AGRA DEVELOPMENT AUTHORITY,AGRA vs. DCIT., CIRCLE-1, AGRA

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE: SHRI LALIET KUMAR, JUDICIAL MEMBER, AND DR. M. L. MEENA, ACCOUNTANT MEMBER

ITANo.216/Agr/2016, A.Y.2011-12 ITA No. 177/Agr/2014, A.Y.2009-10 ITA No.439/Agr/2015, A.Y. 2010-11

V.S. D.C.I.T. Circle – 1 Agra Development Authority, Jaipur House, Agra Agra PAN No. – AAALA0081F (Appellant) (Respondent)

ITA No.183/Agr/2014 Assessment Year: 2009-10 D.C.I.T. Circle – 1 V.S. Agra Development Authority, Agra Jaipur House, Agra PAN No. – AAALA0081F (Appellant) (Respondent)

Appellant by Sh. Deepak Singh, Adv. Respondent by Sh. Sunil Bajpai, CIT DR & Sh. Mazhar Akram, Sr.DR

Date of Hearing 08.04.2021 Date of Pronouncement 17.05.2021

ORDER Per LALIET KUMAR J.M.

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S. NO 1 GROUNDS OF APPEALS 2-20 2 BACK GROUND FACTS 21-23 3 SUBMISSIONS OF AR 23-24 4 WRITTEN SUBMISSIONS BY AR 25-67 5 SUBMISSIONS BY DR 68-98 6 FINDINGS AND DISCUSSIONS 98-114

These appeals of the assessee and Cross appeal filed by the revenue are against

the order of ld. CIT (Appeals). In these appeals a common issue is involved and for this

reason, they are being disposed of by this Composite order. Facts for convenience are

being taken from ITA No. 216/Agra/2016 for A.Y. 2011-12.

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(b) Bank Interest Rs 18,95,22,200 (c) Interest from Employees Rs 13,50,337 (d) Stamp Duty Rs 4,23,02,402 (e) Income from Path Kar Rs 5,54,96,955 (f) Income from sale of master plan Rs 23,51,704 (g) Parking stand charges Rs 1,53,83,520 (h) Penalties & Charges for road cutting etc & water charges Rs 9,57,998 (i) Income undet RTI Act Rs 14,453 j)Misc. Income Rs 2,70,27,443 This ground is without prejudice to the other grounds taken by the appellant. (7) Because the Ld. CIT(Appeals) has erred in not allowing Rs 12,95, 77,000 which was transferred to infrastructure fund as expenditure. The CIT(Appeals) further erred in not allowing the alternative plea of the appellant for allowing Rs 33,54,16,151 as expenditure which was carried out of infrastructure fund. (8) Because· the Ld. CIT(Appeals) has erred in confirming the addition of Rs39,34, 135 in respect of old outstanding entries in bank reconciliation statement. (9) Because the Ld. CIT(Appeals) has erred in confirming the addition of Rs 36,31,60,509 in respect of liabilities shown under the head "sale of properties". The CIT(Appeals) further erred in confirming the defective method of calculation of said liabilities as adopted by the AO. (10) Because the Ld. CIT(Appeals) has erred in confirming the addition of Rs 25,20,348 for alleged non inclusion of other receipts under infrastructure fund. (11) Because the Ld. CIT(Appeals) has erred in confirming the addition Rs.3,86,45,090 in respect of interest on for alleged non inclusion in the income of the appellant. (12) Because the Ld. CIT(Appeals) has erred in confirming the disallowance of Rs 35,99,93,000 being the payment made to UP Jal Nigam for sewage system. (13) Because the Ld. CIT(Appeals) has erred in confirming the addition of Rs 2,64,68,984 in respect of Interest on FOR out of Path Kar receipts. (14) Because the order appealed against is contrary to the facts, law and principles of natural justice. (15) The appellant craves leave to add, delete, modify or substitute any or all the grounds of appeal at any appropriate time.”

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ITA No. 177/Agra/2014 Grounds “1. Because the Ld. Commissioner of Income Tax (Appeals)-I, Agra, hereinafter referred to as 'CIT(A)' erred, both in law and on facts, in holding that the assessment was within the limitation prescribed in section 153 of the ITAct Ld. CIT(A) failed to appreciate that the extension of time u/s 142(2C) beyond 29.05.2012 for Special Audit was wholly invalid in the eyes of law. The assessment, being barred by limitation prescribed u/s 153, may kindly be declared as invalid.

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Urban Planning And Development Act 1976 with the sole object of planned development of Agra City. 4. Because the Ld. CIT(A) erred, both in law and on facts, in not admitting the recasted Balance Sheet and Bank Reconciliation Statement filed during the appellate proceedings. The recasted Balance Sheet and Bank Reconciliation Statement are based on the books of accounts and goes to the roots of merits of the case of the appellant. Ld. CIT(A) was wholly illegal in holding the same as additional evidence. The rejection thereof is wholly arbitrary and contrary to the established judicial principles. 5. Because the Ld. CIT(A) erred, both in law and on facts, in confirming the action of Assessing Officer in completing the assessment under Chapter IV of the Income tax Act and invoking provisions of section 145(3) in the absence of any income under the head " Profit and Gains of business or Profession" or " Income from other sources". The completion of assessment under Chapter IV and invoking provisions of section 145(3) is wholly illegal in the facts and circumstances of the case of the appellant. 6. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 24,68,23,586/- out of addition of Rs 42,24,51,350/- made by the Assessing Officer. The Ld. CIT(A) further erred in law in making disallowances of Rs.3,86,48,071/- out of establishment expenses, Rs.2,75,75,256/- out of administrative expenses and Rs.60,86,001/- out of amortization/depreciation. while working out the addition as sustained by him. The addition made by Ld. CIT(A), tantamount to enhancement which is wholly illegal and

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contrary to established judicial precedence. The addition may kindly be directed to be deleted. 7. Because, without prejudice to the ground no.6 above, the Ld. CIT(A) erred, both in law and on facts, in not allowing the reduction of Rs 43,88,33,899/- (4,95,52,669/+ 28,94,09,906/-+ 9,98,71,324/-). Ld. CIT(A) failed to appreciate that the above receipts were either against statutory obligations or the government grants and in no case against any of the alleged business activities illegally held by the authorities below. The same is again in utter disregard to judicial pronouncement including authoritative judicial pronouncement of Hon'ble Allahabad High Court in the case of Lucknow Development Authority [(2013) 38 taxmann.com 246 (All.)]. 8. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 5,755/- being the Advertisement Expenses incurred by the appellant. The supporting evidence filed before authorities below has been arbitrarily rejected. The addition may kindly be directed to be deleted. 9. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 10, 16,129/- being the Electrification Expenses incurred by the appellant. The supporting evidence filed before authorities below has been arbitrarily rejected. The addition may kindly be directed to be deleted. 10.Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 2,08,56,996/- out of Rs 3,53,23,000/- being the expenses incurred by the appellant on construction of drainage. The supporting evidence filed before authorities below has

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been arbitrarily rejected. The addition may kindly be directed to be deleted. 11. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 43,94,120/- being the expenses incurred by the appellant on construction of road. The supporting evidence filed before the authorities below has arbitrarily been rejected. The addition may kindly be directed to be deleted. 12. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 1,68,947/- by holding the amount transferred from Furniture and Fixture Account to Repair Account as capital expenditure and allowing depreciation thereon. Ld. CIT(A) failed to appreciate that the transfer entry has no effect on the revenue and as such the same could have been directed to be deleted. 13. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 23,850/- by holding the amount transferred from Computer Account to Repair Account as capital expenditure and allowing depreciation thereon. Ld. CIT(A) failed to appreciate that the transfer entry has no effect on the revenue and as such the same could have been directed to be deleted. 14. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 33,649/- by holding the amount transferred from Computer Account to Repair Account as capital expenditure and allowing depreciation thereon. Ld. CIT(A) failed to appreciate that the transfer entry has no effect on the revenue and as such the same could have been directed to be deleted. 15. Because the Ld. CIT(A) erred, both in law and on facts, in restoring the matter to the file of Assessing Officer in respect of

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addition of Rs 42,33,679/- made by the Assessing officer on the basis of bank analysis. Ld. CIT(A) was wholly incorrect in rejecting recasted balance sheet / BRS and directing the Assessing Officer to verify the correctness of genuine evidence on record. The direction is wholly unjustified. The addition may kindly be directed to be deleted. 16. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 6,44,73,649/- made by the Assessing Officer u/s 69A for the alleged failure to record the amount in books of account. The supporting evidence has arbitrarily been rejected by the authorities below. Further, section 69A has no application in the facts and circumstances of the case of the appellant. The addition made u/s 69A is wholly illegal which may kindly be directed to be deleted. 17. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 18,27,873/- out of total addition of Rs 54,77,878/-made by the Assessing Officer as Fictitious Expenses. The supporting evidence has arbitrarily been rejected by the authorities below. The addition is wholly illegal which may kindly be directed to be deleted. 18. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 50,38,053/- made by the Assessing Officer u/s 69C for the alleged failure to record the amount in books of account. The supporting evidence has arbitrarily been rejected by the authorities below. Further, section 69C has no application in the facts and circumstances of the case of the appellant. The addition made u/s 69C is wholly illegal which may kindly be directed to be deleted.

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the assessing officer under the head " excess amount taken in ledger than the actual". The supporting evidence has arbitrarily been rejected by the authorities below. The addition is wholly illegal which may kindly be directed to be deleted· 24. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 1, 17,317/- out of total addition of Rs 7,40,086/- made by the assessing officer under the head "excess amount taken in ledger than the voucher". The supporting evidence has arbitrarily been rejected by the authorities below. The addition is wholly illegal which may kindly be directed to be deleted. 25. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 32,50,050/- made by the Assessing Officer, being 30% of the receipts against Registration money. The authorities below erred in rejecting the system of accounting consistently followed by the appellant from the date of its inception. The addition is wholly illegal and the same may kindly be directed to be deleted. 26. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 13,54,75,801/- made by the Assessing Officer under the head" allotment money received during the year". The authorities below have arbitrarily rejected the system of accounting consistently followed by the appellant from the date of its inception. In any case, holding entire amount of allotment money as income is arbitrary and whimsical. The addition is wholly illegal which may kindly be directed to be deleted.

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CIT(A) u/s 251. The direction as well as addition in wholly illegal which may kindly be directed to be deleted. 31. Because the appellant craves leave to alter/ modify grounds before or at the time of hearing of the appeal.”

ITA No. 439/Agra/2015

“(1) Because Ld.CIT(A) has erred in law and on facts in holding the activities of the appellant as activity in the nature of trade business or commerce and that the appellant is rendering services in relation to trade, business or commerce. The Ld.CIT(A) failed to appreciate that all the activities of the appellant are in accordance with and to meet the objects contained in section 7 of the Uttar Pradesh Urban Planning and Development Act. (2) Because Ld.CIT(A) has erred in law and on facts in holding that the appellant is doing the activities for a cess or fee. Ld.CIT(A) failed to appreciate that various fees are levied under the statutory provision contained in the UP Urban Planning and Development Act in order to achieve the objects for which the appellant is constituted. No commercial activities are involved. (3) Because Ld.CIT(A) has erred in law and on facts in not holding the invoking of provisions of section 145(3) as illegal in the absence of any income under the head "Profit and Gains of business or Profession". Further in the absence of any violation of provisions of section 145(3), the assessment made is illegal and bad in law.

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(4) Because Ld.CIT(A) has erred in law and on facts in holding activities of the appellant as commercial activity under the provisions of Sec.2(15). LdCIT(A) has erred in law and on facts in not allowing benefit of section 11 of the Income Tax Act 1961 which the appellant is legally entitled by virtue of registration u/s 12A. The amended provisions of section 2(15) are not at all locally applicable. Appellant may held to eligible to exemption u/s 11 and 12 of I.T.Act 1961 as well as its activities be held to be charitable in nature. (5) Because The CIT (Appeal) has erred in law and on facts in confirming the addition of Rs 5,56,40,365/- being the net profit arrived at by recasting profit and loss account. Application of proviso to section 2(15) read with section 17/8) and holding the activities of the assessee as non charitable is illegaland is against facts. The Ld.CIT(A) failed to appreciate that the appellant is enjoying registration u/s 12A of the I.T.Act and that the entire surplus shown in receipt & expenditure account was utilized in accordance with section 11 of the Income Tax Act. The return was also accompanying statutory report on Form 10B. Even the re-casted Profit & Loss Account suffers from fatal mistake as the Assessing Officer has not allowed the benefit of Rs.18,76,15,000/- transferred to infrastructure fund or in the alternative, allowing expenditure of Rs 12,83,34,230/- while re-casting Profit & Loss Account. The net result will again be the loss. The addition is wholly illegal and contrary to tho evidence available on record, which may kindly be directed to be deleted. (6) Because the CIT (Appeal) has erred in law and on facts in confirming addition of Rs 2,09,78,877/- in respect of old outstanding entries in the bank reconciliation statement. The Ld. CIT(A) failed to

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appreciate that the amount are bank to bank transfer, relates to earlier years and that the liability had not ceased.The addition is wholly illegal and contrary to the evidence available on record. The same may kindly be directed to be deleted. (7) Because Ld.CIT (Appeal) has erred in law and on facts in confirming addition of Rs 31,60,94,320/-in respect of alleged recoveries under liabilities in balance sheet. The Ld.CIT (Appeal) failed to appreciate necessary evidence together with explanation and has on arbitrary and hypothetical considerations confirmed an estimated sale and profit thereon. He failed to appreciate that this addition amounted to double taxation. The addition being unsupported by any material on record, may kindly be directed to be deleted. 8) Because Ld.CIT (Appeal) has erred in law and on facts in confirming addition of Rs 1,11,45,660/- u/s 40(a)(ia). In respect of Rs 1,11,45,660/-, Ld. CIT(A) failed to appreciate the submissions and supporting evidences filed and test checked during the course of hearing. The Ld. AO failed to appreciate the d ails submitted for 1° atr of subsequent year, wherein, the tax deducted inthe 4thquarter of the year under consideration was deposited. The addition of Rs,1,11,45,660 may please be deleted. (9) Because Ld.CIT (Appeal) has erred in law and on facts in confirming the addition Rs 28, 77,400/- in respect of contractor contribution for city development. The Ld. CIT(A) failed to appreciate that the contribution from the contractor was voluntary and with specific consent for incurring the same for the city development. The same was no receipts within the meaning of section 12 of the I.T.Act.

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The addition is wholly illegal. The same may kindly be directed to be deleted. (10) Because The CIT (Appeal) has erred in law and on facts in confirming the addition Rs 2,59,527/- in respect of expenditure alleged as wrongly claimed by the appellant. The refund of Sursadan Security claimed as expenditure does not affect the "receipt or expenditure account" as the same was included in the receipts at the time of booking of Sursadan. The addition is wholly ill·al. The same may kindly be directed to be deleted. (11) Because Ld.CIT (Appeal) has erred in law and on facts in confirming the addition Rs 26, 720/- in respect of prior period expenses. The TDS having been deducted during the year, the expenditure is allowable u/s 40(a). The disallowance is wholly illegal. The same may kindly be directed to be deleted. (12) Pause Ld.CIT (Appeal) has erred in law and on facts in confirming the addition Rs 46, 78, 719/- in respect of non inclusion of other receipt under infrastructure fund. The Ld.CIT (Appeal) failed to appreciate that the captioned amount was already shown under the head other receipts in the reserve fund. The addition as well as non consideration of related expenditure of infrastructure fund account" made by the AO is contrary to the facts and circumstances available on record. The addition is wholly illegal. The same may kindly be directed to be deleted. (13) Because Ld.CIT (Appeal) has erred in law and on facts in confirming the ;:irk!ition Rs 29,38,86,421/- in respect of non production of vouchers for deposit in the bank account. The Ld.CIT (Appeal) has deliberately ignored thesupporting voucher which were

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filed before him and which were also produced before the A.O. and were test checked by the AO. Ld.CIT (Appeal) further failed to appreciate that the deposit were already disclosed in the receipts under respective heads of income. The addition made as unexplained deposits in the bank accounts under section 69 is wholly illegal and contrary to the facts and material available on record. As such the same c'·1not be treated as unexplained deposits in the bank accounts u/s 69. The disallowance is wholly illegal. The same may kindly be directed to be deleted. (14) .Because The CIT (Appeal) has erred in law and on facts in confirming the addition Rs 46,05,670/- in respect of non production of vouchers. The appellant has never denied the availability of vouchers in respect of captioned expenditure. The non production of any voucher does not lead to the inference that primary evidence is not available. The AO arbitrarily refused to entertain the vouchers, which were produced before him. The disallowance is wholly illegal. The same may kindly be directed to be deleted. 15) Because The CIT (Appeal) has erred in law and on facts in confirming the addition Rs 5,09,01 ,493/- in respect of interest on pathkar FDR's. The interest earned on FDR's relating to pathkar is not the income of the appellant. The addition is wholly illegal. The same may kindly be directed to be deleted. (16) Because Ld.CIT(A) has erred both in law and on facts in holding the status of the appellant as AOP/BO1. (17) The appellant craves leave to add, alter or amend any of the ground of appeal before or at the time of hearing.”

