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TMI Blog2023 (7) TMI 734X X X X Extracts X X X X X X X X Extracts X X X X ..... Mullers Charitable Institutions [ 2014 (2) TMI 1033 - KARNATAKA HIGH COURT] , S.P. Memorial Trust [ 2014 (11) TMI 1111 - GUJARAT HIGH COURT] and Sheth Mafatlal Gagalbhai Foundation Trust [ 2000 (10) TMI 26 - BOMBAY HIGH COURT] allowed the issue in favour of the assessee as held only the relevant income falling within the mischief of section 13(1)(d) of the Act will lose the benefit of exemption under section 11 and 12 of the Act and the balance of the total income of the trust will remain eligible for the benefit of exemption under section 11 of the Act. Violation of section 13(1)(d) cannot lead to denial of exemption under section 11 and 12 of the Act, to the total income of the trust. The grounds raised by the assessee is hereby allowed. As there is no new investments made by the assessee both in GACL and GLFL during the present assessment year, the disallowance shall be restricted only to the dividend income of Rs. 2.26 crores only and exemption u/s. 11 and 12 of the Act cannot be denied to the assessee. Thus the ground no. 3 raised by the assessee is allowed. - ITA Nos. 105, 106 & 11/Ahd/2020, ITA No. 1866/Ahd/2019 - - - Dated:- 9-6-2023 - Shri Waseem Ahmed, Accountan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t all the other issues raised in the appeals filed by assessee as well as by the Revenue would require re-examination in the light of conclusion drawn in favour of the assessee towards applicability of section 2(15) of the Act and thereby remitted the case to the file of the Ld. A.O. 3.1. In the meantime, the Hon'ble Gujarat High Court has adjudicated the matter of the assessee, in Tax Appeal Nos. 380, 381 and 382 of 2017 dated 28-06-2017. These three tax appeal pertain to AY 2009-10 to AY 2011-12 wherein the Hon ble High Court framed the following Question of Law: [A] Whether on the facts and in the circumstances of the case, the Appellate Tribunal is justified in allowing the assessee's appeal, negating the finding of the CITG) as well as the Assessing Officer denying the benefits of Section 11 and 12 of the Income Tax Act? [B] Whether on the facts and in the circumstances of the case, the Appellate Tribunal is justified in giving the benefit of section 11 and 12 which the Assessing Officer disallowed by invoking the provision of Section 2(15) r.w.s. 13(8) of the Act. 3.2. The Hon'ble Gujarat High Court relying on its judgment in assessee s own case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . further observed as Revenue s SLP before Hon ble Supreme Court is pending judgment and in order to keep the issue alive, the A.O. held that activity of the assessee is not charitable in nature. Thus the AO has re -computed the income of the assessee and assessed the total income as if the assessee carried out business activity by denying the exemption claimed u/s. 11 and 12 of the Act and demanded taxes thereon. 3.6. Aggrieved against the assessment order, the assessee filed appeal before Ld. CIT(A). During the second round of appeal, the Ld. CIT(A) after considering Gujarat High Court judgment in assessee s own case held as follows: .5.6 On perusal of the material available on record, it is found that the AO has passed the impugned order on the basis of order of Hon'ble ITAT, Ahmedabad and computed the income of the appellant corporation as if it is carrying out business activity. It is found that Hon'ble ITAT, Ahmedabad has categorically held that activities of the trust are charitable in nature as per provisions of section 2(15) of the Act. The Hon'ble ITAT has only directed the AO to adjudicate other issues in the light of provisions of section 2(15) afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... general public utility for charitable purpose and therefore, the appellant corporation shall be entitled to exemption under Section 11 of the Act. In view of these facts, all these grounds of appeal are allowed. 6. The appellant in ground nos. 5 to 16 has challenged the computation of income as made by the AO in impugned order. As the entire issue involved in the appeal is adjudicated in favour of the appellant in preceding paras, these grounds of appeal have become infructuous, hence the same are not required to be adjudicated and accordingly, they are dismissed. 9. Ground no.17 of appeal against charging of interest u/s 234A. 234B and 234C of the Act being mandatory and consequential to the determination of total income is dismissed. 4. Aggrieved against the Appellate order, the Revenue is in appeal before us raising the following Grounds of Appeal in ITA No. 105/Ahd/2020 for A.Y. 2012-13: 1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is justified in directing the AO to treat the activities of the assessee advancement of any other object of general public utility is charitable in nature, negating the findings of the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Trust Kapurthala Improvement Trust, Pathankot Improvement Trust Improvement Trust, Hansi, and the Special Leave Petitions filed against the Gujarat Maritime Board168 and Karnataka Water Supply and Drainage Board are rejected. (ii) The revenue's appeals against Ahmedabad Urban Development Authority, the Gujarat Housing Board, the Gandhinagar Urban Development Authority, Rajkot Urban Development Authority, Surat Urban Development Development Authority, Jamnagar Area Development Authority, and the Gujarat Industrial Development Corporation are rejected. Likewise, the revenue's appeals against Agra Development Trust, UP Awas Evam Vikas Parishad, Raebareli, Development Authority, Rajasthan Housing Board, Mangalore Urban Development Authority; Mathura Vrindavan Development Authority, Meerut Development Authority, Belgaum Development Authority . Moradabad Urban Development Authority, Yamuna Expressway Industrial Development Authority, Greater Noida Industrial Development Authority, New Okhla Industrial Development Authority and Karnataka Industrial Areas Development Board are rejected. 