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TMI Blog2022 (6) TMI 1385X X X X Extracts X X X X X X X X Extracts X X X X ..... emption under section 11(4). This contention is not acceptable. Initially, the assessee carried on the business itself which is not at all property held under trust. This activity is a business activity and the provisions of section 11(4A) is applicable. The tribunal held that there is no nexus between the activities carried on and the objects of the assessee that can constitute an activity incidental to the attainment of the objects, namely, to promote cause of charity, mission activities, welfare, employment, diffusion of useful knowledge, upliftment and education and to create an awareness of self reliance among the members of the public etc. Being so, the assessee is not entitled for any exemption under section 11. Decided against assessee. Also see M/S. NIRMITHI KENDRA case [ 2018 (11) TMI 117 - ITAT COCHIN] Income tax liability - tax on income of a State - assessee being a State under Article 12 of the Constitution, is exempted from the levy of Union Tax under Article 289 of the Constitution - HELD THAT:- Assessee is not a State but it is registered as a Society and hence it is to be treated as an AOP or Trust for the purpose of Taxation. The assessees Dakshina Kanna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rected against two different orders of CIT(A), Mangaluru dated 28.2.2019 one assessee is for the assessment year 2013-14 and 2016-17 and another assessee for assessment years 2010-11 to 2013-14 2016-17. 2. The assessees raise the main grounds in all these appeals in different way. However, the crux of the grounds is with regard to denying of exemption u/s 11 of the Income-tax Act,1961 ['the Act' for short] by invoking the first proviso to section 2(15) of the Act. 3. The assessees have raised following common additional ground in all the appeals:- The lower authorities have failed to appreciate that the assessee being a State under Article 12 of the Constitution, is exempted from the levy of Union Tax under Article 289 of the Constitution. 4. In both the cases, the assessee filed petition for admission of additional grounds on the reason that these grounds are inadvertently missed out while filing the appeals before this Tribunal. In our opinion, these grounds are legal grounds and these grounds are very much necessary to adjudicate in the interest of justice. Accordingly, these grounds are admitted by placing reliance on the judgement of Hon ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t reads as follows: It has been noticed that a number of entities operating on commercial lines are claiming exemption on their income either under section 10(23C) or section 11 of the Act on the ground that they are charitable institutions. This is based on the argument that they are engaged in the advancement of an object of general public utility as is included in the fourth limb of the current definition of charitable purpose . Such a claim, when made in respect of an activity carried out on commercial lines, is contrary to the intention of the provision. With a view to limiting the scope of the phrase advancement of any other object of general public utility , it is proposed to amend section 2 (15) so as to provide that the advancement of any other object of general public utility shall not be a charitable purpose if it involves the carrying on of (a) any activity in the nature of trade, commerce or business or, (b) any activity of rendering of any service in relation to any trade, commerce or business, for a fee or cess or any other consideration, irrespective of the nature of use or application of the income from such activity, or the retention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further been explained by the CBDT vide its Circular No. 11/2008, dated 19th December, 2008. 5.3 Applicability - This amendment has been made applicable with effect from 1st April, 2009 and shall accordingly apply for assessment year 2009-10 and subsequent assessment years. 3.8 The Finance Minister, while piloting the Finance Bill, 2008 in Lok Sabha, on the insertion of clause (26AAB) in section 10 to except Agricultural Produce Marketing Committee and State Agricultural Marketing Boards, had occasion to comment on the criticism levelled against the amendment to section 2 (15) in following words: 'I once again assure the House that genuine charitable organizations will not in any way be affected. The CBDT will, following the usual practice, issue an explanatory circular containing guidelines for determining whether any entity is carrying on any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business. Whether the purpose is a charitable purpose will depend on the totality of the facts of the case. Ordinarily, Chambers of Commerce and similar organizations rendering services to their m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the previous year, do not exceed twenty percent. of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year. 3.11 It is submitted that phrase trade, commerce or business as used in the 1st proviso to section 2 (15) of the IT Act has to be read contextually keeping in mind the intent and purport of section 2 (15) of the IT Act. The object of introducing the 1st proviso is to exclude organizations which are carrying on regular business from the scope of charitable purpose . In such a case, the object of general public utility will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. 3.12 A reference may made to relevant extracts from Principles of Statutory Interpretation, 10th Edition, authored by Justice G.P. Singh, which read as follows: When the material words are capable of bearing two or more constructions the most firmly established rule for construction of such words of all statutes in general (be they penal or beneficial, restrictive or enlarging of the common law) is the rule laid down in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e given what has become known as a purposive construction, that is to say that the courts should identify the mischief which existed before passing of the statute and then if more than one construction is possible, favour that which will eliminate the mischief so identified [Anderton v. Ryan, (1985) 2 All ER 355, p.359 (HL)]. In the words of Lord Griffith: The courts now adopt a purposive approach which seeks to give effect to the true purpose of legislation and are prepared to look at much extraneous material that bears on the background against which the Legislation was enacted [Pepper v. Hart, (1993) 1 AL ER 42, p. 50 (HL)]. .. Similarly, in another case Kanailal Sur v. Paramnidhi Sadhukhan AIR 1957 SC 907, Gajendragadkar, J. stated that the recourse to object and policy of the Act or consideration of the mischief and defect which the Act purports to remedy is only permissible when the language is capable of two constructions. But it has already been seen that for deciding whether the language used by the Legislature is plain or ambiguous it has to be studied in its context, and context embraces previous state of the law and the mischief which the statute was intend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords, what was the object and purpose of enacting that sub-section. Now in this connection the speech made by the Finance Minister while moving the amendment introducing subsection (2) is extremely relevant, as it throws considerable light on the object and purpose of the enactment of sub-section (2). The Finance Minister explained the reason for introducing sub-section (2) in the following words: Today, particularly every transaction of the sale of property is for a much lower figure than what is actually received. The deed of registration mentions a particular amount; the actual money that passes is considerably more. It is to deal with these classes of sales that this amendment has been drafted. It does not aim at perfectly bonafide transactions ... but essentially relates to the day-to-day occurrences that are happening before our eyes in regard to the transfer of property. I think, this is one of the key sections that should help us to defeat the free play of unaccounted money and cheating of the Government. Now it is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ras, which are required to be carried out using low cost technology, environmental friendly and pre-case technologies; b) The activities of the Assessee fall within the domain of the State list [List II of 7th Schedule to the Constitution]; c) The Assessee is a State as already submitted in paragraph 2 (2.1 to 2.34). In Waman Rao Deshpande vs. Chairmen, Nirmithi Kendra Others, in WP No. 11674/ 2005 (S-DIS), dated 17.03.2010, the Hon ble Karnataka High Court held that the Nirmithi Kendra is a State; d) When the Assessee functions as a State, it cannot be conceivably carrying the avowed mischief i.e. carrying on business under the mask of charity; e) The close control over the affairs of the Assessee by the officers of the Government will obviate even the remotest chance of occurrence of aforesaid mischief; Ld. A.R. relid on the decision in India Trade Promotion Organization vs. DGIT (Exemptions) [2015] 371 ITR 333 (Delhi) [Para 10]; f) The Commissioner has recognized the activity of the Assessee to be charitable after being satisfied with its objects and issued a registration certificate; 3.16 In the instant case, the State has a complete control over the activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particular provision of the Act. (See: Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585/23 Taxman 37 (SC). From a bare reading of Sectin 36(1)(v) of the Act, it is manifest that the real intention behind the provision is that the employer should not have any control over the funds of the irrevocable trust created exclusively for the benefit of the employees. In the instant case, it is evident from the findings recorded by the Commissioner and affirmed by the Tribunal that the assessee had absolutely no control over the fund created by the LIC for the benefit of the employees of the assessee and further all the contribution made by the assessee in the said fund ultimately came back to the Textool Employees Gratuity Fund, approved by the Commissioner with effect from the following previous year. Thus, the conditions stipulated in Section 36(1)(v) of the Act were satisfied. Having regard to the facts found by the Commissioner and affirmed by the Tribunal, no fault can be found with the opinion expressed by the High Court, warranting our interference. In PCIT vs. State Bank of India (2020) 420 ITR 376 (Bombay), it was held as follows: 8. The very purpose of insertion of sub-se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability of payment of excise duty, employer's contribution to provident fund, etc., for long periods of time but claimed deductions in that regard from their income on the ground that the liability to pay these amounts had been incurred by them in the relevant previous year. It was to stop this mischief that section 43B was inserted. It was clearly not realised that the language in which section 43B was worded would cause hardship to those taxpayers who had paid sales-tax within the statutory period prescribed for this payment, although the payment so made by them did not fall in the relevant previous year. This was because the sales-tax collected pertained to the last quarter of the relevant accounting year. It could be paid only in the next quarter which fell in the next accounting year. Therefore, even when the sales-tax had in fact been paid by the assessee within the statutory period prescribed for its payment and prior to the filing of the income-tax return, these assessees were unwittingly prevented from claiming a legitimate deduction in respect of the tax paid by them. This was not intended by section 43B. Hence the first proviso was inserted in section 43B. The amendm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstruction workforce to meet the diverse needs of housing and building construction and other developmental activities undertaken by individual house holds or public housing/development agencies utilising appropriate and cost effective building technologies. 