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ITA No. 183/Agra/2014 This is revenue appeal, the grounds raised as under: “That, the Ld.CIT(A) has erred in law in allowing coverage of exemption u/s 11, when he has himself held that the activities of the trust attracted the proviso to section 2(15) and hence these were not for 'charitable purpose' and fur this reason provisions of section 13(8) of the I.T.Act are clearly attracted. (ii) That, the Ld.CIT(A) has erred in law in directing to exclude Rs.17,56,27.767/- from the amount of Rs.42,24,51,350/- by ignoring the provisions of sec.13(8) and allowing exemption u/s 11(1 )(a) r.w. 11 (2) of the I.T. Act. (iii) That, the Ld.CIT(A) has erred in law & on facts by deleting the addition of Rs.10,16,129/-,on account of electricity expenses, by ignoring the facts brought on record by the AO that no supporting bill was produced by the assessee during the course of asstt. proceedings. (iv) That, the Ld.CIT(A) has erred in law by deleting the part addition of Rs. 1,44,66,004/- out of total addition of Rs.3,53,23,000/-, on account of no tax was deducted as per section 40(a)(ia) of IT Act, in view of decision of Hon'ble High court Allahabad in the case of CIT vs Victor Shipping services Pvt. Ltd. which is a orbiter dicta as per CBDT circular no. 10/V/2013 dated 16.12.2013. (v) That, the Ld. CIT(A) has erred in law by deleting the addition of Rs. 2,37.29,097/- u/s 41(1) of the IT 'Act by ignoring the fact that bogus liability was created by the assessee and refund of allotment money of Rs.2,37,29,097/- was made in cash on a single day through unsigned voucher.

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(vi) That, the Ld.CIT(A) has erred in law & on facts by deleting the addition of Rs.57,68,605/-, on account of under section 69A of the IT Act, without appreciating the fact of the case that amount of Rs 57.68,605/- debited by the bank but not found recorded in the books of account of the assessee. (vii) That, the Ld.CIT(A) has erred in law & on facts by deleting the addition of Rs.36,50,000/- out of total addition of Rs 54,77.,878/-, on account of fictitious expenses, by ignoring the fact that cheques issued on the same dates were not cleared upto 31.03.2009 and fictitious expenditure was being claimed by the assessee to satisfy the conditions of section 11 of the IT Act, 1961. (viii) That, the Ld.CIT(A) has erred in law & on facts by deleting the addition of Rs.76,18,731/- out of the total addition of Rs. 1,20,81,971/-, on account of expenses, by ignoring the facts brought on record by the AO that assessee has failed to produce the related vouchers claimed as paid for construction of properties sold. (ix) That, the Ld.CIT(A) has erred in law & on facts by deleting the addition of Rs.22,92,683/-,on account of interest income, without appreciating the fact of the case that there is no base to calculate the interest income earned from installments taken on adhoc basis from scheme wise. (x) That, the Ld.CIT(A) has erred in law & on facts by deleting the addition of Rs.48,22,697/- out of the total addition of Rs.81,30,245/-,on account of administrative expenses, by ignoring the facts brought on record that assessee has failed to produce the original bills/vouchers of the administrative expenses.

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(xi) That, the Ld.CIT(A) has erred in law & on facts by deleting the addition of Rs.73,20.266/- out of the total addition of Rs.97,50,100/-, on account of expenses not verified by bills/vouchers, by ignoring the facts brought on record that assessee has failed to produce the original bills/vouchers. (xii) That, the Ld.CIT(A) has erred in law & on facts by deleting the addition of Rs.1,91,78,975/- out of the total addition of Rs. 2,02,84,696/-, on account of expenditure claimed against adjustment of advances, by Ignoring the facts brought on record that there was no supporting evidences for advance adjustment and entire amount remains unverifiable in nature. (xiii) That, the Ld.CIT(A) has erred in law & on facts by deleting the addition of Rs 89.91,305/-, on account of depreciation, by ignoring the facts brought on record that assessee failed to give the break up of cost of land and building to justify the depreciation claimed on the ADA building which includes the cost of land. (xiv) That, the Ld.CIT(A) has erred in law & on facts by deleting the addition of Rs.15,08, 159/-, on account of house tax and water tax payable, without appreciating the fact of the case that house tax and water tax were neither paid in that year nor upto the filing of the return. (xv) That, the Ld.CIT(A) has erred in law & on facts by deleting the addition of Rs. 11,65,845/- out of the total addition of Rs.17,57,752/- ,on account of expenses not verified by original biils/vouchers ,without appreciating the fact of the case that assessee has not produced the original bills/vouchers for justification of the said expenses.

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(xvi) That, the CIT(A) has erred in law by deleting the addition of Rs.30,64,531/- , on account of payment made and no tax was deducted as per Section 40(a)(ia) of the IT Act, as per decision of H'onble High court Allahabad in the case of CIT vs Victor Shipping services Pvt Ltd which is a orbiter dicta as per CBDT circular no. 10/DV/2013 dated 16.12.2013. (xvii) That, the CIT(A) has erred in law by deleting the addition of Rs.3,02,74,196/-, on account of payment made and no tax was deducted as per Section 40(a)(ia) of the IT Act, as per decision of H'onble High court Allahabad in the case of CIT vs Victor Shipping services Pvt Ltd which is a orbiter dicta as per CBDT circular no. 10/V/2013 dated 16.12.2013. (xviii) That, the CIT(A) has erred in law by deleting the addition of Rs.2,26,41,971/- , on account of section 40(a)(ia) of the IT Act, without appreciating the fact that by the CBDT "circular F.No.275/73/2007IT(B) dated 30 06 2008 it has beenclarified that tax is to be deducted on the gross amount inclusiveof service tax where the payment is being made u/s 194J. (xix) That, the ld. CIT(A) has erred in law by deleting the additions. on account of various expenses not verified by original bills/vouchers, without appreciating the fact of the case. (xx) That the appellant craves leave to add or delete or alter or modify any one or more ground (s) of appeal during the appellate proceedings. (xxi) That the order of the Ld CIT(A)-1. Agra being erroneous in law and on facts be set-aside and that the order of the AO be restored.”

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BACK GROUND FACTS

The facts as mentioned in the order passed by the CIT(A) are as under:

a body corporate constituted under Uttar Pradesh Urban Planning &

Development Act, 1973. The assessee was filing its returns of income in

the status of 'Local Authority' and claiming exemption d/s 10(20A) earlier.

Later, vide Finance Act, 2002, section 10(20A) has been deleted and an

explanation to section 10(20) has been added defining the term "Local

Authority". As per this definition, the assessee (appellant) in the present

case has been excluded from being assessed as 'Local Authority' w.e.f.

01.04.2003. Subsequently, the assessee (appellant) has been given

registration u/s 12A in 2003 under the status of a charitable institution and

thereafter, it has been filing its return of income claiming exemption u/s 11

and showing 'Nil' income. Later on, section 2(15) of the Act has been

amended w.e.f. 01.04.2009 defining the word 'Charitable' for the purpose of

granting exemption and providing registration to the trusts and institutions

engaged in charitable activities by way of inserting two provisos in this

section denying exemption to those trusts / institutions uls 11, which are

found to be engaged in the activities of general public utilities and carrying

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on any activity in the nature of trade, commerce or business or any activity

of rendering any service in relation to/and trade, commerce or business for

a cess or fee or any other consideration and having receipts for such

activity exceeding Rs. 10 lac that is now revised to Rs.25 lac w.e.f.

01.04.2012 . The AO has completed the assessment of the assessee's

case in the status of AOP / 801) vide his order dated 27.03.2014 passed

u/s 143(3) of the Act. The AO passed the said assessment order after

examining various expenditures claimed by the assessee and while finding

some of such expenditures not supported with relevant evidences to

substantiate such expenditures and also finding certain receipts not shown

by the assessee, the AO therefore disallowed / added such expenditure /

receipts in the assessee's income and Expenditure Account. Since the

exemption to the assessee (appellant) u/s 11 has been denied by the AO in

view of proviso to section 2(15) read with section 13(8), therefore the

assessee's income has been assessed under the head income from

Business or Profession' and such total income of the assessee has been

termined after making addition of unsubstantiated expenditure and the

receipts not counted for by the assessee. After doing so, the AO has

computed the total income of of the assessee.

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assessee had preferred the appeal before the CIT(A) on various ground

mentioned in the order passed by the CIT(A), however the CIT(A) has not

agree to the submission of the assessee and pass impugned order..

appeal before us on the ground reproduced herein above.

SUBMISSIONS OF AR

assessee are charitable in nature and the assessee was doing these

activities in accordance with the act, which has created the assessee for

the purpose of regulating managing and orderly behaviours of the subject.

The AR of the assessee has submitted that the predominant purpose of the

activities of the assessee is to do the charitable activities as an

instrumentality of the state further it was submitted that all the proceeds

received by the assessee are utilised for the purpose of benefit of the

citizens without any inhibition of caste creed and religion. The Ld.AR

further submitted that the most of the activities which are undertaken by the

assessee falls under the first paragraph of section 12 AA of the act. It was

submitted that the assessee is maintaining the historical and

archaeological monuments and is also collected the fees for that purposes

as an instrument of the committee found under the act and the set amount

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collected by the assessee were accounted to the act logical server from the

for maintaining an uplifting of the archaeological sites. Further it was

submitted that the main source of revenue of the assessee is mentioned at

pace 35 the latest paper book where the assessee is drawing the receipt

from various regulatory activities including sanction plan amalgamation of

buildings, issuance of tenders, issuance of booklet, parking slots, cess/tax

as permissible under the act. It was the contention of the Ld.AR that all

these activities are charitable in nature as these activities are undertaken

by the assessee in accordance with the act and none of the activities of the

assessee falls outside the permit of the activities which are permitted by

the act. The Ld.AR had also submitted that the case of the assessee is

covered by the media is decisions are by the tribunals including the

decision rendered by this tribunal in the case of Jhansi Development

Authority, and therefore had submitted that the case of the assessee is

required to be allowed. He had also filed the written submission in support

of the oral contention made by which are to the following effect:-

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“Agra Development Authority (Appellant) has preferred an appeal against order of Ld. CIT(A). Appellant is registered as a charitable institution under Sec.12A (Page 28 of P.B-1). The A.O. while passing the assessment order denied the claim of exemption u/s 11 by applying the proviso to Sec 2(15) of IT Act 1961, and treating the income of the assessee as business income. Appellant has challenged, inter alia, the application of proviso to Sec.2 (15) and not treating income/activities of the appellant as charitable. [CIT (A) Page No 26 to 97(A.O. Page No 15 to 25).]

(1) Appellants activities are charitable in nature-

Moradabad Development Authority

The jurisdictional honourable Allahabad High Court recently in the case relating to assessment of income of Moradabad Development Authority has held its activities as charitable in nature u/s 2(15) of the Act. It followed the preposition as laid down in Yamuna Expressway Authority wherein as a matter of principle it had held the activities of development authorities to be charitable in nature u/s 2(15) of the Act. The above decision of the High Court in the case of Moradabad was followed by the honourable ITAT Delhi in ITA No. 4631 & 4632 Dt.04.01.2018 in the a case relating to assessment of income of Moradabad Development Authority.

CIT vs. LUCKNOW DEVELOPMENT AUTHORITY(2014) 265 CTR (All) 0433

Allahabad High Court decision in appeal No 657 of 2007 in the case of CIT vs. HapurPilakhua Development Authority and various other such authorities by a common order decided on 29.8.2016 and similarly in Yamuna Expressway Authority the honourable Jurisdictional High Court has held the activities of development authorities as charitable in nature which is squarely applicable in appellants case. Appellant and above said authorities were established under the same Act and the activities are identical in nature. (2) A substantial portion of appellant’s income is diverted at source hence it cannot be held as its income, as per state government order no 152/E-0-1-1998 which directs appellant authority to transfer 90% of the income from various heads of income into a separate infrastructure a/c . Expenditure out of this fund is carried out as per the pleasure and choice of a committee appointed by State Govt. It is thus a case of diversion of income by overriding title.

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RAJA BEJOY SINGH DUDURIA VS. CIT(1933) 1 ITR 135 (PC) Prince Khanderao Gaekwar vs. CIT (1948) 16 ITR 294 (Bom) Seth Motilal Manekchand vs. CIT (1957) 31 ITR 735 (BOM) CIT VS. TOLLYGUNGE CLUB LTD.(1977)107 ITR 776(SC) JIT & PAL X-RAYS (P) LTD. S. CIT (2004) 134 TAXMAN 62 (ALL)

(3) Most of the functions carried out by the appellant authority are functions of state and the income accruing in performance of such functions is inherently charitable- Union of India vs. R.C.Jain (1981 AIR 951) Bureau of Indian Standards vs. D.G. (358 ITR 78)

(4) Predominant view of the Apex Court as well as various High courts is that for determining whether activities of an institution are charitable or commercial in nature the intention to earn profit is a basic criteria. In case of appellant there is no intention at all to earn profit. UPUPD Act as well as various G.O. of UP Govt . does not prescribe earning of profit as a motive. However, for running any charitable institution surplus is in any way an essential part without which no charitable activity is possible.

Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association (121 ITR 1) ACIT vs. Thanthi Trust (247 ITR 785) CIT vs Gujrat Maritime Board (295 ITR 561) CIT vs. Pulikkal Medical Foundation (210 ITR 299) CIT vs. Andhara Chamber of Commerce (551 ITR 722) CIT vs. Federation of Indian Chambers of Commerce & Industry (130 ITR 186) CST vs. Sai Publication Fund (258 ITR 70) ICAI Accounting Research Foundation vs. D.G. (321 ITR 73) CIT vs. A.P. State Road Transport Corp (159 ITR 1) Queens Educational Society vs. CIT (372 ITR 699) Indian Trade Promotion Organization vs D.G.(374 ITR 333) GS1 vs. D.G. (360 ITR 138) Institute of Development of Research Banking Technology Vs. ADI (E) (Page 17-26 of P.B.-1)

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(5) The non admission of SLP by the honourable Supreme Court in case of Jammu Development Authority is not binding on lower courts as has been held by the honourable Supreme Court in Indian Oil Corporation Ltd. vs. State of Bihar &Ors. (1987) 167 ITR 897 (SC)

ITA NO 177/ 2014

Ground No 2 & 3

REGULATORY AUTHORITY 1. Without prejudice to following submissions , it may be mentioned that the matter under appeal is fully covered by your honour’s decision in Jhansi Development Authority (JDA). The facts of this case are identical to JDA. Both Agra Development Authority ( ADA) and JDA were established as a regulatory Authority under U.P Urban Planning &Development Act 1973 for development of urban areas . Recently Honourable ITAT Delhi in Aligarh Development Authority has also held its activities as charitable in nature.