6. The relevant operative portion of the Hon ble Supreme Court judgment are as fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borne by the ultimate user or consumer which is the general public. By way of illustration, if a corporation supplies essential food grains at cost, or a marginal mark up, another supplies essential medicines, and a third, water, the characterization of these, as activities in the nature of business, would be self-defeating, because the overall receipts in some given cases may exceed the quantitative limit resulting in taxation and the consequent higher consideration charged from the user or consumer. 185. As far as boards and corporations which are tasked with development of industrial areas, by statute, the judgments of this court, in Shri Ramtanu Cooperative Housing Society (supra) and Gujarat Industrial Development Corporation (supra) have declared that these bodies are involved in development and are not essentially engaged in trading. In Shri Ramtanu Cooperative Housing Society (supra) this court, by a five judge bench, held that the Maharashtra Industrial Development Corporation is not a trading concern, and observed as follows: These features of transfer of land, or borrowing of moneys or receipt of rents and profits will by themselves neither be the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or institutions to whom allotment or sale of land, buildings, or sheds is made or is likely to be made in furtherance of the object of the Act. A budget is prepared showing the estimated receipts and expenditure. The accounts of the Corporation are audited by an auditor appointed by the State Government. These provisions in regard to the finance of the Corporation indicate the real role of the Corporation viz. the agency of the Government in carrying out the purpose and object of the Act which is the development of industries. If in the ultimate analysis there is excess of income over expenditure that will not establish the trading character of the Corporation. There are various departments of the Government which may have excess of income over expenditure. ************** ******** ********* 20. The underlying concept of a trading Corporation is buying and selling. There is no aspect of buying or selling by the Corporation in the present case. The Corporation carries out the purposes of the Act, namely, development of industries in this State. The construction of buildings, the establishment of industries by letting buildings on hire or sale, the acquisition and transfer o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and development of housing infrastructure. However, the newly added Section 10(46) is wider in comparison and the activities of any body or authority or board constituted by or under any central or State Act with the object of regulating or administering any activity for the benefit of the general public , has broader import. In a sense, the newly added Section 10(46), resembles a GPU category charity classified under Section 2(15). The second distinction is that Section 10(20A) did not bar any board, or corporations, etc. from indulging in commercial activities. However, sub-clause (b) of Section 10(46) imposes such a bar, and the concerned body cannot claim tax exemption if it engages in commercial activity. 188. The manner in which GPU charities has been dealt with under the definition clause, i.e., Section 2(15), indicates that even though trading or commercial activity or service in relation to trade, commerce or business appears to be barred nevertheless the ban is lifted somewhat by the proviso which enables such activities to be carried out if they are intrinsically part of the activity of achieving the object of general public utility. Furthermore, in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether such statutory bodies, boards, authorities, corporations, autonomous or self governing government sponsored bodies, are GPU category charities: (a) Does the state or central law, or the memorandum of association, constitution, etc. advance any GPU object, such as development of housing, town planning, development of industrial areas, or regulation of any activity in the general public interest, supply of essential goods or services - such as water supply, sewage service, distributing medicines, of food grains (PDS entities), etc.; (b) While carrying on of such activities to achieve such objects (which are to be discerned from the objects and policy of the enactment; or in terms of the controlling instrument, such as memorandum of association etc.), the purpose for which such public GPU charity, is set-up - whether for furthering the development or a charitable object or for carrying on trade, business or commerce or service in relation to such trade, etc.; (c) Rendition of service or providing any article or goods, by such boards, authority, corporation, etc., on cost or nominal mark-up basis would ipso facto not be activities in the nature of business, tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a consequence, it is necessary in each case, having regard to the first proviso and seventeenth proviso (the latter introduced in 2012, w.r.e.f 01.04.2009) to Section 10(23C), that the authority considering granting exemption, takes into account the objects of the enactment or instrument concerned, its underlying policy, and the nature of the functions, and activities, of the entity claiming to be a GPU charity. If in the course of its functioning it collects fees, or any consideration that merely cover its expenditure (including administrative and other costs plus a small proportion for provision) - such amounts are not consideration towards trade, commerce or business, or service in relation thereto. However, amounts which are significantly higher than recovery of costs, have to be treated as receipts from trade, commerce or business. It is for those amounts, that the quantitative limit in proviso (ii) to Section 2(15) applies, and for which separate books of account will have to be maintained under other provisions of the IT Act. IV. Summation of conclusions 253. In view of the foregoing discussion and analysis, the following conclusions are recorded regarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating that the quantitative limit prescribed in the proviso to Section 2015), has not been breached. Similarly, the insertion of Section 13(5), seventeenth proviso to Section 10(230) and third proviso to Section 143(3) (all w.r.e.f. 01.04.2009), reaffirm this interpretation and bring uniformity across the statutory provisions B. Authorities, corporations, or bodies established by statute B.I. The amounts or any money whatsoever charged by a statutory corporation. board or any other body set up by the state government or central governments, for achieving what are essentially 'public functions services' (such as housing. industrial development, supply of water, sewage management, supply of food grain, development and town planning, etc.) may resemble trade, commercial, or business activities. However, since their objects are essential for advancement of public purposes functions (and are accordingly restrained by way of statutory provisions), such receipts are prima facie to be excluded from the mischief of business or commercial receipts. This is in line with the larger bench judgments of this court in Ramtanu Cooperative Housing Society and NDMC (supra). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se inference in the judgment passed by the Hon ble Supreme Court. 8. We have perused the materials available on record and the judgments passed by the Hon ble Supreme Court and the High Court of Gujarat respectfully following the same, we hold that the activities of the assessee for advancement of any other object of General Public Utility for charitable purpose and therefore the assessee corporation shall be entitled to exemption u/s. 11 of the Act. It is further clarified by the Hon ble Supreme Court in the very same case of ACIT vs. Ahmedabad Urban Development Authority reported in [2022] 144 taxmann.com 78 (SC) wherein it has been clearly held that the Revenues Appeals are dismissed as far as statutory Corporations/Boards observing as follows: .3. It was urged on behalf of the revenue, that the clarification it seeks is necessary, because in Para 253H and in Para 254, it has been precluded from examining the facts and assessing the concerned assessment years, in relation to the assesses in these appeals. It was urged that the conclusions recorded in the judgment and those in the said two paragraphs, preclude it from dealing with the assessments of parties before this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee s Appeal for A.Y. 2016-17 11. The Grounds of Appeal raised by the Assessee are as follows: 1. On the facts and in the circumstances of the case, the learned CIT(A) erred in rejecting the appellant's ground of appeal that, for all practical purposes, it is an agent of the State Government of Gujarat and, therefore, by virtue of the provisions contained in Article 289 of the Constitution of India, it cannot be subjected to assessment and levy of tax under the Income-tax Act, 1961 (hereinafter referred to as Act ). 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in holding that the receipts from premium on land given on lease are recurring and operational receipts, thereby considering 40% of lease income as revenue receipt in the present assessment year. 3.1 On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the finding of the Assessing Officer that the appellant has violated the provisions of section 11(5) of the Act with regard to the investment made in Gujarat Alkalies Chemicals Limited and Gujarat Lease Finance Limited, thereby attracting the provisions of section 13(1)(d) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in the case of Gujarat Maritime Board (cited supra), the Co-ordinate Bench after considering the Karnataka High Court judgment in the case of Fr. Mullers Charitable Institutions, Jurisdictional High Court in the case of S.P. Memorial Trust and Mumbai High Court judgment in the case of Sheth Mafatlal Gagalbhai Foundation Trust allowed the issue in favour of the assessee observing as follows: ..12. We have heard the rival contentions and perused the material on record. Section 13(1)(d) provides that exemption from tax to charitable or religious trust / institution will be forfeited if any funds of the trust / institution are invested or deposited, otherwise than in any one or more of the forms or modes specified therein. We observe that the Karnataka High Court, in the case of CIT Vs Fr. Mullers Charitable Institutions [2014] 363 ITR 230 (Karn) held that perusal of section 13(1)(d) of the Act makes it clear that it is only the income from such investment or deposit, which has been made in violation of section 11(5) of the Act, that is liable to be taxed and violation of section 13(1)(d) does not result in denial of exemption under section 11 to the total income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court has held that a perusal of section 13(l)(d) of the Income-tax Act, 1961 makes it clear that it is only the income from such investment or deposit which has been made in violation of section 11(5) of the Act that is liable to be taxed and violation under section 13(l)(d) does not result in denial of exemption under section 11 to the total income of the assessee and that where the whole or part of the relevant income is not exempted under section 11 by virtue of violation of section 13(l)(d) of the Act, tax shall be levied on the relevant income or part of the relevant income at the maximum marginal rate. Therefore, we do not see any reason in interfering with the impugned orders. 7. In the premises aforesaid, question raised in the present appeals is answered in favour of assessee and against the revenue. Appeals stand dismissed accordingly. 12.1 In view of the aforesaid legal precedents, in our considered view, only the relevant income falling within the mischief of section 13(1)(d) of the Act will lose the benefit of exemption under section 11 and 12 of the Act and the balance of the total income of the trust will remain eligible for the benefit of exemption und ..... X X X X Extracts X X X X X X X X Extracts X X X X
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