4th e) housing and building guidance, information and counselling 1st 3.19 It is submitted that in many cases the Courts have held that carrying on statutory, State, regulatory functions by a body cannot be regarded as carrying on trade, commerce or business. Therefore, the very mischief envisaged in the context of section 2(15) is inconceivable in the instant case. When carrying out the statutory functions are not trade etc., it is axiomatic that the Provisos to section 2(15) should not simply apply. Ld. A.R. relied on the following cases: State of Tamil Nadu vs. Board of Trustees of the Port of Madras [1999] 114 STC 520 (SC); CIT (Exemptions) vs. National Internet Exchange of India (2019) 417 ITR 436 (Delhi); Bureau of Indian Standards vs. DGIT (E) [2013] 358 ITR 78 (Delhi); 3.20 Therefore, it is submitted the in the aforesaid b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he concerned project managers were taken on an exposure visit to the successful centres in other parts of India, and convinced about its replicability. At the policy - level, major initiatives taken were a three-point agenda for revision of academic curricula to include these technologies, preparation of relevant Indian Standard Codes and incorporation in the Standard Specifications and Schedule of Rates of construction agencies. Other efforts included support for Performance Evaluation and Validation of selected technologies, lobbying for fiscal incentives for Building Centre products, allowing a 0.25% rebate in HUDCO's lending interest rates for the works executed by Building Centres, lobbying State governments for the award of projects to Building Centres, etc. The resources for the building centre movement were made available from the Govt. of India through its annual budgetary support, to the extent of Rs. 0.5 million per building centre from the MoU D PA [Ministry of Urban Development and Poverty Alleviation] in urban areas and an enhanced grant of Rs. 1.5 million from the MoRD [Ministry of Rural Development] 4.3 The Objects of the Assessee trust as per the Memo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; Rat trap bond walls; Hollow blocks walls Foundations - Brick Arch Foundation; Under Reamed Piles Roofing - Under Reamed Piles; Stone slabs over RCC rafters; RCC planks over RCC joists; RCC planks over RCC joists; Ferro cement shell roofing; Filler slab roofing; Funicular shell roofing; Brick funicular shell roofing; Precast blocks over inverted T-beams; Micro-concrete roofing tiles Miscellaneous - Ferro cement door shutters; RCC door/window frames; Ferro cement sun shades cum lintel; Brick on edge lintels; Corbelling for lintels; Precast Ferro cement shelves; Ferro cement water tank; Brickarch for lintels; Precast RCC shelves units Drinking water facilities - Methods which bring Conservation and regeneration of resource base and Reduction of water wastage and energy conservation - Rainwater harvesting: stream based water treatment and pumping systems.; Photovoltaic cells-based solar pumps Dug Well-based Water Supply - Eco friendly water supplying method; single piped water supply for the entire area, laying of pipeline and location of overhead tank and distribution pipe network. 4.6 The summary of various activities carried on in furtherance to the objects i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from its production and innovation center; 46 Ferro Cement Products; 47 Pre-Cast Concrete Products; 48-49 Earthen Products; 50 Model House Demonstration Buildings 51-52 Technologies: Arch Foundation, Iron ore waste tailing block for superstructure, Single layer arches, Corbel, Frameless Doors Windows, Reinforces Brick Lintel, Reinforced brick pillars, Rain water harvesting, Brick Jally, Ferro cement steps, Attic tiles, Semi underground ferro cement water tank; 53 The Assessee with its extensive study and research on traditional practices engineering techniques has restored heritage buildings; 54-56 Renovation of existing building while retaining the heritage style and structure; 60-64 Low cost/ Cost effective technologies like exposed masonry, brick or laterite arches, filler slab roof, concrete frames etc. 65 Innovative works wood h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een Building Concepts; 19 Awareness program was conducted to impart information, skill or knowledge in the field of construction; 21 Live demos were conducted to demonstrate techniques like Arch and Dome through prototype models; 22 Internship training program for engineering students was conducted; 24 Technical field visits and training program was conducted; 25 Training on Vault roof construction was conducted; 31 Engineer when designs a house need to accommodate all features taking into consideration of all factors which include solar power, reuse of water/ kitchen waste, decomposition of bio waste etc. In this context special training was conducted on Wormy Compost in individual houses; 34 The Assessee along with Mangalore Institute of Technology and Engineering, Moodabidri, conducts Finishing School Programs to final year students on construction techniques; 39 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or less in the previous year; 4.10 The 1st proviso to section 2 (15) of the IT Act may be summarized as under: advancement of any other object of general public utility shall not be a charitable purpose if it involves the carrying on of (a) any activity in the nature of trade, commerce or business; or (b) any activity of rendering any service in relation to any trade, commerce or business; for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity. 4.11 It is submitted that the 1st proviso to section 2 (15) gets attracted only if the main objects [i.e. objects of general public utility] involve carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business. 4.12 In order to attract the proviso, it is not sufficient if some activities in the nature of trade, commerce or business or of rendering any service in relation to any trade, commerce or business, are carried out by a trust. It is only when a trust s main object/s involve carrying on of such activities, the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance that a question of law is raised in a case would not justify the inference that the proposed appeal involves a question of law as envisaged under Art. 133 unless it is necessary to decide the question of law for a proper decision of the case. Israr Ahmad v. State of U.P., AIR 1993 All 87, 89. [Constitution of India, Art. 133 (1) (a)] See also Banki Lal v. Jagat Narain, (1901) 23 All 94, 98 (DB), Per STRASHEY C.J. The word involves in S. 205 Govt. of India Act (1935) implies a considerable degree of necessity. The test is not merely the important of the question but its importance to the case itself. Hansraj Singh v. Rex, AIR 1949 All 632; A.B. Lager v. State of Madh. Bha., AIR 1950 M B 81. 4.16 In CIT vs. Surat Art Silks Manufacturer s Association (1980) 121 ITR 1 (SC), the Hon ble Supreme Court observed as follows: 15. We must then proceed to consider what is the meaning of the requirement that where the purpose of a trust or institution is advancement of an object of general public utility, such purpose must not involve the carrying on of any activity for profit. The question that is necessary to be asked for this purpose is as to when can the purpose of a tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), the Supreme Court has held as follows: If the primary or dominant purpose of trust is charitable, another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust from being valid charity. . 4.18 In CIT vs. Surat Art Silks Manufacturer s Association (1980) 121 ITR 1 (SC), the Hon ble Supreme Court observed as follows: 6. But even if such a contention were permissible, we do not think there is any substance in it. The law is well settled that if there are several objects of a trust or institution, some of which are charitable and some noncharitable and the trustees or the managers in their discretion are to apply the income or property to any of those objects, the trust or institution would not be liable to be regarded as charitable and no part of its income would be exempt from tax. In other words, where the main or primary objects are distributive, each and everyone of the objects must be charitable in order that the trust or institution might be upheld as a valid charity - Mohammed Ibrahim Riza v. CIT [1930] LR 57 IA 260 and East India Industries ( Madras) Pvt. Ltd. v. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the object. It is not necessary that the accomplishment of the object or the means to carry out the object should not involve an activity for profit. That is not the mandate of the newly added words. What these words require is that the object should not involve in the carrying on of any activity for profit. The emphasis is on the object of general public utility and not on its accomplishment or attainment. The decisions of the Kerala and Andhra Pradesh High Courts in CIT v. Cochin Chamber of Commerce Industry [1973] 87 ITR 83 and Andhra Pradesh State Road Transport Corporation v. CIT [1975] 100 ITR 392, in our opinion, lay down the correct interpretation of the last ten words in section 2, clause (15). The true meaning of these last ten words is that when the purpose of a trust or institution is the advancement of an object of general public utility, it is that object of general public utility, and not its accomplishment or carrying out, which must not involve the carrying on of any activity for profit. 14. .. What these last concluding words require is not that the trust or institution whose purpose is advancement of an object of general public utility should not car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit no-loss basis and equally it can be achieved by organising cricket matches with the predominant object of earning profit. Can it be said in such a case that the purpose of the trust or institution does not involve the carrying on of an activity for profit, because promotion of sports can be done without engaging in an activity for profit. If this interpretation were correct, it would be the easiest thing for a trust or institution not to mention in its constitution as to how the purpose for which it is established shall be carried out and then engage itself in an activity for profit in the course of actually carrying out of such purpose and thereby avoid liability to tax. That would be too narrow an interpretation which would defeat the object of introducing the words not involving the carrying on of any activity for profit . He cannot accept such a construction which emasculate these last concluding words and renders them meaningless and ineffectual. 16. The other interpretation is to see whether the purpose of the trust or institution in fact involves the carrying on of an activity for profit or, in other words, whether an activity for profit is actually carried on as an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it. Where an activity is not pervaded by profit motive but is carried on primarily for serving the charitable purpose, it would not be correct to describe it as an activity for profit. But where, on the other hand, an activity is carried on with the predominant object of earning profit, it would be an activity for profit, though it may be carried on in advancement of the charitable purpose of the trust or institution. Where an activity is carried on as a matter of advancement of the charitable purpose or for the purpose of carrying out the charitable purpose, it would not be incorrect to say as a matter of plain English grammar that the charitable purpose involves the carrying on of such activity, but the predominant object of such activity must be to subserve the charitable purpose and not to earn profit. The charitable purpose should not be submerged by the profit-making motive; the latter should not masquerade under the guise of the former. .. The test which has, therefore, now to be applied is whether the predominant object of two activities involved in carrying out the object of general public utility is to subserve this charitable purpose or to earn profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] would continue apply to the legal position prevailing during impugned assessment year as well. The effect of words not involving the carrying on of any activity for profit existing before 1983 and the words of the First Proviso is in substance the same. 4.24 In this regard, reliance is placed on the decision in the case of The Tribune Trust vs. CIT (2017) 390 ITR 547 (P H). The Hon ble Court made the following observations: 38. The question in this appeal which pertains to the assessment year 2009-10 is the effect of the amendment to section 2(15) introduced on 19.12.2008 which came into force with effect from the financial year 01.04.2009. 39. It is necessary to compare section 2(15) as it stood under the 1961 Act and as interpreted by the Supreme Court in Surat Art Silk's Cloth Mfgs. Assn. case (supra), on the one hand and Section 2(15) as it was amended with effect from 01.04.2009 on the other. As we observed earlier the Supreme Court held that the concluding ten crucial words not involving the carrying on of any activity for profit go with the words object of public utility and not with advancement . In our view the proviso introduced by the 2009 amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961 was to overcome the decision of the Privy Council in the Tribune's case. While the legislature in the 1984 amendment which continued up to the year 2009 altered this position by deleting the words not involving the carrying on of any activity for profit , it reintroduced an exclusionary clause albeit in different and wider terms in the 2009 amendment. The exclusionary clause related to the object of general public utility and not the advancement thereof. 4.25 In CIT v. Gujarat Maritime Board [2007] 295 ITR 561 (SC), the Supreme Court reiterates the above principle of Surat Art Silks case [supra] by observing as follows: 14. He has perused number of decisions of this Court which have interpreted the words, in section 2(15), namely, 'any other object of generally public utility'. From the said decisions it emerges that the said expression is of the widest connotation. The word 'general' in the said expression means pertaining to a whole class. Therefore, advancement of any object of benefit to the public or a section of the public as distinguished from benefit to an individual or a group of individuals would be a charitable purpose CIT v. Ahmedabad Ran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ministry of Commerce and Industries and all the fairs of the petitioner are held by the Government of India or its nominees. The affairs of the petitioner are managed by the Board of Directors headed by the Chairman and Managing Directors nominated by Government of India on rotation basis from the pool of senior officers from the Civil Services. This ensures that the functions of the petitioner are managed in accordance with the rules and regulations and in consonance with the object for which the petitioner was constituted. 