U.P Urban Planning & Development Act 1973 ( herein after called as Development Act)

Reasons for the enactment.-

(2) In the developing areas of the State of Uttar Pradesh. the problems of town planning and urban development need to be tacked resolutely. The existing local bodies and other authorities inspite of their best efforts have not been able to cope with these problems to the desired extent. In order to bring about improvement in this situation. the State Government considered it advisable that in such developing areas. Development Authorities patterned on the Delhi Development Authority be established. As the State Government was of the view that the urban development and planning work in the State had already been delayed it was felt necessary to provide for early establishment of such Authorities. 7. Objects of the Authority.-

The objects of the Authority shall be promote and secure the development of the development area according to plan and for that purpose the Authority shall have the Power to acquire, hold, manage and dispose of land and other property, to carry out building, engineering, mining and other operations, to execute works in connection with the supply of water and electricity to dispose of sewage and to provide and maintain other services and

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amenities and generally to do anything necessary or expedient for purposes of such development and for purposes incidental thereto:

Provided that save as provided In this Act nothing contained in this Act shall be construed as authorising the disregard by the Authority of any law for the time being in force.

(1) The Authority shall, as soon as may be, prepare a master plan for the development area. --------------

(3) The master plan may provide for any other matter which may be necessary for the proper development of the development area.

After the coming into operation of any of the plans in a zone no person shall use or permit to be used any land or building in that zone otherwise that in conformity with such plan :

Provided that it shall be lawful to continue to use, upon such terms and conditions as may be prescribed by bye-laws made in that behalf, any land or building for the purposes and to the extent for and to which it is being used upon the date on which such plan comes into force. Acquisition and Disposal of Land 17. Compulsory acquisition of land.-

(1) If in the opinion of the State Government any land is required for the purpose of development or for any other purpose, under this Act the State Government may acquire such land under the Provisions of the Land Acquisition Act, 1894:

Provided that any person from whom any land is so acquired may after the expiration of a period of five years room the date of such acquisition apply to the State Government for restoration of that land to him on the ground that the land has not been utilized within the period for the purpose for which it was acquired, and if the State Government is satisfied to that effect it shall order restoration of the land to him on re-payment of the charges which were incurred in connection with the acquisition together with interest at the rate of twelve in connection with the acquisition together with interest at the rate of twelve per cent per annum and such development charges as if any may have been incurred after acquisition.

(2) Where any land has been acquired by the State Government, that Government may, after it has taken possession of the land transfer the land to the Authority or any local authority for the purpose for which the land has been acquired on payment by Authority or the local Authority of the compensation awarded under that Act and of the charges incurred by the Government in connection with the acquisition.

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(1) Subject to any directions given by the State Government in this behalf, the Authority or, as the case may be, the local Authority concerned may dispose ofany land acquired by the State Government and transferred to it, without undertaking or carrying out any development thereon; orany such land after undertaking or carrying out such development as it thinks fit.

to such persons, in such manner and subject to such terms and conditions as it considers expedient for securing the development of the development area according to plan.

(2) Nothing in this Act shall be construed as enabling the Authority or the local Authority concerned to dispose of land by way of gift,(***) but subject thereto, references in this Act, to the disposal of land shall be construed as references to the disposal thereof in any manner, whether by way of sale, exchange or lease or by the creation of any easement, right or privilege or otherwise.

(7)The land so re-entered upon after forfeiture of lease may be disposed of in accordance with the provisions of Sub-sections (1) and (2)]. 19. Nazul lands.-

(1) The State Government may, by notification in the Gazette and upon such terms conditions as may be agreed upon between that Government and the Authority, place at the disposal of the Authority all or any developed and undeveloped lands in the development area vested in the State (known and hereinafter referred to as 'nazul lands'), for the purpose of development in accordance with the provisions of the Act,

[2) After any nazul land has been placed at the disposal of the Authority under Sub-section (1), no development of any such land shall be undertaken or carried out except by or under the control an supervision of the Authority. --------------------------

(1) The Authority shall have and maintain its own fund to which shall be credited-

(a) all moneys received by the Authority from the State Government by way of grants, loans, advances or otherwise:

(b) all moneys borrowed b the Authority from source y the State Government by way of loans or debentures;

(c) all 1[fees, tolls and charges] received by the Authority under this Act:

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(d) all moneys received by the Authority from the disposal of lands, buildings and other properties, movable and immovable and

(e) all moneys received by the Authority by way of rents and profits or in any other manner or from any other source,

(2) The fund shall be applied towards meeting the expenses incurred by Authority in the administration of this Act and for no other purpose;

(3) Subject to any directions of the State Government, the Authority may keep in current account of any Scheduled Bank such sum of money out of its fund as it may think necessary for meeting its expected currents requirement and invest any surplus money in such manner as it thinks fit.

(4) The State Government may, after due appropriation made by Legislature by law in that behalf, make such grants, advances and loans to the Authority as that Government may deem necessary for the performance of the functions of the Authority under this Act and all grants, loans and advances made shall be on such terms and conditions as the State Government may determine.

(5) The Authority may borrow money by way of loans or, debentures from such sources (other than the State Government) and on such terms and conditions as may be approved by the State Government.

(6) The Authority shall maintain a sinking fund for the repayment of moneys borrowed under Sub-section (5) and shall pay every year into the sinking fund such sum as may be sufficient for repayment within the period fixed of all moneys so borrowed.

The sinking fund or any part thereof shall be applied in or towards, the discharge of the loan for which such fund was created, and until such loan is wholly discharged it shall not be applied for any other purpose.

Budget of the Authority:- 1) The Authority shall prepare in such and at such time every year as the State Government may specify a budget in respect of the financial year next ensuing, showing the estimated receipts and expenditure of the Authority.

(2) Accounts and Audit:- 1).-The Authority shall maintain proper accountsand other relevant records and prepare an annual statement of accounts including the balance sheet in such form as the State Government may specify.

(2) The accounts of the Authority shall be subject to audit annually by the Examiner, Local Fund Accounts:

Provided that in place of or in addition to the Examiner, Local Fund Accounts, the State Government may entrust and audit to the Accountant General, Uttar Pradesh or

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Comptroller and Auditor General of India or to any other Auditor on such terms and conditions, in such manner, for such period and at such times as may be agreed upon between him and the State Government.-------------

5[26-A. Encroachment or obstruction on public land.-

(1) Whoever makes any encroachment on any land not being private property, whether such land belongs to or vests in the authority or not in a development area, except steps over drain in any public street, shall be punishable with simple imprisonment for a term which may extend to one year and with fine which may extend to twenty thousand rupees. –

26-C. Authority may without notice remove anything erected or deposited in contraventions of Act.-

The Authority or an officer authorised by it in this behalf may, without notice, cause to be removed-

Any wall, fence, rail, post. Step, booth or other structure whether fixed or movable and whether of a permanent or temporary nature or any fixture which shall be erected, or set in or upon or over any street or upon or over any open channel, drain. well or tank contrary to the provisions of this Act.

Any stall, chair, bench, box, ladder, bale, board or shelf of any other thing whatever placed, deposited, projected, attached or suspended in, upon, from or to any place in contravention of this Act. 26-D. Penalty for not preventing encroachment.-

Whoever specially entrusted with the duty to stop or prevent the encroachment or obstruction under this Act or any other Act, rules or bye-laws wilfully or knowingly neglects or deliberately omits to stop or prevent such encroachment or obstruction shall be punishable with simple imprisonment for a term which may extend to one month or with fine which may extend to ten thousand rupees or with both. 27. Order of demolition of building.-

(1) Where any development has been commenced or is being carried on or has been completed in contravention of the Master Plan or without the permission approval or sanction referred to in Section 14 or in contravention of any conditions subject to which such permission, approval or sanction has been granted, in relation to the development area, then, without prejudice to the provisions of Section 26, 1[the Vice-Chairman or any officer of the Authority empowered by him in that behalf) may make an order directing that such development shall be removed by demolition, filling or otherwise by the owner thereof or by the person at whose instance the development has been commenced or is being carried out or has been completed, within such period not being less

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than fifteen days and more than forty days from the date on which a copy of the order of removal, with a brief statement of the reasons he therefore, has been delivered to the owner or that person as may be specified in the order and on his failure to comply with the order, 2[the Vice-Chairman or such officer] may remove or cause to be removed the development, and the expenses of such removal as certified by 3[the Vice- Chairman or such officer) shall be recoverable from the owner of the person at whose instance the development was commenced or was being carried out or completed as arrears of land revenue and no suit shall lie in the Civil Court for recovery of such expenses: -------------- 28 Power to stop development;-

(I) Where any development in a development area has been commenced or continued in contravention of the Master Plan or Zonal Development

Plan or without the permission, approval or sanction referred to in Section 14 or In contravention of any conditions subject to which such permission, approval or sanction has been granted, then, without prejudice to the provisions of Sections 26 and 27, the Vice Chairman of the Authority or any officer of the Authority empowered by him in that behalf may make an order requiring the development to be discontinued on and from the date of the service of the order, and such order shall be complied with accordingly. ---------------------

2(28-A. Power to seal unauthorised development: -

(1). It shall be lawful for the Vice-Chairman or an officer empowered by him in the behalf, as the case may be, at any time before or after making an order for the removal or discontinuance of any development under Section 27 or Section 28 to make any order directing the sealing of such development in a development area in such manner as may be prescribed for the purposes of carrying out the provisions of this Act. --------------

29.Conferment of other powers on the Authority.-

After a Master Plan or Zonal Development Plan has come into operation under section 12, the Development Authority or its Vice-Chairman shall have such other powers and functions exercisable by the local authority concerned or its Chief Executive Officer, as the case may be, under the enactment constituting that local authority subject to such exceptions or modifications, as the State Government may by notification in the Gazette specify.

(1) The [Authority),the Chairman or the (Vice-Chairman] shall carry out such directions as may be issued to it from time to time by the State Government for the efficient administration of this Act.

(2) If in, or in connection with, the exercise of its powers and discharge of its functions by the [Authority, the Chairman or the Vice-Chairman) under this Act any dispute arises between the authority, the Chairman or the Vice-Chairman) and

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the State Government the decision of the State Government on such dispute shall be final.

(3) The State Government may, at any time, either on its own motion or on application made to it in this behalf, call for the records of any case disposed of or order passed by the [Authority or the Chairman) for the purpose of satisfying itself as to the legalitv or propriety of any order passed or direction issued and may pass such order or issue such direction in relation thereto as it may think fit:

Provided that the State Government shall not pass an order prejudicial to any person without affording such person a reasonable opportunity of being heard.

(4) Every order of the State Government made in exercise of the powers conferred by this Act shall be final and shall not be called ii question In any court.]

(1) Where the State Government is satisfied that the purposes for which the Authority was established under this Act have been substantially achieved so as to render the continued existence of the Authority in the opinion of the State Government unnecessary, that Government may by notification in the 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.

(2) From the said date-

all properties, funds and dues which are vested in or realisable by, the Authority shall vest in, or be realisable by, the State Government;

all nazul lands placed at the disposal of the Authority shall revert to the State Government:

all liabilities which are enforceable against the Authority shag be enforceable against the State Government: and

for the purpose of carrying out any development which has not been fully carried out by the Authority and for the purposes of realising properties, funds and dues referred to in Clause (a) the functions of the Authority shall be discharged by the State Government.

(2) CHARITABLE NATURE OF ACTIVITIES

The charitable nature of appeallant’s activities was implicitly accepted by Commissioner of Income Tax while withdrawing the notice for cancellation of registration under section 12A of IT Act 1961. The CIT while withdrawing the notice specifically referred to the case of Lucknow Development Authority.(page 81-82 of

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PB-2) Even the CIT (appeals) has accepted certain activities and income out of some of the heads of income as charitable in nature and has accordingly granted exemption under those heads of income. The heads of income held charitable by the Ld. CIT(A) include (a) Interest on FDR s (b) Interest on loan to employees (c) Stamp Duty (d) Development Charges and similar charges. (page 111to 115 of CIT(A))

(2.1) Moradabad Development Authority

The jurisdictional honourable Allahabad High Court recently in the case relating to assessment of income of Moradabad Development Authority has held its activities as charitable in nature u/s 2(15) of the Act. It followed the preposition as laid down in Yamuna Expressway Authority, wherein as a matter of principle it had held the activities of development authorities to be charitable in nature u/s 2(15) of the Act. (Page NO 43 to 45) The above decision of the High Court in the case of Moradabad was followed by the honourable ITAT Delhi in ITA No. 4631 & 4632 Dt.04.01.2018 in the a case relating to assessment of income of Moradabad Development Authority.

(2.2) That in CIT v/s Yamuna Expressway Industrial Development Authority, rendered by the Jurisdictional Honourable Allahabad High Court in case relating to various Development Authorities , after detailed discussion of provisions of Sec. 2(15) of I.T. Act 1961, along with its provisio , and a detailed discussion on various decisions of Honourable Supreme Court and High Courts , on the issue of charitable activities, the Honourable Court came to the conclusion that the activities of various Development Authorities including development of land and selling of plots , construction of buildings and selling them and various such other activities are charitable in nature in the hands of those authorities. In the above case following question of law were referred. Honourable Allahabad High court answered after first two questions in favour of the assesse after a lengthy discussion about the nature of activities in terms of the provisions of section 2(15) of I.T Act 1961.

" i) Weather on the basis of the facts of the case and the law applicable , the Tribunal was justified in allowing the Appeal and issuing a direction to the authority concerned to register the respondent as being entitled to exemption under the provisions of section 12 AA of the Income Tax Act 1961 and read with section 2( 15) thereof ?

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ii) Weather the findings recorded by the Tribunal to the effect that the respondent assessee was not carrying out any activity of profit and it's predominant object of welfare of public at large are correct or not ?

iii) Weather the Income tax Appellate Tribunal at New Delhi had the jurisdiction to entertain an appeal from the order of the Commissioner of Income Tax (Exemptions) Luck now in exercise of power under section 12 AA of the Income Tax Act 1961 ?” Relevant discussion in the judgment is in Para 32 to 50 (pages 14 to 23) and para 51 to 71 (page 23 to 32)

(2.3) Lucknow Development Authority ( page 13-16 of rulings PB) (Extract of judgment) Para

Para

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Para

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For the applicability of proviso to Section 2(15), the activities of the trust should be carried out on commercial lines with intention to make profit. Where the trust is carrying out its activities on non-commercial lines with no motive to earn profits, for fulfillment of its aims and objectives, which are charitable in nature and in the process earn some profits, the same would not be hit by proviso to section 2(15). The aims and objects of the assessee-trust are admittedly charitable in nature. (Emphais supplied) 30. Mere selling some product at a profit will not ipso facto hit assessee by applying proviso to Section 2(15) and deny exemption available under Section 11. The intention of the trustees and the manner in which the activities of the charitable trust institution are undertaken are highly relevant to decide the issue of applicability of proviso to Section 2(15).

(2.4) HapurPilakhwa Development Authority (page 19-20 of compilation)

“ 9. Commissioner of Income Tax, Ghaziabad (hereinafter referred to as "CIT") vide order dated 21.06.2006 rejected application observing that HPDA is not an Institution working for charitable purposes since it was not registered under Indian Trusts Act, 1882 (hereinafter referred to as "Act, 1882") or Societies Registration Act, 1860 (hereinafter referred to as "Act, 1860"). Further its activities are also not charitable, per se as it sells land on commercial rates and to fudge profit it does not follow commercial accounting principles. HPDA preferred appeal i.e. ITA No. 2735 (Del) of 2006 which has been allowed by Tribunal vide orders impugned in these appeals.

( The order of Lucknow Development Authority has been followed in this case and above noted paras of the Lucknow Development Authority have been quoted in the order)

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(3) Parameters for determining whether an activity is charitable

That for determining whether the activities of an institution are charitable in nature, the honourable Supreme Court in various judicial pronouncement from time to time has laid down the principle that if the primary purpose of the institution was advancement of objects of general public utility it would remain charitable even if sum incidental or ancillary activity or the purpose for achieving the main purpose was profitable in nature. (3.1) Five Member Bench of the Supreme Court in the case of Addl. CIT v. Surat Art Silk Cloth Mfrs. Association {1980} 121 ITR 1/[1979] 2 Taxman 501held that “not involving the carrying on of any activity for profit” go with “object of general public utility” and not with “advancement”. It is the object of general public utility which must not involve the carrying on of any activity for profit and not its advancement or attainment. What is inhibited by these last ten words is the linking of activity for profit with the object of general public utility and not its linking with the accomplishment. The profit of the assessee could be utilized only for the purpose of feeding this charitable purpose and the dominant and real object of the activity of the assessee being the advancement of the charitable purpose, the mere fact that the activity yielded profit did not alter the charitable character of the assessee.

