound to the adopt the creative interpretation while interpreting the advancement of any other object of general public utility and scope of proviso to section 2(15)keep in mind the purpose of section 2(15) of the Act . In our view, legislature never thought of bringing the activities of statutory bodies like the assessee outside the scope of charitable activities, as bodies like assessee are discharging their statutory functions as per mandate of law ,as an extended arm of welfare state for the benefit of citizens in discharge of statutory duties , like in the present case as per section section 9A of UP development Act.These statutory bodies were created by the statute of the state government or by the central government for the welfare and benefit of the common citizens. There is a inbuilt philosophy of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involved into trade, commerce or business not in any other case. 52. In our view the activities of the assessee were driven by the its obligation under the Act, which were not neither trade nor commerce nor businessand the charging of fees et cetera is only an incidental element for fulfilment of its obligation under the Act.. We may mention, that the advancement of any other object of general public utility, is an expression of wide amplitude and there are many activities, like the activities of the assesseeauthority created under the statute, which are neither in the nature of trade, nor commerce nor business , but were done for the advancement of public utility or benefit . 53. Further for the purposes of bringing the activities of the assessee under the rigors of proviso to section 2(15) it is essential that such activity should be in the nature of trade, commerce or business. However as mentioned hereinabove the activities for the advancement of any other object public utility is a bigger set and activities of trade, commerce or business, may be incidentally forming part of advancement of any other object public utility. The reliance on the objects of the assessee b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 regulatory in nature, the proviso to section 2(15) of the Act shall not be applicable. As observed herein above neither there is element of profiteering nor the same can be said to be in the nature of trade, commerce or business. At this stage, decision of the Division Bench of this Court in the case of Sabarmati Ashram Gaushala Trust (supra) is required to be referred to. 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 under : 3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is advancement of any other object of general public utility ie., the fourth limb of the definition of charitable purpose contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers 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. Merely because while carrying out the activities for the purpose of achieving the objects of the Trust, certain incidental surpluses were generated, would not render the activity in the nature of trade, commerce or business. As clarified by the CBDT in its Circular No. 11/2008 dated 19th December 2008 the proviso aims to attract 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he income of the assessee comprises of repairs and maintenance, administrative expenses, water and electricity charges, special and other charges, depreciation. It has also been held by the Tribunal that the assessee has been established to promote rapid and orderly development of industries in the State and to assist in implementation of the policy of the Government within the purview of the KIAD Act, to facilitate in establishing infrastructure projects and to function on 'No Profit-No Loss' basis. It has also been held that the State Government acquires the land for the scheme of the assessee and hand over the same to the assessee after the acquisition for the development of the industrial area. The Tribunal has further held that the profit making is not the driving force or objective of the assessee. The Tribunal has therefore, recorded the conclusion that the assessee is engaged in the charitable activity through advancement of an object of general public utility and therefore, has concluded that the Proviso to section 2(15) of the Act is not applicable to the case of the assessee and has further held that the assessee is entitled to benefit of Section 11 of the Act. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come except the exempt income , as in present case , wherein it was held as under : 36. We have to take a purposive interpretation of the Scheme of the Act for the exemption under Section 10-A/10-B of the Act and for the object of granting such incentive to the special class of assessees selected by the Parliament, the play-in-the-joints is allowed to the Legislature and the liberal interpretation of the exemption provisions to make a purposive interpretation, was also propounded by Hon'ble Supreme Court in the following cases:- [I] In Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62 Taxman 480, the Hon'ble Supreme Court held that:- 5. . . . . . Since a provision intended for promoting economic growth has to be interpreted liberally, the restriction on it, too, has to be construed so as to advance the objective of the section and not to frustrate it. But that turned out to be the, unintended, consequence of construing the clause literally, as was done by the High Court for which it cannot be blamed, as the provision is susceptible of such construction if the purpose behind its enactment, the objective it sought to achieve and the mischief it intended to contro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to abstract units and are not to be measured by abstract symmetry ; that exact wisdom and nice adaption of remedy are not always possible and that judgment is largely a prophecy based on meagre and uninterpreted experience . Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid.' 37. On the above legal position discussed by us, we are of the opinion that the Respondent assessee was entitled to 100% exemption or deduction under Section 10-A of the Act in respect of the interest income earned by it on the deposits made by it with the Banks in the ordinary course of its business and also interest earned by it from the staff loans and such interest income would not be taxable as 'Income from other Sources' under Section 56 of the Act. The incidental activity of parking of Surplus Funds with the Banks or advancing of staff loans ..... X X X X Extracts X X X X X X X X Extracts X X X X
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