43. From this, it is clear that prior to the introduction of the proviso to Section 2(15) of the said Act, there was no dispute that the petitioner was established for charitable purposes and, therefore, its income was not to be included in the total income and was, therefore, granted the benefit of exemption. He has already noted above, while discussing the facts of the case that the income received by the petitioner is from the letting out of space, sale of publications, sale of tickets and leasing out food and beverages outlets in Pragati Maidan. The dominant and main object of the petitioner is to organise trade fairs/exhibitions in order to prom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 2(15) of the said Act, then the proviso would be at risk of running fowl of the principle of equality enshrined in Article 14 of the Constitution of India. In order to save the Constitutional validity of the proviso, the same would have to be read down and interpreted in the context of Section 10(23C)(iv) because, in our view, the context requires such an interpretation. The correct interpretation of the proviso to Section 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. In both the activities, in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business, the dominant and the prime objective has to be seen. If the dominant and prime objective of the institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te and assist Rabaris and Bharwads; to make necessary arrangements for getting informatics and scientific knowledge and to do scientific research with regard to keeping and breeding of the cattle, agriculture, use of milk and its various preparations, etc.; to establish other allied institutions like leather work and to recognize and help them in order to make the cow keeping economically viable; to publish study materials, books, periodicals, monthlies etc., in order to publicize the objects of the trust as also to open schools and hostels for imparting educationin cow keeping and agriculture having regard to the trust objects. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, commerce or business to be hit by the proviso to Section 2(15) of the Act. In Bureau of Indian Standards vs. DGIT (E) [2013] 358 ITR 78 (Delhi), it was held as follows: 13. In view of the above discussion, it cannot be said that the BIS is involved in any carrying on trade, commerce or business. BIS is a statutory body established under the BIS Act and was brought into existence for the harmonious development of the activities of standardisation, marking and quality certification of goods . This was, and has been, its primary and pre-dominant object. Even though it does take license fee for granting marks/certification, the same cannot be said to be done for the purpose of profit. If any profit/revenue is earned, it is purely incidental. The BIS performs sovereign and regulatory function, in its capacity of an instrumentality of the state. Therefore, this Court has no doubt in holding that it is not involved in carrying any activity in the nature of trade, commerce or business. 15. In a similar vein, the Allahabad High, in Bar Council of Uttar Pradesh v. CIT [1983] 143 ITR 584/12 Taxman 209 held that the object of the Bar Council, to safeguard the interests of its ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutory enactments, and tasked to act as agencies of the State in public duties which cannot be discharged by private bodies. Often, apart from the controlling or parent statutes, like the BIS Act, these statutory bodies (including BIS) are empowered to frame rules or regulations, exercise coercive powers, including inspection, raids; they possess search and seizure powers and are invariably subjected to Parliamentary or legislative oversight. The primary object for setting up such regulatory bodies would be to ensure general public utility. The prescribing of standards, and enforcing those standards, through accreditation and continuing supervision through inspection etc, cannot be considered as trade, business or commercial activity, merely because the testing procedures, or accreditation involves charging of such fees. It cannot be said that the public utility activity of evolving, prescribing and enforcing standards, involves the carrying on of trade or commercial activity. In The Bombay Presidency Golf Club Ltd vs. DIT [2012] 149 TTJ 471 (Mumbai)/ [2012] 23 taxmann.com 319 (Mumbai), it was held as follows: 9. . The first proviso thus puts a rider only on the sixth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iso to section 2 (15) if the primary/ dominant objects are not (a) in the nature of trade, commerce or business; or (b) rendering any service in relation to any trade, commerce or business. 4.29 It is reiterated that the Assessee s main objects do not involve carrying on of activity in the nature of trade, commerce or business or rendering any service in relation to any trade, commerce or business. The main objects are reproduced in paragraph 4.3. In paragraph 4.6, it is demonstrated that these objects are completely in accordance with the Guidelines i.e., National Network of Building Centres Guidelines, May 1993 (Reprint August 2000) issued by Ministry of Urban Development, Government of India. In paragraph 4.6, it is demonstrated how these objects are carried out. In Surat Art Silk Cloth Manufacturers Association case [supra], the box analysis was made in paragraph 17 of the judgment. In the context of Assessee the same may explained as follows: Box 1 Box 2 Box 3 Every trust must have a Purpose Every purpose must for its accomplishment involve the carrying on of an activity. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onclusion to a logical end. The main object does not involve carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business. 6.8 d) Now let us analyze the actual work carried out by Dakshina Kannada Nirmithi Kendra .. All of these activities/ functions are akin to the activities carried out by a private contractor / developer on a commercial basis. It is submitted that projects undertaken by the Assessee are fund raising activity and the same are not the objects for which the Assessee was set up. 6.8 (l) However, the main and most crucial is that 100% of the activities carried out by the assessee are not within the OBJECTS as enumerated in its MOA and detailed in Para 6.7 above. On a plain reading of the objects of the Assessee Trust it would be apparent that at no stage does it envisage the assessee trust itself carrying out any construction activity. Firstly, his statement that 100% of the activities carried out by the Assessee are not with the Objects as enumerated in the MOA is perverse. He has onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he objects, activities and the scheme of the Act. 6.10 Without prejudice to the above, it is also clearly seen that in the entire year the assessee has not carried out any activity as envisaged in the Objects of its MOA . It is submitted that in paragraph 4.6, it is demonstrated how these objects are carried out. Hence, the said statement of the Learned Assessing Officer is perverse and contrary to the facts. 4.33 Without prejudice to the fact that Assessee carried out its main objects, the Learned Assessing Officer has returned the following findings: 6.8 (n) The commercial activity authorised by the Object of the Assessee Trust/ Society are (a) Production of Pre Fabricated Housing Material - Clause 3, (b) Retail Store of Housing Material - Clause 6 and (c) Transportation Distribution of Building Material -Clause 7. On examination of the work carried out as submitted it can be safely said that the Assessee Trust/ Society has not carried out any of these activities during the year. 6.8 (o) Further as an agency promoting innovation in housing, the Objects of the Assessee Trust/ Society required it to (a) run a trainin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of Chopda v. Motilal Manakchand, AIR 1958 Bom 487, 489. [Constitution of India, Art 276] A privately owned convalescent hospital conducted for private profit was not a trade within the meaning of the Local Government Act, 1919 (NSW), S. 309 (Hornsby Shire Council v. Salmar Holdings, (1972) 46 ALJR). It is not essential to a trade that the persons carrying it on should make, or desire to make, a profit (per Coleridge C.J. Re, Law Reporting Council, 22 QBD 279) As per the Webster's New Twentieth Century Dictionary (2nd edition), the term Trade , means amongst others, a means of earning one's living, occupation or work . In Black's Law Dictionary, trade means a business which a person has learnt or he carries on for procuring subsistence or profit; occupation or employment, etc. The word trade was elucidated in the case of State of Punjab vs. Bajaj Electricals Ltd., [1968] 2 SCR 536, as under: 3. The expression trade is not defined in the Act. Trade in its primary meaning is the exchanging of goods for goods or goods for money; in its secondary meaning it is repeated activity in the nature of business carried on with a profit m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is any business carried on with a view to profit, whether manual or mercantile, as distinguished from the liberal arts, or learned professions and from agriculture. However, the word is of very general application, and must always be considered in the context in which it is used. As used in various revenue Acts, 'trade' is not limited to buying and selling, but may include manufacture. In the expression 'restraint of trade' the word is used in its loosest sense to cover every kind of trade, business, profession or occupation. 69. In Skinner v. Jack Breach Ltd., Lord Hewart, C.J. has observed: No doubt in a great many contexts the word 'trade' indicates a process of buying and selling, but that is by no means an exhaustive definition of its meaning. It may also mean a calling or industry or class of skilled labour. 70. While interpreting the provisions of the Industrial Courts Act, 1919 Lord Wright in National Assn. of Local Government Officers v. Bolton Corpn. has observed thus: Section 11 of the Act of 1919 shows that 'trade' is used as including 'industry' because it refers to a trade dispute in the industry of agriculture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not attached to educational institutions and the expression commercial shall be construed accordingly. [Punjab Regional and Town Planning and Development Act (11 of 1995), S. 2 (k)]. o An interchange or mutual change of goods, wares, productions or property of any kind, between nations or individuals, either by barter or by purchase and sale; trade; traffic . (Webster Dict.) Interchange of goods, merchandise or property of any kind; trade; traffic; used more especially of trade on a large scale o Commercial action includes any cause arising out of the ordinary transactions of merchants and traders, and without prejudice to the generality of the foregoing words, any cause relating to the construction of a mercantile document, the export or import of merchandise, affreightment, insurance, banking, mercantile agency and mercantile usage [RSC Ord. 72, R. 1 (2)]. The original practice rules, made by Notice in 1895, used the term commercial cause. A question of international law as to whether a seizure of goods was justified under a proclamation by a foreign sovereign, is not such a commercial cause. Sea Insurance v. Carr, [1901] 1 QB 7. See also Dena Bank Ahmed Naga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od, Activity or enterprise for gain, benefit, advantage or livelihood. o Dogget Vs Burnet, 62 App. 103, 65 F. 2d 191, 194. That which habitually busies or occupies or engages the time, attention, labor, and effort of persons as a principal serious concern or interest or for livelihood or profit. o The word business is defined as meaning almost anything which is an occupation as distinguished from a pleasure anything which is an occupation or duty which requires attention as a business. In Bouriers law Dictionary business means that which occupies the time, attention and labour of men for the purpose of livelihood or profit, but it is not necessary that it should be the sole occupation or employment. It embraces everything about which a person can be employed. It is a word of much indefinite import, and the legislature could not well have used a larger word. According to the Chamber s Twentieth Century Dictionary, business means: (a) employment; (b) trade, profession or occupation; (c) a task or errand incumbent of undertaken; (d) matter requiring attention; (e) dealings, commercial activity, a commercial or industrial concern. The word business in the Oxford English ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormally with an object of making profit and not for sport or pleasure [Bharat Development (P.) Ltd vs. CIT [1980] 4 Taxman 58 / 133 ITR 470 (Delhi)]. The third essential characteristic is that a business transaction must be between two persons. Business is not a unilateral act. It is brought about by a transaction between two or more persons. And lastly, the business activity usually involves a twin activity. There is usually an element of reciprocity involved in a business transaction. In Institute of Chartered Accountants of India (ICAI) vs. DGIT (E) [2012] 347 ITR 99 (Delhi), it was held as follows: 29. It may be, however, pointed out that the term profit motive is not only the sole or relevant consideration that has to be kept in mind. It is one of the aspects. Normally intention to earn profit is required. Emphasis, however it does appear, has shifted and the concept and principle of economic activity has gained acceptability. The definition of the term business may also vary when we are examining taxability under Sales Tax, Excise Duty, Value Added Tax, etc. because these are not taxes on income but the taxable event occurs because of the economic activity inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaken is infact in the nature of business. The test as prescribe in Raipur Mfrs. Co.'s case (supra) and Sai Publications Fund's case (supra) can be applied. The six indicia stipulated in Lord Fisher's case (supra) are also relevant. Each case, therefore, has to be examined on its own facts. In Improvement Trust vs. CIT [2014] 41 taxmann.com 403 (Amritsar-Trib.)