(3.2) The interpretation of phrase “business is incidental to the attainment of the objectives of the trust” came up for consideration before the Supreme Court in the case Asstt. CIT v. Thanthi Trust [2001] 247 ITR 785/ 115 Taxman 126. It was held that, in any event, if there be any ambiguity in the language employed, the provision must be constructed in a manner that benefits the assessee.

(3.3) The Supreme Court again considered the applicability of the last limb of the definition of “charitable purpose” in the case of CIT v. Gujarat Maritime Board [2007] 295 ITR 561/[2008] 166 Taxman 58 (SC), a statutory board set up by the State Government of Gujarat for development of minor ports in Gujarat. The Court observed :- “The expression “any other object of general public utility”… is of the widest connotation. The expression would prima facie include all objects which promote the welfare of the general public. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be served. If the primary purpose and the predominant object are to promote the welfare of the general public, the purpose would be a charitable purpose.” The Court held that the board was established for a charitable purpose without any profit motive and with an obligation to apply the income from business held under trust for the charitable purpose and was entitled to exemption under section 11. It has to be remembered that both the judges, who rendered the majority decision in

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the Surat Art Silk Cloth Mfrs. Association’s case (supra) , considered the provisions of sub- section (4) relevant, even when the last limb of the definition of charitable purpose prohibited any activity for profit and both the sections in their plain words did not exclude trusts engaged in advancement of an object of general public utility form its ambit.

(3.4) CIT v. Pulikkal Medical Foundation (P) Ltd. {1994] 210 ITR 299/ 73 Taxman 402 (ker.)It was held that should a profit-making activity of a charitable trust or institution lose the right to exemption? The law is well-settled that such activity by itself is not vulnerable, when the proceeds are to be utilized for the same purpose of education. Cross-subsidisation is an accepted mode of raising funds for charity. Where a hospital was charging fees at commercial rates from well-to-do patients in the pay wards, it was held, that the surplus was utilized for the benefit of the other patients should justify the inference, that it was not business with profit motive.

(3.5) The Hon'ble Apex Court in the case of CIT vs. Andhra Chamber of Commerce - (1965) 55 ITR 722 - laid down the principle that if the primary purpose of institution was advancement of objects of general public utility, it would remain charitable, even if some incidental or ancillary activity or the purpose for achieving the main purpose, was profitable in nature. It was held as follows: "That if the primary purpose be advancement of objects of general public utility, it would remain charitable even if an incidental entry into the political domain for achieving that purpose, e.g. promotion of or opposition to legislation concerning that purpose was contemplated." It was only for the purpose of securing its primary aims that it was mentioned in the memorandum of association that the Chamber might take steps to urge or oppose legislative or other measures affecting trade, commerce or manufactures. Such an object ought to be regarded as purely ancillary or subsidiary and not the primary object."

(3.6) Again the Hon'ble Apex Court in the case of CIT vs. Federation of Indian Chambers of Commerce & Industry 130 ITR 186held: "that the dominant object with which the Federation was constituted being a charitable purpose viz. promotion, protection and development of trade, commerce and industry, there being no motive to earn profits, the respondent was not engaged in any activity in the nature of business or trade, and, if any income arose from such activity it was only incidental or ancillary to the dominant object for the

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welfare and common good of the country's trade, commerce and industry, and its income was, therefore, exempt from tax under s.11 of the IT Act, 1961"

(3.7) Again reiterating the dominant purpose theory, the Hon'ble SC in the case of CST v. Sai Publication Fund 258 ITR 70 laid out as follows: "... If the main activity is not business, then any transaction incidental or ancillary would not normally amount to "business" unless an independent intention to carry on "business" in the incidental or ancillary activity is established. In such cases, the onus of proof of an independent intention to carry on "business ": connected with or incidental or ancillary sales will rest on the Department. Thus, if the main activity of a person is not trade, commerce etc., ordinarily incidental or ancillary activity may not come within the meaning of "business".

(3.8) In another case, the Hon'ble Delhi High Court in the case of ICAI Accounting Research Foundation &anr. Vs. Director General of Income-tax (Exemptions) &Ors. - (2010) 321 ITR 73, after referring to the judgment of Hon'ble Supreme Court in the case of CIT (Addl.) vs. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1 (SC) (paras 29) held that (a) the activities undertaken by the institution amounted to "advancement of an object of general public utility" in the definition of charitable purpose in section 2(15) of the Act. Charging of amounts from the Government bodies for undertaking these research projects would not make the activity "commercial". The projects were undertaken at the instance of the Government of India or the State Governments for improving the accounting and budgetary systems in these local bodies. The expertise of the Foundation in carrying out research in this field was sought to be utilized. Therefore, it could not constitute business/commercial activity. Merely because some remuneration was taken by the Foundation for undertaking these projects that would not alter the character of these projects, which remained research and consultancy work. Most of the amount received qua these projects was spent on the project and the surplus, if any, is used for advancement of the objectives for which the Foundation was established.

(3.9) The Hon'ble Supreme Court in the case of CIT v. A.P. State Road Transport Corporation[1986] 159 ITR 1 held as under:

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".......It is now firmly established by the decisions of this court in Surat Art Silk Cloth Manufacturers Association's case [1980] 121 ITR 1 (SC) and Bar Council of Maharashtra's case [1981] 130 ITR 28 (SC), that the test is "What is the predominant object of the activity--whether it is to carry out a charitable purpose or to earn profit?" If the predominant object is to carry out a charitable purpose and not to earn profit, the purpose would not lose its charitable character merely because some profit arises from the activity."The ratio in the above case was again followed by the Hon'ble Supreme Court in the case of Thiagarajar Charities v. Addl. Commissiner of Income-tax & another 225 ITR 1010 and A.P. High Court in the case of Girijan Co-operative Corporation Ltd. v. Commissioner of Income-tax 178 ITR 359.

(3.10) Recently, the Hon'ble Supreme Court in the case of Queen's Educational Society v. CIT [2015] 372 ITR 699 had reversed the decision of the UttarkhandHigh Court, which held that when there is heavy profit the educational institution is intended for profit and therefore, exemption was denied. The very fact that the profit was large made the Hon'ble High Court to believe that there was a profit motive in establishing the educational institution. The Hon'ble Supreme Court after referring to the judgments of the Punjab & Haryana High Court in the case of Pinegrove International Charitable Trust v. Union of India [2010] 327 ITR 73 and Delhi High Court in St. Lawrence Educational Society (Regd.) v. CIT [2013] 353 ITR 320 and Tolani Education Society vs Deputy DIT (Exemptions) [2013] 351 ITR 184, which are contrary to

The judgment of Uttarakhand High Court in the case of CIT v. Queen's Educational Society 319 ITR 160, held as follows:-

"..........We reiterate that the correct tests which have been culled out in the three Supreme Court judgments stated above, namely, Surat Art Silk Cloth, Aditanar and American Hotel and Lodging, would all apply to determine whether an educational institution exists solely for educational purposes and not for purposes of profit."

(3.11) That very recently on the issue of the amended provisions of Sec.2(15), which is relevant to the present case of assessee, Hon'ble Delhi High Court in the case of India Trade Promotion Organization vs. Director General of Income-tax (Exemptions) &Ors. [2015] 374 ITR 333 (DEL), Held-

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Para 53… “From the said decision, it is apparent that merely because a fee or some other consideration is collected or received by an institution, it would not lose its character of having been established for a charitable purpose. It is also important to note that we must examine as to what is the dominant activity of the institution in question. If the dominant activity of the institution was not business, trade or commerce, then any such incidental or ancillary activity would also not fall within the categories of trade, commerce or business. It is clear from the facts of the present case that the driving force is not the desire to earn profits but, the object of promoting trade and commerce not for itself, but for the nation- both within India and outside India. Clearly, this is a charitable purpose, which has as its motive the advancement of an object of general public utility to which the exception carved out in the first proviso to Section 2(15) of the said Act would not apply. We say so, because, if a literal interpretation were to be given to the said proviso, then it would risk being hit by Article 14 (the equality clause enshrined in Article 14 of the Constitution). It is well- settled that the courts should always endeavor to upheld the Constitutional validity of a provision and, in doing so, the provision in question may have to be read down, as pointed out above, in Arun Kumar and others v. Union of India and Others: 2007 (1) SCC, 732” Para 55. “ It would be appropriate to also examine the observations of another Division Bench of this court in G.S.1 (supra). While considering Circular No.11 of 2008 issued by the CBDT, to which a reference has been made earlier in this judgment, the Division Bench held that it was evident from the said circular that the new proviso to Section 2(15) of the said Act was "applicable to assesses, who are engaged in commercial activities, i.e., carrying on business, trade or commerce, in the garb of 'public utilities' to avoid tax liability as it was noticed that the object 'general public utility' was sometimes used as a mask or device to hide the true purpose, which was 'trade, commerce or business'." From this, it is evident that the introduction of the proviso to Section 2(15) by virtue of the Finance Act, 2008 was directed to prevent the unholy practice of pure trade, commerce and business entities from masking their activities and portraying them in the garb of an activity with the object of a general public utility. It was not designed to hit at those institutions, which had the advancement of the objects of general public utility at their hearts and were charity institutions. The attempt was to remove the masks from the entities, which were purely trade, commerce or business entities, and to expose their true identities. The object was not to hurt genuine charitable organizations. And, this was also the assurance given by the Finance Minister while introducing the Finance Bill 2008. “

" Para 58. In conclusion, we may say that the expression "charitable purpose", as defined in Section 2(15) cannot be construed literally and in absolute terms. It has to take

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colour and be considered in the context of Section 10(23C)(iv) of the said Act. It is also clear that if the literal interpretation is given to the proviso to Section 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 nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a 'charitable purpose'. On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes."

(3.12) The Hon'ble Delhi High Court in the case of GSI India v. Director General of Income-tax (Exemption) & another [2014] 360 ITR 138 succinctly held vide para 19 as follows:-"The final and determining factors, it was observed was consequential profit motive or purpose behind the activity and when an activity is trade, commerce or business was elucidated in Institute of Chartered Accountants of India (2012) 347 ITR-99(Delhi) in the following words:

'Section 2(15) defines the term charitable purpose. Therefore, while construing the term business for the said Section, object and purpose of the Section has to be kept in mind. We do not think that a very broad and extended definition of the term business is intended for the purpose of interpreting and applying the first proviso to Section 2(15) of the Act to include any transaction for a fee or money. An activity would be considered "business" if it is undertaken with a profit motive, but in some cases this may not be determinative. Normally the profit motive test should be satisfied but in a given case activity may be regarded as business even when profit motive cannot be

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established/proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles, and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is in fact in the nature of business. The test as prescribe in Raipur Manufacturing Company (supra) and Sai Publications Fund (supra) can be applied. The six indicia stipulated in Lord Fisher (supra) are also relevant. Each case, therefore, has to be examined on its own facts."

(3.13) That we need to examine what is meant by the expression "commercial or business". The words 'trade', 'commerce' and 'business' were enumerated and elucidated in Institute of Chartered Accountants of India v. Director-General of Income-tax (Exemptions) [2012] 347 ITR 99 (Delhi) as under: "Trade, as per the Webster's New Twentieth Century Dictionary (2nd edition), 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 carries on for procuring subsistence or profit ; occupation or employment, etc. The meaning of "commerce" as given by the Concise Oxford Dictionary is "exchange of merchandise, specially on large scale". In ordinary parlance, trade, and commerce carry with them the idea of purchase and sale with a view to make profit. If a person buys goods with a view to sell them for profit, it is an ordinary case of trade. If the transactions are on a large scale it is called commerce. Nobody can define the volume, which would convert a trade into commerce. For the purpose of the first proviso to section 2(15), trade is sufficient, therefore, this aspect is not required to be examined in detail. The word "business" is the broadest term and is encompasses trade, commerce and other activities. Section 2(13) of the Income-tax Act defines the term "business" as under : "2. Definitions.--. . .(13) 'business' includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture."The word "business" is a word of large and indefinite import. Section 2(13) defines business to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The intention of the Legislature is to make the definition extensive as the term "inclusive" has been used. The Legislature has deliberately departed from giving a definite import to the term "business" but made reference to several other general terms like "trade", "commerce", "manufacture" and "adventure or concern in the nature of trade, commerce and manufacture". In Black's Law Dictionary, Sixth Edition, the word "business" has been defined as under :

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"Employment, occupation, profession or commercial activity engaged in for gain or livelihood. Activity or enterprise for gain, benefit, advantage or livelihood. Union League Club v. Johnson18 Cal 2d 275. Enterprise in which person engaged shows willingness to invest time and capital on future outcome. Doggett v. Burnet 62 App DC 103 ; 65 F. 2D 191. That which habitually busies or occupies or engages the time, attention, labour and effort of persons as a principal serious concern or interest or for livelihood or profit."

(3.14) That Honourable ITAT Hyderabad Bench in the case of Institute for Development & Research in Banking and Technology (IDRBT) ITAT No-1712/Hyd/2014 ITAT(Hyd) dt. 30/06/2015 after considering plethora of judgments, on the issue under consideration, of Honourable Supreme Court and High Courts came to the conclusion “ The rational that can be culled out from the above decisions is that once the primary objects of an institution are established to be in the nature of charity, then the proviso to section 2(15) of the Act cannot be made applicable. In other words, the existence of the proviso in substance will not make any difference. The proviso will hit only such cases where the entity or organization is carrying on business activity with a profit motive in the garb of charitable purpose. It will not however affect the case of institution which are genuinely carrying on charitable activities. The words used by the legislature in the proviso "In the nature of trade, commerce or business". If we give due importance to the above mentioned words, the only conclusion will be that the proviso will effect only such cases where the activities of a charitable institution can be considered to be in the nature of trade, commerce or business. In fact, the same controversy, which has been there in the past, whether a charitable institution is carrying on the activities only of charitable nature or is carrying on activities which are in the nature of business, is emerging from this proviso also. In other words, the proviso will not give rise to any new controversy which had not been in the past. The further words used in the proviso, that for a cess or fee or any other consideration, have to be read along with the nature of activities, i.e., trade, commerce or business. When an institution is carrying on activities in the nature of trade, , commerce or business obviously it will be charging fee, etc. It may be charging fee even when rendering/providing services as part of charitable activity in order to supplement its income for carrying on charitable activities. In that case the proviso will not have any implication as the activities would not be in the nature of trade, commerce or business. Accordingly, the proviso inserted in the definition of 'charitable purpose' will not substantially have any impact on the meaning of charitable purpose.” It further held

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“Needless to mention, the ratio laid down in the cases Surat Art Silk Cloth Manufacturers Association, Aditanar Educational Institution and American Hotel and Lodging Association Educational Institute is that mere existence of surplus from the activity does not mean that it will cease to be one existing solely for charitable purpose. The test to be applied is only the nature of predominant activity to determine whether the institution is existing for charitable purpose or otherwise. Therefore, in the instant case also, the mere fact that there was a surplus from the ancillary activities carried on by the assessee society does not mean that its objects ceases to be charitable.”

(3.15) The ITAT Ahmedabad Benches vide order dated 7-6-2013 in the case of Sabarmati Ashram Gaushala Trust Vs. ADIT (Exemption) [ ITA no. 670/Ahd/2013], following observations are made: “We find that reading of the proviso to section 2(15) along with speech of the Hon’ble Finance Minister and Circular of the CBDT reproduced above make it clear that only the institutions carrying on commercial activities are intended to be covered by the proviso, not the genuine charitable institutions. The activity will be deemed to be in the nature of trade, commerce or business, only if same is carried on with the intention to earn profit. The Courts in series of decisions have held that it is an activity carried on in a systematic manner with a view to earn profit, which will be termed as “business”. Accordingly, in order to hold that the activity is in the nature of trade, commerce or business, there should be profit motive. If during the course of carrying out any activity on non-commercial lines, some profit is received by the Trust, which is incidental to the activities of the trust, the same shall not be construed to be activity in the nature of trade, commerce or business”

(4) Quantum of Profit

That quantum of profit is not the deciding factor , whether an activity is charitable or not was finally decided by the Honourable Supreme Court , which held that if the profits are high than that does not make and assesse / activity as non charitable. Honourable Supreme Court in (page 66 of compilation)

Queens Educational Society ( arising out of order of Uttrakhand High Court)

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and Pine Grove International Charitable Trust ( arising out of order of Punjab & Haryana High Court)

Para 24. The view of the Punjab and Haryana High Court has been followed by the Delhi High Court in St. Lawrence Educational Society (Regd.) v. Commissioner of Income Tax &Anr., (2011) 53 DTR (Del) 130. Also in Tolani Education Society v. Deputy Director of Income Tax (Exemption) &Ors., (2013) 351 ITR 184, the Bombay High Court has expressed a view in line with the Punjab and Haryana High Court view, following the judgments of this Court in the Surat Art Silk Manufacturers Association Case and Aditanar Educational Institution case as follows:

".....The fact that the Petitioner has a surplus of income over expenditure for the three years in question, cannot by any stretch of logical reasoning lead to the conclusion that the Petitioner does not exist solely for educational purposes or, as that Chief Commissioner held that the Petitioner exists for profit. The test to be applied is as to whether the predominant nature of the activity is educational. In the present case, the sole and dominant nature of the activity is education and the Petitioner exists solely for the purposes of imparting education. An incidental surplus which is generated, and which has resulted in additions to the fixed assets is utilized as the balance-sheet would indicate towards upgrading the facilities of the college including for the purchase of library books and the improvement of infrastructure. With the advancement of technology, no college or institution can afford to remain stagnant. The Income-tax Act 1961 does not condition the grant of an exemption under Section 10(23C) on the requirement that a college must maintain the status- quo, as it were, in regard to its knowledge based infrastructure. Nor for that matter is an educational institution prohibited from upgrading its infrastructure on educational facilities save on the pain of losing the benefit of the exemption under Section 10(23C). Imposing such a condition which is not contained in the statute would lead to a perversion of the basic purpose for which such exemptions have been granted to educational institutions. Knowledge in contemporary times is technology driven. Educational institutions have to modernise, upgrade and respond to the changing ethos of education. Education has to be responsive to a rapidly evolving society. The provisions of Section 10(23C) cannot be interpreted regressively to deny exemptions. So long as the institution exists solely for educational purposes and not for profit, the test is met."

(5) That the ratio of the decision in case of Jammu Development Authority by the honourable J&K High Court, against which SLP was not admitted by the honourable Supreme Court, is not applicable to the present case. The J&K High Court did not admit the question of law saying that the issue is based on facts and no question of law is involved. The High Court has not gone into the issue as to what will be considered charitable and what will not be

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charitable under proviso to sec.2(15) of I.T.Act. 1961. With due respect to the honourable High Court and Honourable Supreme Court, the issue of an activity being charitable or not has not been discussed or interpreted in those judgments. Rejection of SLP does not operate as “res-judicata” and such a judgment is not binding on the courts below. The Supreme Court in Indian Oil Corporation Ltd. vs. State of Bihar &Ors. (1987) 167 ITR 897 (SC) has clarified that the dismissal of a special leave petition by the Supreme Court by a nonspeaking order would not operate as res judicata by observing that- “When the order passed by this Court was not a speaking one, it is not correct to assume that this Court had necessarily decided implicitly all the questions in relation to the merits of the award, which was under challenge before this Court in the special leave petition. A writ proceeding is a wholly different and distinct proceeding. Questions which can be said to have been decided by this Court expressly, implicitly or even constructively while dismissing the special leave petition cannot, of course, be reopened in a subsequent writ proceeding before the High Court. But neither on the principle of res judicata nor on any principle of public policy analogous thereto, would the order of this Court dismissing the special leave petition operate to bar the trial of identical issues in a separate proceeding, namely, the writ proceeding before the High Court merely on the basis of an uncertain assumption that the issues must have been decided by this Court at least by implication. It is not correct or safe to extend the principles of res judicata or constructive res judicata to such an extent so as to found it on mere guesswork”. In view of above legal position and facts of the case assessee’s income and activities should be treated as charitable in nature entitled to exemption u/s 11 of I.T.Act 1961.

FUNCTIONS OF STATE

(6) That a perusal of provisions of U.P.D.A. Act 1973 makes it clear that ADA was established as an agency of the State Govt. to carry out those functions which would otherwise be carried out by the State Govt. Appellant finds support in the Ruling of Honourable Supreme Court .

(6.1) That functions and duties of a Development Authority was defined by the honorable Supreme Court in Union of India Vs. R.C.Jain AIR 1981 SC 951 wherein it was held: “ They must be entrusted by statute with such government functions and duties as are usually entrusted to municipal bodies, such as those connected with providing amenities to the inhabitants of the locality. Like health and education services, water and sewerage, town planning and development, roads, markets, transportation, social welfare services, etc. Broadly we may say that they may be entrusted with the performances of civic duties and functions which would otherwise be governmental duties and functions. Finally they must have the power to raise funds for the furtherance of their activities and the fulfillment of their projects by levying taxes, rates, charges of fees. This may be in addition to moneys provided by Government or

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obtained by borrowing or otherwise. What is essential is that control or management of the fund must vest in the authority.”

(6.2) That assesse clearly satisfies the test laid out by the honourable Supreme Court. It operates in a defined area. It is entrusted by statute with such government function and duties as are usually entrusted to municipal bodies like town planning and development, roads, social welfare services, etc. It has power to raise funds for furtherance of its activities by levying taxes, rates, charges or fees. It is also provided additional funds by the state Government out of stamp duty ( a government levy on sale deeds) besides other funds from the State Govt.

(6.3) That ADA is carrying out such activities which would otherwise be carried out as function of “State” by the State Government namely control and development of cities/urban areas within the State. The functions of “State” include regulation of construction, development of infrastructure in the city, urban planning and its execution and control, providing civic amenities like roads, parks, sewage system and water supply to the public at large. It also includes providing housing to its citizen at reasonable rate. “State” function includes the collection of taxes/fees for meeting the finances in carrying out the above said duties/functions of the “state”. It is noteworthy that a portion of state revenues like stamp duty, besides other funds from the Government is diverted to the ADA primarily for the development of infrastructure in the city which is a substantial proof of ADA being the executor of functions of the State Government Functions which are for the benefit of public at large and are thus essentially “charitable” in nature. All the activities being in the nature of “State” activities is for the “general public utility” even if involves the monies being received from the citizens at large and is by very nature a “Charitable activity”.

(6.4) That following functions of appellant fall under function of state and not business function:

(A) - Development of colonies is done keeping in mind the overall planned development of the city. No profit is earned in selling the plots or houses as is evident from the Govt. notification above mentioned, wherein it is clear that they are sold on “no profit no loss” basis. Mere nomenclature will not change the nature of income. (B)The assesse sells its master plan book & tender forms and gives scoter & car stands operating licenses to the contractors. ( C ) The assesseearns form additional 2% stamp duty imposed in development areas. ADA carries out survey and prepares a master plan keeping in mind the development of the city and surrounding areas in next 20 to 25 years,

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which is essentially a function of “State”. The price of a copy of master plan is much less than the money spent on its preparation, however, it is for larger “public utility”. The regulation of traffic and parking, a “State” function, is in the larger interest of the public, and is thus a charitable activity.

(C)Stamp duty is a State revenue and is essentially not taxable. Moreover ADA is just an agency for utilization of State revenue for development of the area and stamp duty is not its income.

(D) The regulation of buildings and construction, a “ State” function, is in the larger interest of the public, and the charges recovered is in the nature of state revenue, which is recoverable as “ State revenue” by the authorities of the State Govt. and is thus for General public utility and is thus a charitable activity.

(E) The “land conversion charges” are levied as a statutory levy under the “Act” (state function) hence they are in the nature of “general public utility” and are charitable. These charges are for over all development and building of infrastructure in the city which is a “general public utility”.

(F) The “license fee” are levied as a statutory levy under the “Act” (State function) hence they are in the nature of “general public utility” and are charitable. These charges are for over all development and building of infrastructure in the city which is a “general public utility”.

(G) The “stacking fee” are levied as a statutory levy under the “Act” (State function) hence they are in the nature of “general public utility” and are charitable. These charges are for over all development and building of infrastructure in the city which is a “general public utility”.

(6.5) That assesse is a statutory authority established for the purpose of conducting functions of “State” as enumerated above. Statutory bodies like assessee are empowered to frame rules or regulations, exercise coercive powers, including inspection, raids; they possess search and seizure powers , they can launch prosecution of persons not complying with the rules and regulations and are invariably subjected to legislative oversight. The primary object for setting up such regulatory bodies would be to ensure general public utility. The regulation of

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building, town planning ,enforcing those regulations and continuing supervision through inspection etc., and for attaining the larger objective of proper town planning assesse also develops colony and constructs and provides houses at reasonable rates and all such activities cannot be considered as trade, business or commercial activity, merely because in doing so some surplus is created. It cannot be said that the public utility activity of evolving, prescribing and enforcing standards, “involves” the carrying on of trade or commercial activity.

(6.6) That ADA is governed by Uttar Pradesh Urban Planning and Development Act, 1973 and all the rules, powers, duties and obligations mentioned therein are binding upon us. All the expenditures as per the statutory mandate as well as the objects of ADA are charitable in nature. The expenses are incurred in connection with “Objects of general public utility”. ADA does not derive any benefit out of expenses incurred by it for general public utility which are in the interest of the general public in the name of Infrastructure Development work, which includes construction and maintenance of roads, drains parks etc. These works, involve a substantial amount of the resources of ADA without any income or benefit to ADA. These are development works for the town of Agra and benefit of the inhabitants of Agra and are for general public utility. Agra Development Authority (ADA) like all other Development Authorities is an institution with the main object of providing development of the city of Agra and providing better infrastructure and services for general public utility. It is thus clear from above that the objects of ADA are mandatory and directed by the State Govt. Hence the development and repair of general public utility services is a mandatory activity without any profit motive.

(6.7) It may further be mentioned that ADA functions directly under the control of the State Government and all policies and activities are either controlled or administered through the Act or through various Government Orders issued from time to time by the State Government. All the employees of ADA are the employees of State Govt. including I.A.S. and P.C.S. officers besides from other branches of the State Govt.

(6.8) That plain reading of The UP Act 1973 makes it abundantly clear that appellant is a REGULATORY AUTHORITY for proper and systematic development of the defined area. Development of colonies and construction of flats is an integral part towards regulation and systematic development of the city. Development of colony or construction of houses is done for laying down the minimum standards of development. Proper sector wise planning and layout of the roads and parks is carried out for avoiding haphazard development and also providing amenities like road, water , sewage and electricity etc. Plots sold to private developers within

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the sectors/ colony is towards achieving a the broader objective of systemic development.

(6.9) In Bureau of Indian Standards V. Director General of Income-tax (Exemptions): (2013) 212 Taxman 210(Delhi), the court, while considering whether the activities of the Bureau of Indian Standards in granting licences

and trading certificates and charging of the fee amounted to carrying on business, trade or commerce, held as under:- “73. … 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. 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 co- ercive 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.”

DIVERSION ON INCOME BY OVERRIDING TITLE

(7.) That as per government order No 152/E-0-1-1998 issued by Housing Department Government of UP, (Page 32-33 of PB-1)Assessee has to transfer a major percentage of receipts under various heads to infrastructure development fund. The percentage of receipts which are transferred to infrastructure development fund are as follows- Percentage transferred Conversion of Land Use 90% Betterment & Registration 90%

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Compounding Fee 50% Income from Stamp Duty 90% Free Hold Charges 90% Assessee has no discretion to spend any of the infrastructure expenses with its own sweet will. A committee consisting of Chairman (Commissioner), Vice Chairman, District Magistrate, M.N.A. Nagar Nigam, Executive Officers of Nagar PalikaParishad, Jal Nigam, Electricity Department, looking to the requirements and instructions provided by Govt.of U.P., decides on utilization of funds. The expenditures are budgeted and ADA is only the Agency through which these expenses are incurred. And the income under “Stamp Duty” is levied and recovered by the State Govt. and its expenditure is decided by the State Govt. Assessee is merely an execution agency of the State Govt. for recovery (except Stamp Duty) and expenditure of all the above noted income and these income fall under “ diversion of income by overriding title” and are not includable in assessee’s income.

RAJA BEJOY SINGH DUDURIA VS. COMMISSIONER OF INCOME TAX (1933) 1 ITR 135 (PC) In this case , the step-mother of the Raja had brought a suit for maintenance and a compromise decree was passed under which the step-mother was to be paid Rs. 1,100 per month, which amount was declared a charge upon the properties in the hands of the Raja, by the Court. The Raja sought to deduct this amount from his assessable income, which was disallowed by the High Court at Calcutta. On appeal to the Privy Council, Lord Macmillan observed as follows :

"But their Lordships do not agree with the learned Chief Justice in his rejection of the view that the sums paid by the appellant to his step-mother were not ‘income' of the appellant at all. This is their Lordships' opinion is the true view of the matter. When the Act by s. 3 subjects to charge ‘all income' of an individual, it is what reaches the individual as income which it is intended to charge. In the present case the decree of the Court by charging the appellant's whole resources with a specific payment to his step-mother has to that extent diverted his income from him and has directed it to his step-mother; to that extent what he receives for her is not his income. It is not a case of the application by the appellant of part of his income in a particular way, it is rather the allocation of a sum out of his revenue before it becomes income in his hands." In Prince Khanderao Gaekwar vs. CIT (1948) 16 ITR 294 (Bom) there was a family trust out of which two grandsons of the settlor had to be paid a portion of the income. It was provided that if their mother lived separately, then the trustees were to pay her Rs.

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18,000 per year. The mother lived separately, and two deeds were executed by which the two grandsons agreed to pay Rs. 15,000 per year to the mother, and created a charge on the property. The sons, having paid Rs. 6,000 in excess of their obligations, sought to deduct the amount from their assessable income, and it was allowed by the Bombay High Court, observing that though the payment was a voluntary payment, it was subject to a valid and legal charge which could be enforced in a Court of law and the amount was thus deductible under s. 9(1)(iv). There is no distinction between a charge created by a decree of Court and one created by agreement of parties, provided that by that charge the income from property can be said to be diverted so as to bring the matter within s. 9(1)(iv) of the Act.

Seth Motilal Manekchand vs. CIT (1957) 31 ITR 735 (Bom) : TC38R.611. In that case, there was a managing agency, which belonged to a Hindu joint family consisting of A, his son, B and A's wife. A partition took place, and it was agreed that the managing agency should be divided, A and B taking a moiety each of the managing agency remuneration but each of them paying A's wife 2 as. 8 pies out of their respective 8 as. share in the managing agency remuneration. Chagla, C.J. and Tendolkar, J., held that under the deed of partition A and B had really intended that they were to receive only a portion of the managing agency commission and that the amount paid to A's wife was diverted before it became the income of A and B and could be deducted. The learned judge observed at page 741 as follows :

"We are inclined to accept the submission of Mr. Kolah that it does constitute a charge, but in our opinion, it is unnecessary to decide this question because this question can only have relevance and significance if we were considering a claim made for deduction under s. 9(1)(iv) of the IT Act where a claim is made in respect of immovable property where the immovable property is charged or mortgaged to pay a certain amount. It is sufficient for the purpose of this reference if we come to the conclusion that Bhagirathibai had a legal enforceable right against the partner in respect of her 2 annas and 8 pies share and that the partner was under a legal obligation to pay that amount."

COMMISSIONER OF INCOME TAX VS. TOLLYGUNGE CLUB LTD. 1977CTR (SC)195, (1977)107 ITR 776(SC) Income-chargeability-Assessee, a club, levying a surcharge over and above admission fee- Same earmarked for local charities-Merely because surcharge is levied from ever race- goer who wants admission, it does not become part of price for admission-it is a payment made for specific purpose-Resolution was passed at the general meeting of assessee for levying surcharge- It was, therefore, clearly impressed with an obligation in the nature of trust for being applied to local charities-Hence, it got diverted before it reached the hands of assessee and at no stage became a part of its income.