/[2014] 62 SOT 121 (Amritsar - Trib.)(URO), it was held as follows: 15. As per the amended definition of charitable purpose under Section 2(15) of the Act, w.e.f. 01.04.2009, advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activities in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess of fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. 16. As discussed above since the applicant is engaged in the activity in the nature of trade, commerce and business and is engaged in the trade of real estate business predominantly with a profit motive, its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r not it is for a pecuniary benefit. 4.47 It may be noted that the use of phrases i.e. whether or not any gain or profit accrues therefrom under Karvat Act and whether or not it is for a pecuniary benefit convey that even if there is no profit or gain or pecuniary benefit, aforesaid activities qualify to be regarded as business . 4.48 The Explanation to section 2 (31) of the IT Act reads as follows: Explanation. For the purposes of this clause, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains; 4.49 It may be noted from the aforesaid Explanation, the Legislature while defining the term person , toed the line of VAT laws. 4.50 It is submitted that in the absence of similar phrase being used while defining the term business , one has to understand that, any activity which is carried on for the profit or gain alone will qualify to be regarded as business for the purpose of IT Act. 4.51 It is submitted that under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inant object of such activity must be to subserve the charitable purpose and not to earn profit. The charitable purpose should not be submerged by the profit-making motive; the latter should not masquerade under the guise of the former. The purpose of the trust, as pointed out by one of us (Pathak, J.) in Dharmadeepti v. CIT (supra), must be essentially charitable in nature and it must not be a cover for carrying on an activity which has profit making as its predominant object. In Commissioner of Sales Tax vs. Sai Publication Fund [2002] 258 ITR 70 (SC), it was held as follows: 10. . From the facts of the present case, the sole object of the assessee-trust is to spread the message of Saibaba of Shirdi. It is also not disputed that the books and literature, etc., containing the message of Saibaba were distributed by the trust to the devotees of Saibaba at cost price. There is no dispute that the primary and dominant activity of the trust is to spread the message of Saibaba. This main activity does not amount to 'business'. The activity of publishing and selling literature, books and other literature is obviously incidental or ancillary to the main activity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at cost price to spread message of Saibaba does not make it a dealer under section 2(11) of the Act. 17. It may be stated that the question of profit motive or no profit move would be relevant only where person carries on trade, commerce, manufacture or adventure in the nature of trade, commerce, etc. On the facts and in the circumstances of the present case irrespective of the profit motive, it could not be said that the trust either was 'dealer' or was carrying on trade, commerce, etc. The trust is not carrying on trade, commerce, etc., in the sense of occupation to be a 'dealer' as its main object is to spread message of Saibaba of Shirdi as already noticed above. Having regard to all aspects of the matter, the High Court was right in answering the question referred by the Tribunal in the affirmative and in favour of the respondent-assessee. We must, however, add here that whether a particular person is a 'dealer' and whether he carries on 'business', are the matters to be decided on the facts and in the circumstances of each case. In Institute of Chartered Accountants of India (ICAI) vs. DGIT (Exemptions) [2012] 347 ITR 99 (Delhi), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 . 71. 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. .. In The Tribune Trust vs. CIT (2017) 390 ITR 547 (P H), it was held as follows: 44. The second sentence is important while considering the meaning of the words trade, commerce or business used in the proviso to Section 2(15) as amended in 2009. The second sentence states that ordinarily, profit motive is a normal incident of business activity and if the activity of a trust results in yielding profit, it could be concluded that the object of the trust involves the carrying on of an activity for profit. We will restrict our reliance upon paragraph-21 insofar as it is observed that ordinarily, profit motive i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38 (Delhi), the Hon ble Delhi High Court has held as follows: 22. Business activity has an important pervading element of self- interest, though fair dealing should and can be present, whilst charity or charitable activity is anti-thesis of activity undertaken with profit motive or activity undertaken on sound or recognized business principles. Charity is driven by altruism and desire to serve others, though element of self-preservation may be present. For charity, benevolence should be omnipresent and demonstrable but it is not equivalent to self-sacrifice and abnegation. The antiquated definition of charity, which entails giving and receiving nothing in return is outdated. A mandatory feature would be; charitable activity should be devoid of selfishness or illiberal spirit. Enrichment of oneself or self- gain should be missing and the predominant purpose of the activity should be to serve and benefit others. A small contribution by way of fee that the beneficiary pays would not convert charitable activity into business, commerce or trade in the absence of contrary evidence In the case of State of Maharashtra vs. Saifuddin Mujjaffarali Saifu, AIR 1994 Bom 48, the Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for pursuing objects. Hence, the same are not undertaken for provide gain. 3 Whether activity is undertaken with profit motive or capable of producing profit The Assessee does not have any discretion in fixing the price. The rates are prescribed by PWD or Engineering department of Zilla Panchayath. The traits of free trade of fixation of price are absent. Project activities are monitored by KARNIK; There is all pervasive state control in the project activities The Assessee does not have any discretion to utilize the funds. 4 Whether activity conducted regularly on sound and recognized business principles It is submitted that there is subtle difference between the phrase carrying on activities in the nature of business and carrying on activities on business principles . The former refers to activity itself assuming the character of business and the latter refers to activity carried on for a different purpose but with the acumen of business world. The latter indicates the import of business kind efficiency in carrying out activities in a structured and ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held as under: 13. In view of the above discussion, it cannot be said that the BIS is involved in any carrying on trade, commerce or business. BIS is a statutory body established under the BIS Act and was brought into existence for the harmonious development of the activities of standardisation, marking and quality certification of goods . This was, and has been, its primary and pre-dominant object. Even though it does take license fee for granting marks/certification, the same cannot be said to be done for the purpose of profit. If any profit/revenue is earned, it is purely incidental. The BIS performs sovereign and regulatory function, in its capacity of an instrumentality of the state. Therefore, this Court has no doubt in holding that it is not involved in carrying any activity in the nature of trade, commerce or business. In these circumstances, rendering any service in relation to trade, commerce or business cannot, in the opinion of the Court, receive such a wide construction as to enfold regulatory and sovereign authorities, set up under statutory enactments, and tasked to act as agencies of the State in public duties which cannot be discharged by private bodies. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de, commerce, or business etc. 9.2. Further, we find that even after the amendment has been made under the law, by inserting proviso to section 2(15), the position of law, as was laid down by Hon'ble Supreme Court in the case of Sai Publication Fund, (supra), remains the same. In support of our view, we rely upon the judgment of Hon'ble Delhi High Court in GS1 India v. DGIT (Exemptions) [2014] 360 ITR 138/[2013] 219 Taxman 205/38 taxmann.com 364, wherein it was held that the proviso to second limb will not apply in the case of a rendition of a service per se, for a cess, fee or any other consideration, or to a trade, commerce or business, but that this clause can come into play for the purpose of excluding an assessee who carries on business, trade or commerce to feed the charitable activities . In other words, the scope of second limb, as held by High Court, extends only to such cases in which a business is carried out to feed the charitable activities. It would thus follow that even for invoking second limb of first proviso to Section 2(15), it is sine qua non that the assessee has extended services to business, trade or commerce and such services have been extende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was no motive to earn profit. These crucial facts have not been controverted by the Ld. Assessing Officer in his assessment order or by the Ld. DR before us. 4.61 In the following cases, the Courts have held that organisations carrying on activities like development of township and industries do not fall within the ambit of proviso to section 2 (15) of the IT Act: In CIT vs. Bagalkot Town Development Authority (2015) SCC Online Kar. 6951, it was held as follows: 3. There is no dispute with regard to the fact that the respondent was getting funds from the Government to carry out certain public works such as Rehabilitation Resettlements of persons Displaced during the construction of Almatti Dam. Respondent had applied and obtained registration under Section 12-AA of the Act and it was considered as an Institution for charitable purposes. Consequently, assessee income was exempt from Income Tax under Section 11 of the Act. 7. Careful consideration of the rival contentions and perusal of material papers lead us to following irrefutable inferences:- (i) Respondent/assessee is a statutory authority created under Karnataka Improvement Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noted, assessee is a statutory authority constituted under the provisions of KUDA 1987. In the circumstances, it is held that despite the insertion of the proviso, the assessee was entitled to continue the Certificate of Registration under section 12A of the Act, as even though the objects of the assessee fall within the limit of any other object of general public utility, but, having regard to the aforesaid dicta, it is held that its activity is not for of a commercial nature for the purpose of earning profit, but being statutory body its objects are to ensure orderly development of urban areas of HubballiDharwad. In the circumstances, substantial question of law No.1 is answered against the Revenue. In The Belgaum Urban Development Authority vs. CIT ITA No. 5020/2012, dated 19.02.2019 (Kar. HC), it was held as follows: This appeal was admitted on 31.07.2013 to consider the following substantial questions of law raised in the memorandum of appeal: i) Whether in law, the finding arrived at by the Tribunal is perverse and contrary to the facts and circumstances in as much as whether the activity carried on by the assessee would amount to an activity in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 2(15) of the Act. The activity of the assessee comes within the scope and ambit of the expression the advancement of any other object of general public utility . The activity carried on by the assessee does not involve an activity which is in the nature of trade, commerce or business so as to come within the mischief of proviso to Section 2(15). As already noted, the assessee is a statutory authority constituted under the provisions of KUDA Act, whose object is to establish and develop urban areas in an orderly fashion. Even though the assessee Development Authority may be involved in developing various residential or commercial areas and thereby preparing house sites or commercial sites and even alienating such sites through auction or through allotting to eligible persons, the said activity cannot be held to be profit motive so as to come within the mischief of the expression trade, commerce or business. The upshot of the aforesaid discussion is that the assessee is a statutory Authority created under the Karnataka Urban Development Authorities Act, 1987. The purpose and intent of creation of the assessee Authority is to establish urban areas in Belgaum in a planned ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... driving force or objective of the Assessee. Rather the purpose for which the Assessee was created is to regulate and develop drinking water and drainage facilities in the urban areas of the State of Karnataka and for matters connected therewith. This makes it clear that any income generated by the Assessee does not find its way into the pockets of any individuals or entities. It is to be utilized fully for the purposes of the petitioner .. 49. Keeping in mind the above factual aspects and the provisions of the KIDA Act, and principle laid down in the aforesaid decision of the Hon'ble Delhi High Court in the case of India Promotion Organization (supra), in our view, will clearly show that the Assessee does not driven primarily by desire or motive to earn profits but to do charity through advancement of an object of general public utility. The assessee is operating on no profit basis. This is substantiated by the actual income received on operations of the Assessee and the expenditure incurred set out in the earlier paragraphs of this order. The proviso to Sec.2(15) of the Act is therefore not applicable to the case of the Assessee. We therefore hold that the Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing of hire charges, fines, sale of scrap, tender forms etc.). If interest, rent and other income are excluded and compared with the expenditure on operations incurred by the Assessee, it becomes clear that the Assessee does not have profit motive. The proviso to Sec.2(15) of the Act is therefore not applicable to the case of the Assessee. He therefore hold that the Assessee is entitled to the benefits of Sec.11 of the Act for the impugned assessment years. The AO has not disputed the conditions necessary for allowing exemption u/s.11 of the Act, except the applicability of proviso to Sec.2(15) of the Act. In view of our conclusions that the said proviso is not applicable to the case of the Assessee, he hold that the Assessee s income is not includible in the total income and therefore the income returned by the Assessee is directed to be accepted. In Bangalore Development Authority (BDA) vs. Addl. CIT (2019) 104 taxmann.com 266 (Bengaluru), it was held as follows: 2.1 The assessee, Bangalore Development Authority (BDA), a statutory body constituted under the State Government of Karnataka, filed its return of income for Assessment Year 2012-13 on 29.09.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . A.R. also observe that the finding of the AO in para 6.20(iii) of the order of assessment, and which is impliedly endorsed by the CIT(A) in the impugned appellate order, i.e., that (iii) The assessee is not applying the huge amount of profit generated from the activities towards any charitable activities such as relief of poor, education, medical relief and other objects of advancement of general public utility and such surplus is being invested in fixed deposits in order to earn interest income is also not correct in as much as it is evident from the financial statements of this year that the assessee has spent an amount of Rs.278,78,43,000/- (disallowed by the AO - para 15.20 of Assessment Order and reflected int eh computation of total income) on activities that fall under the head 'Advancement of General Public Utility' like construction of grade separators, PRR Bridges on Flyovers, renovation and remodeling works, Maintenance of BBMP facilities, Development of Lakes, etc. Be that as it may, if one were to peruse the object for which the assessee, viz., BDA was constituted, it is clear that the intent and purpose is for planned urban development of Bangalore City an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, vide order dated 08.11.2011. The assessee's registration under section 12A of the Act however stood restored by a decision of the Co-ordinate Bench of this Tribunal vide order in ITA No.12/Bang/2012 dated 10.04.2015. In this prevailing factual matrix, there is no change in the objects and the only issue which apparently prompts Revenue to take the view it has taken, i.e., that the activity of the assessee is hit by the proviso to section 2(15) of the Act; is the fact that the activity of the assessee has resulted in huge surplus or profits. In our view, the fact of surplus or shortfall is not to be reckoned as the test for applicability of the proviso to section 2(15) of the Act; but rather, whether the activity is embarked upon solely with the view to earn profit or not; which the AO and CIT(A) have not done. 5.10.4 Ld. A.R. find that the aforesaid judicial pronouncements relied upon by the assessee are those of other urban development authorities, in whose cases also the AO has taken the view that the activities of city development are hit by the proviso to section 2(15) of the Act. Referring to the above cited cases, he find that in the case of Ahmedabad Dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hold that the activities of the assessee, i.e., Bangalore Development Authority are not hit by the proviso to section 2(15) of the Act. Having held so, he direct the AO to allow the assessee the benefits of section 11 of the Act while giving effect to this order. Consequently, grounds raised by the assessee on this issue are allowed. In CIT vs. Gujarat Industrial Development Corporation [2017] 83 taxmann.com 366 (Gujarat), it is held as follows: 17. Applying the aforesaid decision to the facts of the case on hand and the objects and purpose for which the assessee-Corporation is established and constituted under the provisions of the Gujarat Industrial Development Act, 1962 and collection of fees or cess is incidental to the object and purpose of the Act, and even the case would not fall under the second part of proviso to Section 2 [15] of the IT Act. As the activities of the assessee is for advancement of any other object of general public utility, the same can be for charitable purpose and therefore, the assessee Corporation shall be entitled to exemption under Section 11 of the Act. No error has been committed by the learned Tribunal in holding s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Gujarat Housing Board Act, 1961. It is formed by the State Government so as to deal with, and satisfy, the housing accommodation needs of general publicparticularly with a view to provide shelter to economically weaker sections of society. 7. We find that the core issue that is really required to be adjudicated by us is whether construction and sale of dwelling units by the assessee, on the given facts, is an activity in the nature of trade, commerce or business or service thereto. . The assessee is a trust set up under the State Government legislation and is doing commendable work in the field of providing affordable accommodation. 8. Viewed thus, merely the fact that the assessee has constructed and sold the dwelling units does not make it a business venture as long as predominant object, which is what the trust set up by the State Government is pursuing, is implementation of the provisions of the trust through various schemes. What has been said in the context of the aforesaid case is equally applicable on the present set of facts. There is no dispute that the objects of the Trust are covered by the objects of general public utility and the registration gran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icity, sewage etc. We have also referred to the functions and objectives for which the petitioner is established. The said activities necessarily require money and funds, which are received from the State Government. Petitioner, given the regulatory and administrative functions performed is required and charges fee, cost and consideration in the form of rent and transfer of rights in land, building and movable properties. Similarly payments have to be made for acquisition of land, creation and construction of infrastructure and even buildings. Carrying out and rendering the said activities is directly connected with the role and statutory mandate assigned to the petitioner. It has not been asserted and alleged that these activities were or are undertaken on commercial lines and intent. Petitioner does not earn profits or income from any other activity unconnected with their regulatory and administrative role. Income in the form of taxes, fee, service charges, rents and sale proceeds is intrinsically, immediately and fundamentally connected and forms part of the role, functions and duties of the petitioner. In ITO vs. Moradabad Development Authority [2017] 159 ITD 971 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable in the present case as there was no change in the charitable purpose while doing the activity of development by the assessee. It is part of development only which is the object of the assessee since the beginning. Thus, the CIT(A) was correct in partly allowing the appeal of the assessee. In Moradabad Development Authority vs. ACIT (Exemption) in ITA No. 4631 4632/ Del/2017, dated 04.01.2018, it was held as follows: 3. We have heard both the sides and gone through the relevant material on record. It is seen, as is evident from para 4.1 of the impugned order itself, that the assessee was allowed exemption u/s 11 of the Act by the Tribunal for the assessment years 2008-09 and 2009-10. It is an admitted position that the regular assessment for the assessment years 2010-11 and 2011-12 was not taken up and the claim for exemption u/s 11 of the Act got automatically allowed. We have gone through the lead order passed by the Tribunal for the assessment year 2009-10, whose copy is available on page 75 of the paper book. In this order, the Tribunal considered the effect of proviso to section 2(15) and, thereafter, held that the activities of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(15) of the Act, and thus the proviso of section 2(15) of the Act is not applicable because assessee authority is not carrying out any activity with any profit motive but predominant object of the assessee is the development of the specified area of the district by providing housing, roads, development and maintenance of roads, parks sewerage system and plantation of the specified area and all these activities are being carried out for the welfare of the pupil of the specified area with the charitable purposes for development of infrastructure facilities of general public utility without any profit motive therefore it was held that the predominant object of the authority created under UPUPDA Act, 1973, is not profit earning therefore it was held that it is entitled for registration of under section 12A of the Act. We further observed that the ld CIT DR has not disputed this factum that the provisions of UPUPDA, Act 1973 are paremateria to the provisions of UPIDA Act, 1976 and thus ratio of the decision of Hon'ble Jurisdictional High Court in the case of Lucknow Development Authority (supra) and order of the tribunal in the case of Haridwar Development Authority (supra) are app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the nature of expenses met by the assessee one cannot escape the conclusion that similar expenses would have been incurred by the State, had it performed that work itself or though it's own agencies. 29. Thus, at the hands of the assessee, the payments received were utilized to defray the expenses met to perform the task of cooking and supplying the meals as directed by the State government. It is also not the case of the revenue that the assessee was in any manner free to utilize either the materials supplied to it or food cooked by it, as per it's own wish/discretion. The assessee appears to have acted merely as an agent of the State. 30. Therefore, on the basis of findings recorded by the Tribunal and the material examined by the Commissioner it would be wrong to conclude that because there existed a contract between the assessee the government therefore the assessee was not pursuing a charitable purpose . On the other hand the activity performed by the assessee clearly appears to be inseparably linked to the 'charitable purpose' of providing mid-day meals at village schools. Also, admittedly, the total receipts of the assessee were below the limit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of activity is primarily to implement schemes formulated by Govt of India. Ministry of Commerce, Govt. of India, is the settler of the Trust and the Trust is not empowered to carry out any other activity. In ITO vs. Data Security Council of India [2017] 82 taxmann.com 281 (Delhi - Trib.), it was held as follows: (A) The main objects of the assessee includes:- (1) To promote, encourage, support data protection and information security, maintenance of data privacy of any kind in India carrying out research, dissemination of information, setting of standards, for members providing education, training, conducting meetings, seminars, workshops, conferences interacting with government or non-government bodies, agencies, companies or any other person, taking appropriate legal or any other action by itself or on behalf of its members. (2) No objects of the company will be carried by the company without obtaining prior approval/no objection certificate from concern authority (if any). 