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JIT & PAL X-RAYS (P) LTD. S. COMMISSIONER OF INCOME TAX (2204)186 CTR (ALL) 541: (2004) 134 TAXMAN 62 (ALL) Income-Diversion by overriding title-Payment to wife of transferee of business by way of overriding charge created under the sale –deed-Assessee company acquiring running business of One HS- It was stipulated in the sale deed itself that over and above sale consideration, company would be liable to pay to the wife of HS, an annual sum at the rate of 20% of the net profits earned by the company, subject to maximum of Rs 20,000 by way of overriding charge-AO holding that such amount was neither allowable as overriding charge nor as revenue expenditure- Not justified-Obligation to pay this amount is attached to the very source of income and integral part of sale deed- Amount paid to wife of HS is income diverted at source by overriding title, hence deductible- Fact that wife of HS was not owner of business was irrelevant.

ADA was established by the State Govt. to carry out activities which are the activities of the “State” and the State Govt as per government order No 152/E-0-1-1998 (supra) directed ADA to transfer certain percentage of the receipts collected by it to “Infrastructure Fund” over which it will not have any control. This clearly is a case of diversion of income by overriding title. The entire income which is subject of this government notification is not the income of the assessee.

(8) Rebuttal of CIT(A)

Ld. CIT(A) relied on following rulings

21.1 Infoparks vs. Dy. CIT(TDS) reported in [2010] 329 ITR 404 (Kerala)

Andhra Pradesh State Seed Certification Agency vs. CCIT-III, Hyderabad reported in (2012) 28 Taxman.com 288 (AP

Appellant’s argument

Rulings in Infopark and A.P State Seed Certification Agency

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Not applicable in present case as in both cases assesse is a registered coop. society while appellant is a statutory authority and is a regulatory body. There is fundamental difference in constitution of these bodies and the appellant . Profit / dividend is distributed to the members in both cases while there is not even a provision for profit distribution or intent to earn profit in the UP Urban Planning and Development Act. In Infopark the Honourable Kerala High Court has not decided whether the assesse is a charitable entity or not , and on proviso to sec. 2(15) it has quoted the language of the section and has not gone into detailed discussion on the interpretation of the section vis-à-vis the assesse. Hence also this ruling is not applicable.

(8.1) U.P. Cooprative Societies Act 1965

Sec. 58. Disposal of net profits. - [(1) The net profit of the Co-operative Society in a co- operative year shall be computed after deducting the following from its gross profit in that year-

(a) interest that is overdue; (b) managerial expenses; (c) contributions to the provident fund or the gratuity fund off the employees; (d) interest on loans and deposits; (e) audit fee; (f) working expenses which include repairs, rents, taxes and depreciation of property; (g) contribution to the fund created for writing off unadjusted bad debts and losses:

----------------------------------------------------------------------------------

(2) Subject to such conditions as may be prescribed, the balance of the net profits may be utilised for all or any of the following purposes namely -

(a) payment of dividend to members on their paid-up share capital at a rate [not exceeding twenty per cent]; (b) payment of bonus to members on the amount of volume of business done by them with the society, to the extent and in the manner specified in the rules or the bye-laws; (c) constitution of, or contribution to, [* * *], building fund, rural improvement fund or any other fund as may be specified in the rules or the bye-laws;

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(d) donation of amounts not exceeding 5 per cent for any charitable purpose as defined in Section 2 of Charitable Endowments Acts, 1890 (Act VI of 1890) ; [Provided that no amount shall be donated to any organisation established for any charitable purpose, which has an object, whether directly or in directly, to further the interest of any political party or a religious faith.] --------------

(8.2) CIT(A) atPage 66 para 9.7.4

Entertainment Society of Goa vs. CIT (2013) 34 Taxman.com 210(Panji)

In the above case in the order on para 16 - 16.---The nature of each receipt was duly explained by the Learned AR as has been reproduced hereinabove in the submissions of the AR. The institution itself accepts that so far as sponsorship and contributions are concerned, that it is directly connected with the film festival. It has received authorization charges for conducting the shooting, it has received hiring charges for hiring out the auditorium, it has received the licence fees for issuing licence to the multiplexes, even the premises usage charges has also been received and it has received charges for listing hotels in their website. This in our opinion represents activity of rendering the service in relation to film industry. It is not denied that all the services were rendered for a consideration. It has also received the film exhibit fees from the viewers for screening the film, it has received even short film receipts by way of entrance fees,Even the institution has given various stalls on hire and got receipt from that. This in our opinion involves the carrying on activities in the nature of commerce or business. The nature of the receipts, even though might have been shown under the head "Other Receipts" in the Income & Expenditure are, in our opinion, receipts received from carrying on activity in the nature of trade, commerce or business or from the activity of rendering any service in relation to commerce or business. The receipts by way of sponsorship, administrative charges, listing of hotels on their website, conducting film appreciation course clearly represents the receipts from the activity of rendering services in relation to trade, commerce or business. ---------------- --------------------------------------------- 17.Now, we will deal with the next submission of the institution that it is a regulatory body to discharge the functions of the Government. The institution, in our opinion, cannot be regarded to be a regulatory body discharging the Government function and working as an arm of the Government. Had it been a regulatory body, it must have been authorized and incorporated under a separate Act of the Parliament as part of the Government Dept. for regulating the exhibition of film, hosting of film festival, shooting of the films and providing licence and control over the multiplexes and the picture theatres. The institution is not authorized under any law and not been incorporated as such. ----------------------------------------------------------------

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the learned AR vehemently relied on the decision of Himachal Pradesh Environment Protection & Pollution Control Board (supra). This decision is also not applicable in the present case as in the case before us the institution is engaged in an activity in the nature of trade, commerce or business and also the activity of rendering service in relation to trade, commerce or business for a consideration while in that case, the assessee was not rendering any service in relation to any trade, commerce or business, rather it was discharging regulatory function for controlling pollution and collecting the fees or charges for that. The decision of the Gujarat Industrial Development Corpn. v. Asstt. CIT [2010] 8 taxmann.com 210/[2011] 129 ITD 73 (Ahd.) relates to A.Y. 2006-07 and is not concerned with the proviso to Sec. 2(15) of the Income Tax Act and the question involved therein relates to the applicability of the proviso of Sec. 11(4) of the Income Tax Act.

(8.3) Appellant’s argument on the above case

Above rulings in Entertainment Society of Goa, the assesse is a registered coop. society while appellant is a statutory authority and is a regulatory body. The Court has itself drawn distinction in case of regulatory body and the said society. In Goa case the activities involve authorization charges for conducting the shooting, it has received hiring charges for hiring out the auditorium, it has received the licence fees for issuing licence to the multiplexes, even the premises usage charges has also been received and it has received charges for listing hotels in their website. It has also received the film exhibit fees from the viewers for screening the film, it has received even short film receipts by way of entrance fees, Even the institution has given various stalls on hire and got receipt from that. The above activities by no stretch of imagination be equated with the activities of appellant.

(8.4) Appellant’s contention

The Ld. CIT(A) has himself accepted that various courts time and again have held business is an activity which is carried out with a view to earn profit. The activities of appellant, as has been explained by the appellant , are not for profit of any individual or a group of individuals or any institution. As regards case of Public Sector Undertakings as contended by Ld. CIT(A), they are essentially formed with profit motive and the govt . has an equity interest in PSUs and the Govt. gets dividend from such PSUs. Hence PSUs not on same plane as a regulatory authority like appellant. Similarly Cooprative societies like Entertainment Society of Goa, consists of members who are entitled to the profits generated by a cooperative society. Even the cases cited by Ld.CIT(A) like Aandhra Pradesh Seed Certification and Info Park being coprative Societies are not applicable. The A.O. or CIT(A) have, neither with facts or figures , established the profit motive or profit distribution by the appellant. Any activity to fall under the definition of business activity has to have a profit motive , mere generation of surplus in an activity will not render such

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activity as business activity. The Ld. CIT(A) has stated that mere profit motive is not the only criterion for rendering an activity as business but at the same time he has not given any logic or reasoning in the facts of appellant’s case to establish its activities as business.

(8.5) Page 91 CIT(A)

“ 9.11 The Special Auditor in his special audit report submitted u/s.142(2A) has also given his finding in point no.10 of his report that there are many activities of the assessee(appellant) which are in the nature of trade, commerce or business in which the assessee was engaged and earned income during the previous relevant to the assessment year under consideration and the said activities are as follows: “Point 10 – Violations of provisions of section 12A/12AA and Section 11. As per Section 2(15) of the Income Tax Act, 1961, following activities are included for ‘charitable purposes’: (i) Relief of the poor (ii) Education (iii) Medical relief, and (iv) the advancement of any other object of general public utility. Moreover, proviso to section 2(15) states that “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.” Provided further that “the first proviso shall not apply if the aggregate value of the receiptsfrom the activities referred to therein is ten lakh rupees or less in the previous year.” There are many activities which are in the nature of trade, commerce or business in which assessee was engaged and income earned during the concerned previous year from the said activities are as follows: (Amount in Lacs)

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A. Income from sale of plots/lands : Rs.998.43 B. Freehold Conversion Income : Rs.162.31 C. Interest Income from Installments : Rs.495.53 D. Development Charges : Rs.372.00 E. Building Plans Sanction Fees : Rs.29.42 F. Lease Rent : Rs.12.68 G. Building Rent : Rs.38.26 H. Intt. Income from FDR and Savings account: Rs.2516.16 I. Sale of Master Plan Book/Tender Form : Rs.451.63 J. Cycle/Scooter/Car Stand Charges : Rs.79.97 K. Income from Stamp Duty : Rs.1633.33 L. Misc. Income : Rs.66.73 The above activities are in the nature of business activities and the same cannot be said to be for ‘charitable purposes’ within the meaning of Section 2(15) of the Income Tax Act, 1961. We have also given our specific comments on violation of provisions of Section 11 of the Act at point no. 1 above.” (page of 217-221of PB-4)

“ After examination of the activities of the assessee (appellant) and keeping in view the provisions of section 2(15) read with proviso, the Special Auditor has confirmed that the above activities are in the nature of business activities and the same cannot be said to be for charitable purpose within the meaning of section 2(15) of the Income-tax Act, 1961.”

(8.6) Appellant’s Contention

Sec 142(2A) of I.T.Act 1961 as it stood on 28.12.2011 when the matter was referred to special auditor.

2A) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts of the assesse and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Chief Commissioner or Commissioner, direct the assessee to get the accounts audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, nominated by the Chief Commissioner or Commissioner in this behalf and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as the Assessing Officer may require Provided that the Assessing Officer shall not direct the assessee to get the accounts so audited unless the assessee has been given a reasonable opportunity of being heard.

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Note : (w.e.f 1.6.2013) Substituted for “ nature and complexity of the accounts of the assesse” by the following : “nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialised nature of business activity of the assessee, and” That Special Auditor has no legal authority to arrive at legal interpretation of sec. 2(15) of IT Act 1961 under provisions of sec.142 (2A). Moreover, just for argument sake without accepting auditors authority to make a legal interpretation, he has merely stated figures of income under different heads of income without giving any logic or facts as to the nature of activities being business activity. Reliance by Ld. CIT(A) on his opinion is unwarranted and illegal.

In view of above submission and legal position as held by jurisdictional High Court it is requested that all the activities of appellant may please held as charitable in nature and to Is entitled to exemption u/s 11 & 12 of the Act.

(9) Rebuttal of issues raised by Ld. D.R.

(A) Appellant authority was established almost 50 years back, tax department has been assessing it as a charitable institution till A.Y.2008-09. All the assets and properties as reflected in the balance sheet till A.Y.208-09 was duly considered as property held under trust. Even in the year under consideration the A.O. or CIT(A) did not establish that the properties were not held under trust, hence the issue stands accepted and is not in dispute.

(B) U.P. Urban Planning Development Act 1973 specifically provides that appellant authority shall carry out development work. Sections 7, 17 and 18 make such specific provisions regarding development. (C) At the time of registration u/s 12AA nature of activities were examined as has been clearly spelt out by Honourable Allahabad High Court in the case of HapurPilakhuwa Development Authority, wherein the nature of activities were considered as business activity by the CIT for the purpose of rejection of registration, while the Honourable High Court held the activities as charitable.

(E) For accumulation of income for future application F.No.10 has been filed from time to time as and when required in different years. The A.O. or CIT(A) has not found anything to the contrary on this issue hence the issue is not in dispute.

(10) Section 2(15) of IT.Act 1961

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‘(15) "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility: Provided that 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 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;

Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year;”

By Finance Act, 2009 w.e.f. 01.04.2009 the definition of charitable purpose was extended to include “preservation of environment (including watersheds, forests and wild life) and preservation of monuments or places or objects of artistic or historic interest.” (10.1) Section 2(15) at the outset treats "advancement of any other object of general public utility" as a charitable purpose. Hence at the first instance the appellant is to be treated as a charitable institution as per the said definition of "Charitable purpose" if it is carrying out activity for advancement any other object general public utility. However, by introducing first proviso an exception was created where in if activity of the assessee involves carrying out of business activity then such activity will not be treated charitable activity. The first proviso was introduced by Finance Bill 2008 w.e.f 1st April 2009 i.e. A.Y 2009-10. Second proviso creating exception to the first proviso was introduced by Finance Bill 2010 with retrospective effect from 1 st April 2009. Second proviso is a rider / exception to the first proviso and it restricts the application of first proviso to the cases wherein the receipts ,even if they are business activity, to the extent of Rs.10 lakh in a year are to be treated as charitable activity. Accordingly first proviso is providing exception to the main clause and second proviso is providing exception to the first proviso. Conjoint plain reading of the both the provisos does not indicate that if the receipts exceed Rs.10 Lakhs than the receipts would automatically are to be treated as " non charitable". At the initial stage the first thing to be determined is if the activities of the appellant involves the carrying on of any activity in the nature of trade, commerce or business, if it does not involve business activity then the first provisio will not apply and activities of the appellant are to be treated charitable in nature even if it involves advancement of any other object of public utility. As per various rulings of the jurisdictional Honourable Allahabad High Court , the nature of activities carried out by various Development Authorities which are identical to the activities of the appellant have been held to be charitable in nature. Hence, the

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first proviso does not apply to the appellant. The second proviso comes into play only after the application of the first proviso. Moreover, it will only restrict the application of first provisio to the cases where receipts are below Rs.10 lakhs.

(10.2) Finance Bill 2008

Amendment of section 2 3. In section 2 of the Income-tax Act,— (a) in clause (1A), after Explanation 2, the following Explanation shall be inserted with effect from the 1st day of April, 2009, namely:— "Explanation 3.—For the purposes of this clause, any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income;"; (b) for clause (15), the following clause shall be substituted with effect from the 1st day of April, 2009, namely:— ‘(15) "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility: Provided that 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 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;’.

(10.3) Explanatory Notes to Finance Bill 2008 5. Streamlining the definition of “charitable purpose” 5.1 Sub-section (15) of section 2 of the Act defines “charitable purpose” to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility. It has been noticed that a number of entities operating on commercial lines are claiming exemption on their income either under sub-section (23C) of section 10 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 13 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. 5.2 With a view to limiting the scope of the phrase “advancement of any other object of general public utility”, sub-section (15) of section 2 has been amended 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 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, for a cess or

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fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. Scope of this amendment has further been explained by the CBDT vide its circular no.11/2008 dated 19th Dec 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.

(10.4) Memorandum Explaining Finance Bill 2008

RATIONALISATION AND SIMPLIFICATION MEASURES Streamlining the definition of "charitable purpose" Section 2(15) of the Act defines "charitable purpose" to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility. 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 such income, by the concerned entity. This amendment will take effect from the 1st day of April, 2009 and will accordingly apply in relation to the assessment year 2009-10 and subsequent assessment years.

(10.5) Finance Bill 2010

Amendment of section 2.

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In section 2 of the Income-tax Act,— (a) in clause (15), after the proviso, the following proviso shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 2009, namely:— “Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year;”

(10.6) Explanatory Notes Finance Bill 2010

4.3 The absolute restriction on any receipt of commercial nature may create hardship to the organizations which receive sundry considerations from such activities. Therefore, section 2(15) has been amended to provide that “the advancement of any other object of general public utility” shall continue to be a “charitable purpose” if the total receipts from 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 do not exceed Rs.10 lakhs in the previous year.