3. .. He noted that during the year under consideration, the assessee had received income under the following heads: Sl. No. Heads ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which clearly shows that it could not carry on any activities for profit purposes. It is well settled law that while carrying on pre-dominant objects, if the assessee is earning some incidental surplus that will not prejudice the assessee's claim of being charitable in nature. I, therefore, find no reason to interfere with the order of ld. CIT(A). In DCIT vs. India Olympic Association [2018] 96 taxmann.com 184 (Delhi Trib), it was held that where assessee association was primarily engaged in promotion of sports in country, it would not lose its character of charitable purpose merely because some sponsorship was accepted from a private company in respect of Asian games and Youth Olympic games. In PCIT (Exemptions) vs. Animal Breeding Research Organisation (India) [2018] 95 taxmann.com 226 (Gujarat), it was held that assessee-society, established with a view to undertake and promote activities connected with development of cattle and buffaloes being covered by section 2(15), income earned by it from sale of semen was eligible for exemption 4.62 It is submitted that Courts in several cases have held that even the cricket association are not carrying o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is further controlled by Department of Housing Urban Development of Government of Karnataka through its wing Karnataka Rajya Nirmana Kendra [KARNIK]. Projects are sanctioned by technical advisory committee and performance evaluations of projects are undertaken. KARNIK acts as whistle blower. The documentation of project work should consist of the details of work order, entrusting agency, estimated cost, actual expenditure, date of commencement, date of handing over, technology adopted, quality check certificates, stage wise photographs, savings achieved. There is no scope for misuse of public funds. Projects are allotted by KARNIK for promoting the objectives for which Assessee is set up. The primary objective of carrying out various civil works is for propagation of low-cost technology, environmental friendly, pre-cast technologies to general public and to develop skilled workforce and artisans to use such technologies in building/housing and allied activities. The activities are carried out to promote the objectives for which the Assessee is set up. The Assessee is a State under Article 12 as held in Waman Rao Deshpande vs. Chairmen, Nirmithi Kendra Others, in W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urtherance to its objects can be seen in the activity book. Of the above, the activities tabulated in SI. No. 1 in table in paragraph 4.6 clearly bring about the technological innovations with which the Assessee is associated. Even in its project works, the Assessee uses innovative techniques tabulated in SI. No. 2 in table in paragraph 4.6. 4.63.3 It is submitted that Learned Assessing Officer has contended that Assessee has rendered service as VAT has been imposed. It is submitted that mere levy of VAT does not make the Assessee s activities non charitable. As submitted earlier, section 2(6) of Karvat Act defines business as under: 4.63.3.1 As per Section 2 (6) of the Karvat Act, the term Business is defined as follows: (6) Business includes.- a. any trade, commerce, manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on in furtherance of gain or profit and whether or not any gain or profit accrues therefrom; and b. any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not merely having a roof over one s head; rather, it requires an accessible habitable space that fulfils the basic needs of humans to personal space, security, adequate lighting and ventilation, safe infrastructure, protection from weather, and adequate location with regard to work and basic facilities all at a reasonable cost. One of the significant problems of homelessness is lack of affordable housing. 5.5 It is submitted that it is necessary for the State to ensure that it provides facilities for affordable housing through promotion of low-cost techniques so that even economically weaker sections could afford construction of the houses. Housing for all removes inequalities in status among citizens to considerable extent. The objective of the State to follow the Principles of Directive Policy in Part IV of Constitution of India, both in the matter of administration as well as making of laws. 5.6 Articles 36 37 read as follows: 36. In this Part, unless the context otherwise requires, the State has the same meaning as in Part III. 37. The provisions contained in this Part shall not be enforceable by any court, but the principles therein laid down are nevert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction as institutions of self-government and to plan and implement schemes for economic development and social justice, including those in relation to matters listed in the Eleventh Schedule. 5.12 It is submitted that as per Article 243W of the Constitution of India, State has the authority to delegate the powers and authorities as may be necessary to Municipalities to enable them to function as institutions of self-government and to plan and implement schemes for economic development and social justice, including those in relation to matters listed in the Twelfth Schedule. 5.13 It is submitted that within the Constitutional framework, local government is a State subject and States Legislatures pass legislations suitable in their context. 5.14 The functions of self-government and schemes for economic development and social justice included in the Eleventh Schedule to Constitution are as under: 1. Agriculture, including agricultural extension. 2. Land improvement, implementation of land reforms, land consolidation and soil conservation. 3. Minor irrigation, water management and watershed development. 4. Animal husbandry, dairying and poultry. 5. Fisheries. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ughter houses and tanneries. 5.16 As submitted earlier, the Assessee is set up for propagation of low cost technology in entire spectrum of building in order to provide assistance to economically weaker sections to adopt such innovative technologies in construction of their houses which is otherwise the duty of the State to ensure housing for all. 5.17 These technologies have been adopted in carrying out incidental civil works results in skill upgradation and training to the artisans (masons, carpenters, barbenders, plumbers, electricians, etc.) on innovative and cost-effective technology options. This has resulted in creation of skilled workforce, artisans who are now technically equipped to adopt these low-cost technologies in building houses. This has visible impact in improving standard of living of artisans. 5.18 As explained earlier, Assessee has fostered the development of construction of community asset buildings, roads, drinking water facilities, development of tribal colonies, development of parks, rain water harvesting, solarization works, rain water channel at road, digging work of public well, fly mast lightning system, erection of brass idol, public stadium, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action of the Learned Assessing Officer in denying exemption by invoking 1st proviso to section 2 (15) of the IT Act, failing to appreciate that the objects of the Assessee fall within the ambit of relief of the poor . 6.2 It is submitted that the phrase relief of the poor is not defined under the IT Act. 6.3 The phrase relief of the poor as explained by CBDT in Paragraph 2.2 of Circular No. 11/ 2008, dated 19.12.2008, reads as follows: 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. . 6.4 In Bangalore Development Authority (BDA) vs. Addln. CIT (2019) 104 taxmann.com 266 (Bengaluru), it was held as follows: 5.9.1 The question of whether allotment of sites and flats to the economically weaker sections of society constitutes relief for the poor is perhaps a debatable issue. Relief for the poor does not necessarily mean giving something free of cost t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. The assessee was established with an object to ensure supply of food grains, edible oils, dall etc., to the masses/general public through the approved outlets by State Civil supplies department by grant of substantial subsidies given by the Govt. and is a Corporation governed and controlled by the Govt. of A.P {then}. The main activities of the Corporation are purchase/procurement, storage and distribution essential commodities to the poor and needy people of the society in general. The Corporation is dealing in levy items like rice, edible oils, sugar etc. The Assessee Corporation has been carrying out its object of distribution of essential commodities to the people particularly to the poorer section of the society at lower prices with the support of subsidy being provided by the then Government of Andhra Pradesh. Without the subsidy the Corporation cannot survive. The sale price is less than the procurement price. This activity no way can be considered as trading activity. Whereas in the case of a trader or an ordinary business man sale price generally will be more than cost and there cannot be rate fixed by government. Therefore, calling the activities of the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instructions of the State. It is also submitted that even the work executed is at instance of the State. It is submitted that complete functioning of the Assessee is under the control of the State. 7.3 It is submitted that when project is undertaken at the instance of government department, on-site inspection report would be prepared detailing the estimate for cost of work to be carried out. The Assessee has to take into consideration, the rates as prescribed by PWD or Engineering department, of Zilla Panchayath and in no case the same will be more than the standard rates prescribed by them. There is no freedom to fix the price. 7.4 The meaning of the term Cess as per Advanced Law Lexicon, 3rd Edition, authored by P. Ramanatha Aiyar, reads as follows: Cess is An assessment; tax; levy; specifically; (a) A rate or local tax (b) In Scotland, the land tax. (c) In India, a tax for a special object; as, a road cess . (Webster) Cess defined. Burma Act II of 1880, S, 6 - The remuneration that is payable to the patwari or a lambardar does not fall under the head of cesses. AIR 1937 Nag 21. The word cess is used in Ireland and is still in use in India al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engal Tenancy Act 8 of 1885. Other cesses indirectly connected with the use of land and water and called sayar the landlord was allowed to retain: S.3(4) Agra Tenancy Act, UP Act 3 of 1926. Such cesses were Banker or a tax on jungle products; and Juifar, a tax on fisheries; and Phulkar, a tax on fruits trees. An assessment, tax or levy. [S. 14(1), Cardamom Act (42 of 1965)] 7.5 Section 2(b) of Central Road Fund Act, 2000 (India) defines the term cess meaning a duty in the nature of duty of excise and customs, imposed and collected on motor spirit commonly known as petrol and high speed diesel oil for the purposes of this Act. 7.6 Section 8 of Goods and Services Tax (Compensation to States) Act, 2017, defines the term cess meaning the goods and services tax compensation cess levied. 7.7 In Vijayalashmi Rice Mill v. CTO (2006) 6 SCC 763, it was held that cess is also a tax, but is a special kind of tax. Generally tax raises revenue which can be used generally for any purpose by the State. 7.8 In State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201, it was held that the term cess is commonly employed to connote a tax with a purpose or a tax allocated to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... performed. Sometimes the term may mean charges, and is often used in interchangeably with the term cost . The word fees is used in connection with occupational charges for the occupation of the Municipal property and not in connection with any services that the municipality may render to the occupiers of its property NagapurKshtriayaskhattikSamraj v. Corporation of the city of Nagpur, AIR 1959 Bom 112, 120. A fee is levied essentially for services rendered and as such there is an element of quid pro quo between the person who pays the fee and the public authority which imposes it. Krishan puri v. state of Punjab, AIR 1980 SC 1008. 7.11 It is submitted that the monies received by the Assessee do not fall within the meaning of cess or fee . 