4.4 Applicability - This amendment has been made effective retrospectively from 1st April, 2009 and will, accordingly, apply in relation to the assessment year 2009-10 and subsequent years.

(10.7) Memorandum Explaining Finance Bill 2010 Definition of "charitable purpose" For the purposes of the Income-tax Act, "charitable purpose" has been defined in section 2(15) which, among others, includes "the advancement of any other object of general public utility". However, "the advancement of any other object of general public utility" is not a charitable purpose, if it involves the carrying on of any activity in the

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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, irrespective of the nature of use or application, or retention, of the income from such activity. The absolute restriction on any receipt of commercial nature may create hardship to the organizations which receive sundry considerations from such activities. It is, therefore, proposed to amend section 2(15) to provide that "the advancement of any other object of general public utility" shall continue to be a "charitable purpose" if the total receipts from 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 do not exceed Rs.10 lakhs in the previous year.

This amendment is proposed to take effect retrospectively from 1st April, 2009 and will, accordingly, apply in relation to the assessment year 2009-10 and subsequent years.

(10.8) EXEMPTION UNDER SECTION 11 IN CASE OF ASSESSEE CLAIMING BOTH TO BE CHARITABLE INSTITUTIONS AS WELL AS MUTUAL ORGANISATIONS CIRCULAR NO. 11/2008, DATED 19-12-2008 Definition of ‘Charitable purpose’ under section 2(15) of the Income-tax Act, 1961 “ 3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is ‘advancement of any other object of general public utility’ i.e. the fourth limb of the definition of ‘charitable purpose’ contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity.

3.1. There are industry and trade associations who claim exemption from tax u/s 11 on the ground that their objects are for charitable purpose as these are covered under ‘any other object of general public utility’. Under the principle of mutuality, if trading takes

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place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between the contributors and the participants.

Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality. However, if such organizations have dealings with non-members, their claim to be charitable organizations would now be governed by the additional conditions stipulated in the proviso to section 2 (15). 3.2. In the final analysis, however, whether the assessee has for its object ‘the advancement of any other object of general public utility’ is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of ‘general public utility’ will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assessees, who claim that their object is ‘charitable purpose’ within the meaning of Section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business.”

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the case of Jhansi development authority where in the arguments of the

revenue were mentioned to the following effect : “ 25.On behalf of the revenue ld CIT DR had made elaborate submissions supporting the case of the assessing officer as well as of the Commissioner

appeal. The first argument raised by the revenue that the case of the

assessee falls within the provision to section 2{15} of the income tax act.

Our attention was drawn to the provision of the said section and the

emphasis was drawn that the activities of the assessee are in the nature of

trade commercial business and the other activities rendered by the

assessee were for fee or cess . Further it was submitted, that the

application of the amount received by the assessee and use of the said

amount will not make any difference if the aggregate receipt of the activities

during the previous year exceed threshold limit provided by the act.

26.He had drawn our attention to the decision of the Coordinate Bench in

the matter of Chandigarh Lawn Tennis Association[2018] 95 taxmann.com

308 (Chandigarh - Trib.), To bolster his argument the provisions of section

2 are applicable and activities of the assessee are not charitable nature

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and would fall in last limb of the definition “ for advancement of any other purpose beneficial for to the public in general “ where in it was held as

under :

“35.However vide Finance Act, 2008 w.e.f. 1.4.2009, a new proviso (i.e. fist proviso) was added to this provision, carving out an exception in the cases of 'advancement of any other object of general utility: '2 (15) "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility: Provided that 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 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;' (Emphasis supplied by us) 36. There are two limbs of the above proviso to section 2(15) of the Act, introduced w.e.f. 1.4.2009, i.e. 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 any activity of rendering any service in relation to any trade, commerce or business, (b) irrespective of the nature of use or application, or retention, of the income from such activity;' 37. The above amendment was carried in section seeks to overcome the decisions of the hon'ble Supreme Court in the cases of 'Surat Art Silk Cloth Mfg.' (supra) and 'Thanthi Trust' (supra) as relevant to the period post substitution of the section 11(4A) of the Act. Firstly, the position that the carrying of business incidental to the attainment of the objectives of the trust as was allowable to the intuitions u/s 11(4A) carrying the activity under the all the limbs of section 2(15) of the Act is no more available to the institutions carrying on the advancement of object of public utility. The institutions carrying out the object of public utility have been barred from doing any activity in the nature of trade, commerce or business for claiming their activity for "charitable Purposes". Secondly this bar is irrespective of application of income from such commercial activity. That it will be immaterial whether the income from the commercial activity is utilized or ploughed back to such activity serving object of public utility. However, the restriction imposed by the above amendment is/was applicable only in respect of fourth limb of section 2(15) of the Act i.e. for the institutions or

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trusts carrying out the activity of advancement of any other object of general public utility. Hence, the restriction put by section 11(4A) was still applicable to the other limbs in the definition of charitable purposes u/s 2(15) of the Act. 38. …………………… 39. The CBDT issued a circular dated 19.12.2008, paragraph-3 whereof reads as under:— "3. The newly amended s. 2(15) will apply only to the entities whose purpose is 'advancement of any other object of general public utility' i.e., the fourth limb of definition of 'charitable purpose' contained in s. 2(15). Hence, such entities will not be eligible for exemption under s. 11 or under s. 10(23C) of the Act, if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of activity. 3.1 There are industry and trade associations who claim exemption from tax under s. 11 or on the ground that their objects are for charitable purposes as these are covered under the 'any other object of public utility'. Under the principle of mutuality, if trading takes place between the persons who are associated together and contribute to a common fund for the financing of some venture or object, and in this respect have no dealings or relations with any outside body, then the surplus returned to such persons is not chargeable to tax. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual members, these would not fall under the purview of s. 2(15) owing to the principle of mutuality. However, if such organizations have dealings with the non-members, their claim for charitable institution would now be governed by the additional conditions stipulated in proviso to s. 2(15). 3.2 In the final analysis, whether the assessee has for its object 'the advancement of any other object of general public utility' is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in connection to trade, commerce or business, it would not be entitled to claim that its object is for charitable purposes. In such a case, the object of 'general public utility' will only be a mask or a device to hide the true purpose which is trade, commerce, or business or rendering of any service in relation to trade, commerce or business. Each case would, therefore, have to be decided on its own facts, and generalizations are not possible. An assessee who claims that their object is 'charitable purpose' within the meaning of s. 2(15) would be well advised to eschew any activity which is in the nature of trade, commerce or business or rendering of any service in relation to any trade, commerce or business." (emphasis supplied by us) 40. The above explanation given by the CBDT that the newly amended s. 2(15) will apply only to the entities whose purpose is 'advancement of any other object of general public utility' and that such entities will not be eligible for exemption under s. 11 or under s. 10(23C) of the Act, if they carry on commercial activities irrespective of application of income from such activity has not gone well with the interpretation given by the High Courts. The Jurisdictional Punjab & Haryana High Court has discussed at length the effect of newly inserted proviso to section 2(15) of the 1961 Act w.e.f. 1.4.2009 while referring to several case laws of other High Courts of the country and held that by the insertion of the

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proviso, the position has restored/reverted to legal position as declared by the Hon'ble Supreme court in 'Surat Art Silk Cloth Mfgr. Assn ' Case (supra) while interpreting the unamended provisions of 1961 Act. The Hon'ble High Court has observed that the crucial words "not involving the carrying on of any activity for profit" as were mentioned originally in the section 2(15) of the 1961 Act, were akin to the wording introduced vide Finance Act 2008 w.e.f. Ist April 2009 i.e. ""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." The Hon'ble High court has observed that while the legislature in the 1984 amendment which continued up to the year 2009 altered the 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. The Hon'ble High Court thereafter referring to the words "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" as mentioned in the proviso to section 2(15), as amended in 2009, observed that such activities are carried for profit only. The Hon'ble High Court rejected the contention of the revenue that the meaning of the above words "nature of trade, commerce or business" was of wider import and that even if the advancement of object of general public utility involves 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, it will be out of the definition of the word "charitable purposes". The Hon'ble high court held that a wider meaning ought not to be given to these words especially in a taxing statute. The Hon'ble High Court observed that if a trade or business for a commercial activity did not result in profit, it would not be necessary to deal with the same in the Income Tax Act. The hon'ble High Court observed that there was nothing in the Act and particular in section 2 (15) thereof that indicated that the Legislature contemplated a trade or a business or a commercial activity other than for profit. The Hon'ble High Court in this respect referred to the several judgments of the Delhi High Court including in the case of Bureau of Indian Standards v. DGIT(Exemptions) [2013] 358 ITR 78/212 Taxman 210/[2012] 27 taxmann.com 127, The Institute of Chartered Accountants of India v. DGIT (Exemptions), [2013] 358 ITR 91/217 Taxman 152/35 taxmann.com 140 (Delhi) wherein it has been held that while construing the term business for the purpose of Section 2(15) of the Act the object and purpose of the Section must be kept in mind and a broad and extended definition of business would not be applicable for the purpose of interpreting and applying the first proviso to Section 2(15) of the Act. The object of introducing the first proviso is to exclude organizations which are carrying on regular business from the scope of "charitable purpose. The expressions "business", "trade" or "commerce" as used in the first proviso must, thus, be interpreted restrictively and where the dominant object of an organisation is charitable, any incidental activity for furtherance of the object would not fall within the expressions "business", "trade" or "commerce". Although, it is not essential that an activity be carried on for profit motive in order to be considered as business, but existence of profit motive would be a vital indicator in determining whether an organisation is carrying on business or not. The Hon'ble High Court also referred to the decision of the Delhi High Court in the case of India Trade Promotion Organization v. DGIT (Exemptions) [2015] 371 ITR 333/229 Taxman 347/53 taxmann.com 404 wherein it was held as under:— "An activity would be considered 'business' if it is undertaken with a profit motive, but in some cases, this may not be determinative. Normally, the profit motive test should be satisfied, but in a given case activity may be regarded as a business even when profit motive cannot be

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established/proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is in fact in the nature of business. 58. In conclusion, we may say that the expression "charitable purpose", as defined in Section 2(15) cannot be construed literally and in absolute terms. It has to take colour and be considered in the context of Section 10(23C)(iv) of the said Act. It is also clear that if the literal interpretation is given to the proviso to Section 2(15) of the said Act, then the proviso would be at risk of running foul 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 nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a 'charitable purpose'. On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes." (emphasis supplied by us) 41. The crucial point for the entire discussion in the above case of 'India Trade Promotion Organization (supra)' was relating to the interpretation of section 2(15) r.w.s. 10(23C) (iv) of the Income Tax Act. The Hon'ble High Court has observed that the expression "charitable purposes" in context of section10 (23C) (iv) has a reference to income. It is only when an institute has an income that it will claim exemption from its inclusion in the total income. The Hon'ble Delhi High Court therefore held that merely because an institution which otherwise was established for a charitable purpose, receives income would not make it any less a charitable institution. That it is not the income but the objects of the institution that have to be looked into. The Hon'ble Delhi High Court observed that it was undisputed that the institute (India Trade Promotion Organization) had been established for charitable purpose. The Hon'ble High Court took the notice that prior to the amendment introduced w.e.fIstApril, 2009 the institute had been recognized as an institution established for charitable purposes and that this had been done having regard to the objects of the institution and its importance throughout India. The Hon'ble High Court further observed that if a meaning is given to the expression 'charitable purpose' so as to suggest that in case an institution, having an objective of advancement of general public utility, derives an income, it would be falling within the exception carved out in the first proviso to Section 2(15) of the said Act, then

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there would be no institution whatsoever which would qualify for the exemption under Section 10(23C)(iv) of the said Act and the said provision would be rendered redundant. 42. The Hon'ble Punjab & Haryana High court in the case of 'The Tribune Trust' (supra) following the decision of the Hon'ble Supreme Court in 'Surat Art Silk Cloth Mfgr. Assn' (supra) and in the light of the several decisions of the Hon'ble Delhi Court has held that the predominant object of the trust or institution is the deciding factor , if the profit is the pre-dominant motive, purpose and object of the assessee Trust then its activities cannot be considered for charitable purposes as per the definition of charitable purposes in the light of newly inserted proviso w.e.f. 1.4.2009. But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. 43. From the above discussion and in the light of decisions rendered by the Delhi High Court in the cases as discussed above and of the Jurisdictional Pb. &Hry. High court in the case of 'The Tribune Trust' (supra) the position that has emerged is that as if the new proviso to section 2(15) has never been brought in and has been rendered redundant or otiose. The theory of predominant object or activity and incidental income therefrom can well be applied as per the provisions of section 11(4A) of the Act and as interpreted by the Supreme Court in the case of 'Thanthi Trust' (supra) and several High Court decisions thereafter. Even with all due respect, in our humble opinion, the restriction put by newly inserted proviso was applicable only to the activity of 'any other object of general public utility' but not to the other limbs of the definition as provided u/s 2(15) of the Act. Hence, to say that the newly inserted proviso would make for all purposes the section 2(23)(iv) or section 11(4) of the Act redundant or otiose, in our humble view, may not be correct. Even the crucial words in the second limb of the proviso 'irrespective of the nature of use or application, or retention, of the income from such activity' are also required to be considered and the same, in our view, cannot be ignored. By the insertion of these words, intention of the government is to overcome the 'ultimate or end object or to say predominant object theory' as was laid down by the Hon'ble Supreme Court in the cases of 'Surat Art Silk Cloth Mfgr. Assn' (supra) and 'Thanthi Trust' (supra). To be more precise, the effect of the above introduced words is that it will be immaterial if the funds or the profits from business activity are ploughed back to subserve the main or the predominant object of the trust. Again, even at the cost of repetition, it is to be mentioned here that this restriction is applicable only to the activity of advancement of any other object of general public utility but not to the other limbs of the activity as included in the definition provided u/s 2(15) of the Act. We may further add here that the prohibition put by the above proviso is not applicable in respect of non-business income of the institution or the trusts carrying on the advancement of other objects of general public utility but only in respect of income earned from the activity in the nature of trade, commerce or business. In other words, this exclusionary provision will not exclude the institutions having income other than the business income. 44. It is pertinent to mention here that Parliament also realized that the absolute restriction on any receipt of commercial nature imposed by the proviso inserted w.e.f. 1.4.2009 to section 2(15) may create hardship to the organizations which receive sundry or incidental considerations from such activities. Therefore by the Finance Act 2010, there was yet another proviso (i.e. second proviso) inserted with retrospective effect from 1.4.2009; now the section read as under:

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'2 (15) "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility: Provided that 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 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; Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is 10 lakh rupees or less in the previous year.' (emphasis supplied by us) 45. to 51 ………………………………….. 52. A corresponding amendment has also been brought in section 10(23C) of the Act inserted by the Finance Act, 2012, w.r.e.f. 1-4-2009 adding the following proviso added: "10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included— (23C) any income received by any person on behalf of— ** ** **

(iv) any other fund or institution established for charitable purposes which may be approved by the prescribed authority , having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States; or (v) any trust (including any other legal obligation) or institution wholly for public religious purposes or wholly for public religious and charitable purposes, which may be approved by the prescribed authority , having regard to the manner in which the affairs of the trust or institution are administered and supervised for ensuring that the income accruing thereto is properly applied for the objects thereof; ……………. Provided also that the income of a trust or institution referred to in sub-clause (iv) or sub-clause (v) shall be included in its total income of the previous year if the provisions of the first proviso to clause (15) of section 2 become applicable to such trust or institution in the said previous year, whether or not any approval granted or notification issued in respect of such trust or institution has been withdrawn or rescinded;" 53. A corresponding amendment has also been brought to section 143(3) of the Act inserted by the Finance Act, 2012, w.r.e.f. 1-4-2009 which deals with the assessment, adding third proviso thereto: "Assessment :

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(3) On the day specified in the notice,— ** ** **