7.12 It is submitted that the phrase any other consideration is placed next to the terms cess and fee , the same has to be interpreted by applying the principles of Nositur a Sociis and ejusdem generis . It is submitted that the Nositur a Sociis means that when two words are capable of being analogously defined, then they take colour from each other. The term ejusdem generis is a facet of Nositur a Sociis. The afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.3 In this regard, he relied on the following decisions: Radhasoami Satsang vs. CIT [1992] 193 ITR 321 (SC); CIT vs. Excel Industries and others [2013] 358 ITR 295 (SC); Berger Paints India Ltd vs. CIT [2004] 187 CTR (SC) 193: [2004] 266 ITR 99 (SC); PCIT vs. Maruti Suzuki India Ltd., [2019] 416 ITR 613 (SC); CIT vs. Sridev Enterprises (1991) 192 ITR 165 (Kar.HC); DIT (E) vs. Lovely Bal Shiksha Parishad [2004] 186 CTR (Del) 384: [2004] 266 ITR 349 (Del); CIT vs. Leader Values Ltd. [2008] 214 CTR (P H) 429: (2007) 295 ITR 273 (P H); ITO vs. Moradabad Development Authority [2017] 159 ITD 971 (Delhi - Trib); Delhi Bureau of Text Books vs. DIT [2017] 394 ITR 387 (Delhi); DIT (Exemptions) vs. Escorts Cardiac Diseases Hospital Society [2008] 300 ITR 75 (Delhi); OTC Exchange of India vs. Asst. DIT (Exemption) [2017] 85 taxmann.com 329 (Mumbai - Trib.); DIT (Exemptions) vs. Dalmia Shiksha Prathishthan [2008] 305 ITR 327 (Delhi); 6.2 On the contrary, Ld. D.R. submitted as follows:- III. Applicability of Proviso to sec.2(15) of the I.T.Act: 6.3 During the course of hearing on 24/5/2022, the ld. AR mentioned that since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat such receipts did not exceed 20% of total receipts for the respective years. Therefore, the proviso to sec.2(15) of I.T.Act is clearly applicable in his case. 6.5 Further, Assessee tried to argue that the civil works carried out by him are not commercial in nature by mentioning that they are fund-raising activities. Same is not acceptable as the nature of getting the contracts and its execution is like any other work contracts. Whatever the by-laws of the society speaks, it cannot surpass the provisions of the law. The activity has to be examined in the real sense to know the actual nature of the work and its execution. It is not relevant as to why the Assessee is carrying out such activity. The argument of the AR that the assessee is carrying out civil works for the purpose of fund raising is not relevant for deciding the nature of activity under taxation laws. In view of the above, the Assessee is clearly hit by Proviso to Section 2 (15) of the I.T. Act. 6.6 According the Ld. D.R., the arguments of Ld. A.R. on general terms of the society without giving any specific evidence to prove his point. Therefore, it is requested that the Assessment Order may be upheld as the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was carrying on 'advancement of any other object of general public utility'. The Tribunal held that when that is the case, the assessee is hit by the proviso to section 2(15). The proviso reads that 'advancement of any other object of general public utility' shall not be a charitable purpose, if its involving carrying on any activity in the nature of trade, commerce or business, or any activity of rendering any service relating to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the application of money. Therefore, the case of the assessee is hit by the proviso to section 2(15) and the assessee is not entitled for the benefit of section 11 on the income generated from such activities. The tribunal also held that alternatively, section 11(4A) is to be looked into. Sub-section (4A) provides that exemption shall not be applied in relation to any income of any trust or institution, being profits and gains of business, unless the business is incidental to attaining of the objectives of the assessee or as the case may be, institution, and books of account are maintained by such Trust or institution in respect of such business. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l property held under trust. This activity is a business activity and the provisions of section 11(4A) is applicable. The tribunal held that there is no nexus between the activities carried on and the objects of the assessee that can constitute an activity incidental to the attainment of the objects, namely, to promote cause of charity, mission activities, welfare, employment, diffusion of useful knowledge, upliftment and education and to create an awareness of selfreliance among the members of the public etc. Being so, the assessee is not entitled for any exemption under section 11. 14. We have examined the facts of the assessee s case and find that the same is identical to the case decided by the ITAT, Cochin Bench. The ratio laid down in the aforesaid case therefore is squarely applicable to the facts of the assessee s case. Respectfully following the aforesaid decision, we uphold the order of the CIT(A) and find no grounds to interfere in the order of CIT(A). 15. In the result, appeal by the assessee is dismissed. 8. Further, similar issue came for consideration before Cochin Bench in the case of Nirmithi Kendra reported in 174 ITD 177, wherein it was held as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee are mainly to carry out charitable activities and not of general public utility. As such, the proviso of section 2(15) of the Act was not applicable to the assessee was erroneous and beyond the intention of the legislation. The activities carried out by the assessee were for the purpose of attainment of the objectives of the assessee. 7.3 As per the provisions of Section 2(15) of the Income Tax Act, 1961, the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business or any activity or running services in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. Provided further, that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is Rs. 25 Lakhs or less in the previous year. Thus, provisions of sec.2(15) are abundantly clear and does not require any interpretation. 7.4 The activities carried on by the present assessee cannot be considered as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee .is itself principal activities and not incidental activities. Hence, it is not possible to hold that the construction activities carried out by the assessee is not protected by the provisions of section 11(4A) of the Act. In view of this, we do not find any merit in the argument of the Ld. AR. Thus, this ground of appeal of the assessee is dismissed. 8. We now proceed to consider the question whether the said activities carried on by the assessee were incidental to the attainment of the objects of the Trust. We fail to see any connection between the activities relating to construction business and the attainment of the objects of the trust. The mere fact that whole or some part of the income from running of is used for charitable purposes would not render the business itself being considered as incidental to the attainment of the objects. We are in agreement with the Department that the application of income generated by the business is not relevant consideration and what is relevant is whether the activity is so inextricably connected or linked with the objects of the trust that it could be considered as incidental to those objectives. 9. It was contended by the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the activities carried on and the objects of the assessee that can constitute an activity incidental to the attainment of the objects, namely, to promote cause of charity, mission activities, welfare, employment, diffusion of useful knowledge, upliftment and education and to create an awareness of self-reliance among the members of the public etc. We are therefore, of the opinion that the observations of the Supreme Court must be understood and appreciated in the background of the fact in that case and should not be extended indiscriminately to all cases. Being so, we are inclined to hold that the assessee is not entitled for any exemption u/s. 11 of the I.T. Act. 13. In the result, the appeal of the assessee in ITA No. 45/Coch/ 2017 is dismissed. 9. In view of the above order of the Tribunal, taking a consistent view on the above issue, we dismiss this common main ground in all assessees appeals. 10. With regard to common additional ground in all the appeals regarding failure of lower authorities to appreciate that the assessee being a State under Article 12 of the Constitution, is exempted from the levy of Union Tax under Article 289 of the Constitution, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nirmana Kendra [KARNIK]. 2.6.4 KARNIK has established Nirmithi Kendras in each district in the State of Karnataka including Dakshina Kannada Nirmithi Kendra, the Assessee. 2.6.5 The Assessee s Governing Board is constituted by the following members: Chairman The Chief Secretary, DKZP Mangalore Deputy Commissioner, DK Mangalore Executive Director HUDCO, Madras General Manager, DIC Mangalore Officer in charge, NBO (RHDC), Bangalore Project Manager, Nirmithi Kendra, Manipa Principal, K.R.E.C. Srinivasnagar, Surathkal Deputy Secretary, Development, DKZP Mangalore Assistant Commissioner, Condapur Executive Engineer, KHB, Mangalore Executive Engineer, ZP Engg. Division Udupi Executive Director, Dr. T.M.A Pai Foundation Manipal Trustee, Dr. T.M.A. Pai Foundation Manipal A Professor in Civil Engg/ Architecture of Civil Engg. Dept/Architecture Department M.I.T. Manipal Lead Bank (Syndicate Bank) District Manager, Mangalore Managing Director, SCDCC Bank Mangalore-3 Chief Planning Officer, DKZP, Mangalore The Chief Officer, T.M.C. Udupi Secretary, Nirmithi Kendra Two representatives fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State Government. It is further controlled by Department of Housing Urban Development of Government of Karnataka through its wing Karnataka Rajya Nirmana Kendra [KARNIK]. 2.7.6 Activities of the Assessee are not run on the commercial lines or are not in the nature of trade, business or commerce. 2.8 Housing is declared to be priority sector. The promotion of low-cost housing falls under the domain of Principles of Directive Policy in Part IV of Constitution of India. It shall be the duty of the State to follow the Principles of Directive Policy in Part IV of Constitution of India, both in the matter of administration as well as making of laws. It is aimed towards a Welfare State . It is for the State to make effective provision for securing the right to work, housing etc. It is the responsibility of the State to provide not only a sufficient number of institutes, but the staff, adequate and qualified, to run the institute, of course, within the limits of its economic capacity and development. The object of the Assessee is propagation of low cost technology in entire spectrum of building / housing to provide assistance to economically weaker sections to adopt such innov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken by the Assessee are in the nature of infrastructure development viz., constructing or upkeeping of roads, museums, water facilities, community asset buildings etc. squarely falling within the domain of List II of (State List) of Seventh Schedule of the Constitution of India. 2.13.4 The Assessee does not have Capital funds of its own. The projects are undertaken based on advance granted by the Department of State Government. 2.13.5 The Assessee does not have any discretion in fixing the price. The rates are prescribed by PWD or Engineering department, of Zilla Panchayath. The traits of free trade of fixation of price are absent. 2.13.6 The Assessee does not have any discretion to utilize the funds. 2.13.7 Any surplus generated is used for pursuing main object. 2.13.8 Services are not rendered to private individuals or commercial enterprises. 2.13.9 The Assessee receives work order from department of State and not from private people. The activities of Assessee create balance between the objectives for which it is set up and judicial utilization of public funds by utilizing the low-cost technologies in creation of public assets. 2.13.10 The private contracto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Khalid Mujib Sheravardi [1981] 1 SCC 722: (a) If the entire share capital of the corporation is held by the Government it would go to a long way towards indicating that the corporation is an instrumentality or agency or Government (b) Where the financial assistance of the State is so much as to meet almost the entire expenditure of the corporation it would afford some indication of the corporation being impregnated with governmental character (c) It must also be a relevant factor whether the corporation enjoys monopoly status which is State conferred or State protected (d) Existence of deep and pervasive State control may afford an indication that the corporation is a State agency of instrumentality (e) If the functions of the corporation are of public importance and closely related to governmental functions it would be a relevant factor in classifying the corporation as an instrumentality or agency of Government (f) Specifically, if a department of Government is transferred to a corporation, it would be a strong factor supportive of the inference of the corporation being an instrumentality or agency of Government 2.15 From the principles held in above case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means of livelihood, the security for payment of living wages, reasonable conditions of work, decent standard of living and opportunity to enjoy full leisure and social and cultural activities to workmen. 2.15.12 Every action of the public authority, agency or instrumentality or the person acting in public interest or any act that gives rise to public element should be guided by the public interest in exercise of public power or action hedged with public element and is open to challenge. It must meet the test of reasonableness, fairness and justness. 2.16 Thus, it is submitted that the Assessee falls under the expression other authority as defined under Article 12 of the Constitution of India in as much as: 2.16.1 The Assessee is formed under the policy of Government of Karnataka; 2.16.2 The governing body of the Assessee comprises of employees of Government of Karnataka only; 2.16.3 The objectives of the Assessee are state driven; 2.16.4 The project works which are undertaken to raise fund to be deployed in pursuance of main objects are in the nature of infrastructure development for the public benefit; 2.16.5 The functioning of the Assessee is administered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thority subordinate to that by which he was appointed. The Hon ble Court in the above case not only stated that the Nirmithi Kendra is a State but also invoked Article 311 which would apply to any person employed by the State. 2.21 In Ajay Hasia v. Khalid Mujib Sheravardi [1981] 1 SCC 722, the Court observed as under: (a) In the early days when the Government had limited functions, it could operate effectively through natural persons constitution its civil service and they were found adequate to discharge Government functions which were of traditional vintage. (b) But as the tasks of the Government multiplied with the advent of the welfare State, it began to be increasingly felt that the framework of civil service was not sufficient to handle the new tasks which were often specialised and highly technical in character and which collated for flexibility of approach and quick decision making. (c) The inadequacy of civil service to deal with these new problems came to be realised and it became necessary to forge new problems. (d) It was in these circumstances and with a view to supplying this administrative need that the corporation came into being as the third arm of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts as under: (a) CSIR was set up by the Department of Commerce, Government of India with the broad objective of promoting industrial growth in this Country; (b) The Memorandum of Association of CSIR manifestly demonstrate that CSIR was set up in the national interest to further the economic welfare of the society by fostering planned industrial development in the country. Such a function is fundamental to the governance of the country as held in the case of Rajasthan Electricity Board (supra). (c) Initial capital of Rs. 10 lakhs was made available by the Central Government. According to the statement handed up to the Court on behalf of CSIR the present financial position of CSIR is that at least 70% of the funds of CSIR are available from grants made by the Government of India. (d) Apart from an internal audit, the accounts of the CSIR are required to be audited by the Controller and Auditor General and placed before the table of both houses of Parliament 2.24 In this context, the Honourable Constitution Bench [7 member], observed the following principles: (a) The tests formulated in Ajay Hasia v. Khalid Mujib Sehravardi (1981) 1 SCC 722 are not a rigid set of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y prior permission/consent/sanction from the Government of India. (d) Financial assistance from the Government does not meet almost all expenditure of the CSIR and apparently it fluctuates too depending upon variation from its own sources of income. (e) There is no provision in the rules or the byelaws that the government can issue such directives as it deems necessary to CSIR and the latter is bound to carry out the same. (f) The functions of the CSIR cannot be regarded as governmental or of essential public importance or closely related to governmental functions or being functions to the life of the people or duties and obligations to public at large. (g) The functions of entrusted to CSIR can as well be carried out by any private person or organisation. (h) CSIR is not the offspring or the blood and bones or the voice and hands of the government. The CSIR does not and cannot make law. 2.26 It is submitted that in the aforesaid case, though the Honourable Constitution Bench, held that CSIR is not a State , the observations and principles ruled therein would make the Assessee a State . 2.27 The meaning of governmental functions as per Black s Law Dictionary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitution of India. 2.33 Article 289 (1) of the Constitution of India reads as follows: The property and income of a State shall be exempt from Union taxation. 2.34 Thus, it is submitted that the Assessee being a State is exempted from levy of tax from Union Taxation. 2.35 Therefore, it is submitted that no income tax shall be levied on the Assessee. 10.1 The Ld. D.R. submitted as follows:- Claim of being a State: 10.2 On verification of the submissions made by the ld. AR, it was noticed by AO that the NirmithiKendras are formed as per 'Centrally Sponsored Scheme for setting up of Building Centers' - Guidelines dated 12-08-1988 of Ministry of Urban Development, Government of India. Under the said guidelines KARNIC i.e. Karnataka Rajya Nirmithi Kendra was registered as a society under KSR Act, 1960, and the same was established in June 1991. Under such scheme, the AssesseeNirmithi Kendra was established. Totally there are about 30 NirmithiKendras in the state and KARNIC monitors and regulates the activities of these 30 district NirmithiKendras in Karnataka. 10.3 From the above, it is clear that it is a society and hence it is to be assessed as an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and income of a State shall be exempt from Union taxation. (2) Nothing in clause (1) shall prevent the Union from imposing, or-authorising the imposition of, any tax to such extent, if any, as Parliament may by law provide in respect of a trade or business of any kind carried on by, or on behalf of, the Government of a State, or any operations connected therewith, or any property used or occupied for the purposes of such trade or business, or any income accruing or arising in connection therewith. (3) Nothing in clause (2) shall apply to any trade or business, or to any class of trade or business, which Parliament may by law declare to be incidental to the ordinary functions of government. 10.8 In the case of Adityapur Industrial AreaDevelopment Authority 153 Taxman 107, a similar question arose regarding interpretation of Article 289 of the Constitution of India, as well as Section 17 of the Bihar Industrial Area Development Authority Act, 1974. The Hon'ble SupremeCourt at Paragraph Nos. 8 and 9 has dealt with this matter. It is appropriate to take note of the exact words used by the Hon'ble Supreme Court, which are as under:- 8. A mere perusal of Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the income of State Government, even though the Authority is constituted under an Act enacted by the State Legislature by issuance of a Notification by the Government thereunder. 10. . 11.It is further appropriate to take note of the exact words under by the Statute which was under consideration before the Hon'ble Supreme Court in the aforesaid reported case, i.e.Section 17 of the Bihar Industrial Area Development Authority Act, 1974. It reads as under:- 17. When the State Government is satisfied that the purpose for which the Authority was established under this Act has been substantially achieved so as to render the continuance of the Authority unnecessary, the Government may by notification in the official Gazette, declare that the Authority shall be dissolved with effect from such date as may be specified in the notification and the authority shall be deemed to be dissolved accordingly from the said date and all the properties, funds and dues realizable by the authority alongwith its liabilities shall devolve upon the State. 10.9 Thus, in our opinion, the assessees Dakshina Kannada Nirmithi Kendra Udupi Nirmithi Kendra are separate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxman 151 (MP)(Mag.); CIT vs. ShethManilalRanchhoddasVishram Bhavan Trust [1992] 198 ITR 598 (Guj); CIT vs. Raipur Pallottine Society [1989] 180 ITR 579 (MP); CIT vs. Tiny Tots Education Society [2011] 330 ITR 21 (P H); CIT vs. Desh Bhagat Memorial Education Trust [2011] 200 Taxman 172 (P H) (Mag.); G.K.R. Charities vs. DDIT [2012] 51 SOT 538 (Chennai); DIT (Exemption) vs. G.K.R. Charities (2013) 214 Taxman 555 (Bombay); 9.4 The Learned Assessing Officer sought to rely on the decision of the Hon ble Kerala High Court in Lissie Medical Institutions vs. CIT [2012] 348 ITR 344 to deny depreciation on assets which have been claimed as application of income. The Hon ble Kerala High Court had relied on the decision of the Hon ble Supreme Court in Escorts Ltd. vs. UOI (1993) 199 ITR 43 (SC). It is submitted that the ratio of the decision of Hon ble Supreme Court in Escorts Ltd. vs. UOI (1993) 199 ITR 43 (SC) is not applicable in the present context. The said decision has been distinguished in the below referred decisions: Karnataka Reddy Janasangha in ITA No.220/Bang/2011, ITAT- Bangalore Bench; CIT vs. Market Committee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears prior to and including AY 2013-14 the depreciation needs be allowed in respect of those assets, the acquisition of which has been claimed as application. 9.8 The Jurisdictional Karnataka High Court in the following cases, has held that section 11 (6) is prospective and applicable to AY 2015-16 and subsequent assessment years: PCIT vs. Sri SriAdichunchanagiriShikshana Trust [2016] 241 Taxman 289 (Karnataka); DIT (E) vs. Al-Ameen Charitable Fund Trust [2016] 383 ITR 517 (Karnataka); CIT (E) vs. Bangalore Baptist Hospital Society [2016] 240 Taxman 567 (Karnataka); 9.9 Therefore, it is our submission that depreciation of Rs.2,34,685/- to be allowed. 11.2 Ld. D.R. relied on the order of the lower authorities. 11.3 We have heard both the parties and perused the materials available on record. In our opinion, this issue squarely covered by the judgement of jurisdictional High Court in the case of DIT(E) Vs. Al-Ameen Charitable Fund Trust reported in 383 ITR 517 (Karnataka) , wherein it was held as under:- Held accordingly, dismissing the appeals, that the arguments advanced by the Department apprehending double deduction was misconceived. Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome is a necessary precondition for claiming exemption under section 11. Such application of income has got nothing to do with labourcess. 10.7 It is submitted that as the income for the purposes of section 11 (1) has to be computed in normal commercial manner, the amount of labourcess debited in the books is deductible while computing such income and the same is accepted as per normal accounting principles. 10.8 It is submitted that even the Board has approved the commercial principle for determining the income derived from the trust and under such principle of accounting, the labourcess is a necessary outgoing. In this regard a reference is made to Board Circular No. 5P (LXX-6) of 1968, dated 19.06.1968, the relevant extract reads as follows: 4. Where the trust derives income from house property interest on securities, capital gains, or other sources, the word income should be understood in its commercial sense, i.e., book income, after adding back any appropriations or applications thereof towards the purposes of the trust or otherwise, and also after adding back any debits made for capital expenditure incurred for the purposes of the trust or otherwise. It should b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der certain heads. Therefore, the computation under the different categories or heads arises only for the purposes of ascertaining the total income for the purposes of charge. Those provisions cannot be introduced to find out what the income derived from the property held under trust to be excluded from the total income is, for the purpose of the exemptions under Chap. III. There is one further error in the order of the Tribunal. The Tribunal has proceeded on the basis that the receipts from rents amounting to Rs. 1,31,412 during the year ending with 31st of March, 1965, would have to be considered under the head Income from house property and the net income arrived at under that head. In the view that he explained above, the determination of the income as if the sum of Rs. 1,31,412 relates to house property and would, therefore, have to be considered in the context of the provisions of ss. 22 to 27, would not be correct. Those provisions enact certain technical rules for the purpose of the ascertainment of income for the particular head for purposes of charge and as seen already that cannot be imported into the determination of the income of the property held in trust for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, Ld. A.R. is of the opinion that, when income is computed under sec. 11 of the Act, the provisions of sec. 40(a)(ia) 43B are not applicable. 10.14 In Maharashtra Academy of Engineering Educational Research vs DCIT [2017] 88 taxmann.com 864 (Pune - Trib.), it was held as follows: 161. Since in the instant case the Tribunal has restored the registration u/s.12A to the assessee trust, therefore, the income in our opinion has to be computed u/s.11. It has been held in various decisions that the income u/s.11 has to be computed in a commercial manner and not as per the provisions of I.T. Act. The various heads of income u/s.11 are not relevant in case of a charitable trust and therefore Ld.AR find merit in the argument of the Ld. Counsel for the assessee that while computing the income u/s.11 the various disallowances/additions u/ss. 40A(3), 40A(7) and 43B etc. cannot be made u/s.28 to 43. 162. Ld.AR find the Hon'ble Madras High Court in the case of Rao Bahadur Calavala Cunnan Chetty Charities (supra) has held that income for purposes of section 11(1)(a) has to be computed on normal commercial basis without reference to provisions attracted by section 14. The groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hrough the activities carried on by the assessee along with object clause of the Trust Deed in the case of Dakshina Kannada Nirmithi Kendra. The object clause of the assessee is as under:- 1. Serve as a Seminal Agency to generate and propagate innovative ideas on housing 2. A cleaning house of information and data bank on housing which would bring the fruits of research from lab to land. 3. A training house to impact skills to local workmen in innovative housing technique and create of trained workers in all blocks in the district. 4. A nodal agency to serve as a catalyst in the field of housing ensuring horizontal co-ordination in implementation of housing programme. 5. An agency to arrange for financial assistance for house construction. 6. A forum to organize exhibitions seminars, orientation programmes, demonstration on housing and publish useful data and literature on housing and allied activities. 7. A Research and Development institution and a consultant in the field of housing. 8. Without prejudice to the generality of the above and for effectively carrying out these objectives the Kendra shall have power to acquire hold and receive property of any k ..... X X X X Extracts X X X X X X X X Extracts X X X X
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