Provided also that notwithstanding anything contained in the first and the second proviso, no effect shall be given by the Assessing Officer to the provisions of clause (23C) of section 10 in the case of a trust or institution for a previous year, if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in such previous year, whether or not the approval granted to such trust or institution or notification issued in respect of such trust or institution has been withdrawn or rescinded." 54. Therefore, with the introduction of second proviso to section 2(15) there is a paradigm shift from the earlier position. Though, some of the decisions of the Delhi High Court as referred to above and that of the Pb. &Hry. High Court in the case of The Tribune Trust (supra) have been delivered subsequent to the introduction of the second proviso to section 2(15) of the Act, however in none of the above referred to decisions there is any discussion about the effect of the introduction of second proviso to section 2(15) of the act and subsequent amendments thereto, amendments brought in section 10(23C), section 13 and section 143 of the Act. Though the courts of law have interpreted the first proviso to section 2(15) taking not consideration the hardships faced by the institutions genuinely involved in carrying out the charitable activities and thereby did not go by the literal meaning of the words of the provisions and interpreted the provision to mitigate the hardship to such institutes and to bring rational to the definition of charitable purposes and thereby holding that the crucial words " in the nature of trade, commerce or business" find mentioned in the second proviso have the same meaning as was ascribed to the words " not for making profits' as were there in the originally introduced provisions of section 2(15) in the 1961 Act. However, in our view, that was perhaps never the intention of the parliament to restore the position to that was operative or as interpreted by the courts of law from the year 1961 to the year1983. That is why immediately in the next financial year vide Finance Act 2010 with retrospective effect from 1.4.2009, the date with effect from which the first proviso to section 2(15) was introduced, the second proviso was brought in with the sole purpose of diluting the rigours of the first proviso and to mitigate the hardship created to the institutes genuinely carrying out the object of general public utility. Since with the introduction of second proviso, the rigour of the first proviso was diluted to ensure appropriate balance being drawn between the object of preventing business activity in the garb of charity and at the same time protecting the activities undertaken by the genuine organization, hence the interpretation given by the courts taking into consideration the hardship caused by the first proviso , in our view, can not be applied as such at this stage, but the same is required to be looked into in the light of the second proviso and the amendments brought in other related sections also, as discussed above. In our view, it will not be proper to just ignore the second proviso brought in by the parliament on the statute by following the interpretation given by the courts of the first proviso which was to mitigate the hardship created by the first proviso to the institutions genuinely carrying on the activity of general public utility. Since the interpretation adopted by the

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courts was not the literal interpretation of the proviso, but there was departure from the literal meaning because of the hardships which may be faced by the trusts carrying genuine charitable activities in giving literal and plain meaning to first proviso, hence under the circumstances, when the Parliament itself has introduced the second proviso to remove the rigour of the first proviso and to mitigate the hardships created by the first proviso, hence the interpretation of the section 2(15) in the changed scenario is to be given by taking into consideration the section in its entirety and also in the light of consequential amendments carried out in sections 10(23C), 13, and 143 of the Act and thereby making the newly inserted second proviso and amendments thereto and other amended section meaningful and workable so as to achieve and serve the intended purposes for which they have been introduced by the legislature in the statute. 55. It is to be noted that the section 2(15) as it stood post insertion of the first proviso w.e.f.1.4.2009, the charitable purposes included relief to the poor, education, medical relief, preservation of environment and preservation of monuments or places or objects of artistic or historic interest and advancement of any other object of general public utility. The first proviso does not control or restrict the definition of 'charitable purposes' in respect of trust carrying out the activity such as relief to poor, education, medical relief, preservation of monuments etc. as specifically mentioned. However section 11(4A) do put restriction on business activity of such institutions and provides that the same should be incidental to their main objects. Sub-section 4A of section 11 neither makes inoperative or redundant the provisions of section 2(15) nor of sub-section 4 of section 11. On the other hand the provisos to section 2(15) only put restrictions on the benefits available to the trusts carrying on the advancement of any other object of general public utility which also involves the incidental activity in the nature of trade, commerce or business. Newly inserted proviso to section 10(23C) also controls or restricts the benefit available to the institutions claiming benefit thereunder, however none of the provisions, in our view, in any manner, makes the other section inoperative, otiose or redundant. On the other hand, in our view, adopting the interpretation as given by the courts to the first proviso to section 2(15) bereft of second proviso and ignoring section 13(8) of the Act and other related amendments brought into section 10(23C) and section 143(3) of the Act with retrospective effect from 1.4.2009, would make these provisions redundant, otiose and inoperative. 56. It is pertinent to point here that the hon'ble supreme court in the case of "Thanthi Trust" (supra) while interpreting the relevant provisions as they stood for the period from AY 1984-85 to AY 1991-92, denied the benefits of exemption to the assessee trust applying and adopting the literal interpretation of the more stringent provisions of section 11(4A) of the act as were there in the statute for the aforesaid period. Though, the provisions of Sub-section (4) of section 11 remained on the statute book which defines the words 'property held under trust' for the purposes of section 11 to include 'a business held under trust', yet, the supreme court observed that Sub-section (4A) restricts the benefit under section 11 so that it is not available for income derived from business unless the business is carried on by a trust only for public religious purposes and it is of printing and publishing books or any other notified kind. The court held that the newspaper business that was carried on by the trust did not fall within sub-section (4A). This finding of the Hon'ble Supreme Court is in departure from the earlier interpretation made by it in the case of "Surat Art silk Cloth Manufactures Association"(supra) wherein it was held that the literal and plain meaning of the provisions of section 2(15) in context of the words "not for making profit" would render the provisions of section 11 (4) wholly superfluous and

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meaningless, despite the fact that these words barring the activity of the making of profit were applicable only in respect of institutions carrying on the activity in respect of advancement of other objects of public utility, whereas, the provisions of section 11(4) still holding good for the institutions carrying in the activity in respect of first three limbs i.e. relief to poor, education and medical relief. However in the subsequent decision in the case of Thanthi Trust (supra) , the supreme court applied the plain literal meaning to the more stringent provisions of sub-section 4A of section 11 as these stood during the period from AY 1984-85 to AY1991-92 and held that sub-section 4A restricts the benefits under section 11, despite noticing the existence of the provisions of sub-section 4 of section 11 on the statute. The latter decision of the Supreme Court in the case of Thanthi Trust (supra), in our view, cannot be ignored or overlooked, while interpreting the newly amended provisions of section 2(15) of the Act, especially the second proviso, which also strives to control the benefit available to the institutions involved in the activity of advancement of any other object of general public utility and not of the institutions carrying out the activity in respect of other limbs, to which the provisions of amended sub-section 4A to section 11 continue to apply. 57. Another crucial phrase brought in the first proviso are "irrespective of the nature of use or application, or retention, of income from such activity". The addition of the above crucial words obviously is to overcome the decision of the Hon'ble Supreme court in the case of Surat Art Silk Cloth Mfgr. Assn (supra) as well in the case of Thanthi Trust' (supra) wherein it was held that if all the surplus or profit from the business activity is invested or ploughed back into the assets of the assessee or applied to the main activity, the business will be a business incidental to the attainment of the objects of the trust. However, this proposition has been made inapplicable or to say bygone by the Legislature for the institutions carrying on object of general public utility by way inserting the crucial words " irrespective of the nature of use or application, or retention, of the income from such activity" in the first proviso to section 2(15) of the Act. 58. The Government realized need to curb the practice of business houses to claim exemption on the ground that they were carrying out of objects of general public utility and thereby making the benefit of exemption in respect of business carried out by them in the mask of charity and that is why they introduced first proviso to section 2(15) thereby excluding the institutions carrying on the object of the general public utility if their activities involves carrying on the activity of business trade or commerce or the services in relation to business trade or commerce for a cess or fee and even it was also clarified that application or the retention of such income from such activity will be immaterial. The High Courts of Delhi and Pb. &Hry. in the cases as referred to above , however, held that the above provision was a harsh provision and the consequences of the same could be like as it were that the introduction of words "not for making profits" in section which operated from 1961 to 1983. Even the Courts of law also following the proposition laid down by the Hon'ble Supreme Court in the case of 'Surat Art Silk Cloth Mfgr. Assn' (supra) held that the literal and plain meaning cannot be given to the said first proviso to section 2(15) of the Act and therefore, propounded the 'pre-dominant object theory' or 'the ultimate fulfilment of object theory' on the same lines as was given in the case of 'Surat Art Silk Cloth Mfgr. Assn' (supra) by the Hon'ble Supreme Court. The Hon'ble Supreme Court in the case of 'Surat Art Silk Cloth Mfgr. Assn' (supra) in para 11 of the decision has held that in the ordinary course, the different interpretation should not be done if the words of the statute taken could not alter the meaning of a statutory provision where such meaning is plain and unambiguous, but they can certainly

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help to fix its meaning in case of doubt or ambiguity. The Hon'ble Supreme Court thereafter discussed as to what would be the consequence of the construction of the provisions contained for on behalf of the Revenue and held that in such an event no trust or institution whose purpose is promotion of object to general public utility would be able to carry on any business, even though such business is held under trust or legal obligation to apply its income wholly to the charitable purpose carried on by the trust or institution. However, the Hon'ble Supreme Court held that in such an event the provisions of section 11 (4) would be rendered wholly superfluous and meaningless. The High Courts of Delhi and Pb. &Hry. followed the obove construction made by the Supreme Court in the caae of 'Surat Art Silk Cloth Manufacturers Assn.' (supra) 59. However, the Govt. very soon, even before the coming of above interpretations by the High Courts, realized the consequence that were likely to arise from the above amendment. Therefore, taking into consideration the harsh and strict meaning of the first proviso, it was felt that the plain and literal meaning to the first proviso would be of great hardship to the trust or institution which were genuinely carrying out the object of general public utility and that in the course of which it also generates some incidental or ancillary income. It was under such circumstances that the second proviso was brought in the next financial year itself with retrospective effect so as to make the first proviso to section 2(15) workable and to remove the ambiguity in the provisions of section 2(15) of the Act. Now with the insertion of second proviso, meaning and interpretation which is more rational has to be arrived at. However, if the interpretation of section (2(15) as per the decision of the Hon'ble Pb. &Hry. High court in the case of "Tribune Trust'(supra) and in other decisions of the Delhi High court as discussed above considering the first proviso to section 2(15) alone and ignoring the subsequent amendments, is applied to the amended section 2(15), then it will not only make the second proviso to section 2(15) but also section 13(8) and corresponding amendments to section 10(23C) and section 143(3) redundant, meaningless and inoperative and the situation will be as if the second proviso was never inserted or existed in the Act, what to say its subsequent amendment by way of increasing the limit of Rs. 25 lacs and then to the 20% of the total receipts and other corresponding amendments to section 10, section 13, and section 143. In our view, sticking to the interpretation which was given by the Courts before introduction or bereft of second proviso to section 2(15) of the Act, would lead to unintended construction, which will be against the spirit of statutory provisions. The subsequent amendments, as discussed above, in our view, definitely have a bearing on the interpretation which was done by the Courts of law taking into consideration the harshness of the first proviso to section 2(15) alone. However, the leverage provided to the institution by way of insertion of second proviso would prompt us re-think and re appraise about the literal interpretation of the section. The subsequent amendments brought in section 10(23C), section 13 and section 143 of the act with retrospective effect from 1.4.2009, the date on which the first proviso comes in effect, also cannot be ignored or rendered redundant. As it stands, post insertion of second proviso, allows the institutions to carry on the incidental activity in the nature of trade, commerce or business while pursuing objects of general public utility of the trust or institution, but restricts the receipts to a specified limit. The said limit perhaps was made so as to allow only genuine institutions to claim exemptions who were carrying out the activity of charitable purposes and their motive is not to earn huge profits. 60. Now, let us, assume that the interpretation that the income derived by the Trust from ancillary commercial activity while carrying out the pre-dominant object of general public utility is totally exempt

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as stood canvassed by the Ld. Counsel for the assessee in the light of the various case laws including the decision of the Hon'ble Jurisdictional High Court of Punjab & Haryana in the case of ' Tribune Trust' (supra) . In that event the argument that can be reasonably put is that the second proviso inserted by Finance Act 2010 with retrospective effect from 1.4.2009 allowing the carrying out of the business activity up to the prescribed limit of receipts from such activity would be applicable in those cases where an institution or trust is carrying out the activity of advancement of general public utility but at the same time its object is also to make profits as observed by the hon'ble Supreme Court in the case of 'Surat Art Silk Cloth Mfg. Association' (supra) in respect of the privy Council decision in the case of "Trustees of the Tribune" (supra) and then by the Hon'ble Pb. &Hry. High court in respect of activities carried out by the Tribune Press Trust in the case of "Tribune of the Trust" (supra), in that event such institutions would also be eligible to claim exemption u/s 2(15) subject to the condition that their total receipts would not exceed the prescribed limit of Rs. 10 lacs or Rs. 25 lacs or 20% of the total receipts as applicable from time to time. In that scenario, each and every trust or institution indulged into business activity involving the providing of some sort of public utility services will claim exemption if total receipt of such institution does not exceed the prescribed limit. As held by the Hon'ble Supreme Court in the case of 'CIT v. Gujarat Maritime Board' [2007] 295 ITR 561/[2008] 166 Taxman 58, that he expression 'any other object of general public utility' is of the widest connotation. The expression would prima facie include all objects which promote the welfare of the general public. 61. A company or trust involved in the insurance business for profit will claim that the object, purpose and activity of the insurance activity is towards the advancement of object of general public utility as it provides security against unforeseen events to the insured . An industrialist will also claim exemption on the ground that by way of establishing industry, it has contributed towards the advancement of object of general public utility as with the establishment of industry, it generated employment and that it has also contributed towards infrastructure development and boosting the economy of the country. A manufacturer of medicine will also so claim that medicines are made by him with the object of providing people of country the essential and useful drugs for fighting dreaded disease and sickness and even lifesaving drugs and also contributing towards improvement of health of the people for advancement of object of general public utility. A road contractor will also claim that the road maintained or constructed by it, though with profit motive are for the advancement of object of general public utility as it ease mode of transport not only of the people but also of the goods and other material. Even a general merchant, opening shop in a rural area or village may claim that though it is doing the retail business with the motive of profit, however, it is also doing the activity of general public unity by way of making available different goods on day to day need and necessity of the people of the village who otherwise would have to travel large distances to get the same. The taxation limits fixed by the Department will fail and the taxation in respect of such persons doing different business will start only if their receipts during the year would cross the limit as prescribed from time to time. Even big institutions or companies will divide themselves into subsidiaries or smaller units ensuring that income of each of such taxable unit or entity should not increase the prescribed monetary limit of the receipts. Such an interpretation of the second proviso to section 2(15) would lead to absolute absurdity, confusion and unwanted and uncalled for consequences. Even it will be also an issue in dispute as which of the activity/activities of an assessee is/are towards the advancement of object of General Public Utility though may be with profit making object also and which of these is/are of a pure commercial

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venture. Thus. in our view, the different but related provisos of the Act are to be read in harmony with each other. The interpretation as canvassed for the period prior to the introduction of the second proviso, if adopted now, will render the newly inserted amended provisions of the Act as infructuous and redundant. 62. The issue relating to the effect of insertion of first and second provisos to section 2(15) of the Act vide Finance Acts 2008 and 2009 respectively came into consideration in the case of 'Jammu Development Authority (supra) wherein, it has been held that if activities of any Institution/Trust/Society under the fourth limb i.e. `the advancement of any other object of general public utility' are in the nature of trade, commerce or business for cess or fee and the receipts therefrom crosses the prescribed limit then they are not eligible to continue with registration u/s 12A and the same is required to be withdrawn. However, subsequently the impact of these provisions was also considered by the Coordinate Mumbai Benches of the Tribunal in the cases of "Ghatkopar Jolly Gymkhana v. DIT [2013] 40 taxmann.com 207/[2014] 147 ITD 112 (Mum. - Trib.) and "Cotton Textiles Exports Promotion Council v. DIT (Exemption), Mumbai [2014] 44 taxmann.com 168/64 SOT 167 (URO) (Mum. - Trib.) [Judicial Member of this Bench being party to the said decisions also) wherein it has been held that the first proviso to section 2(15) is a very rigorous provision which excludes the institution or trust from the definition of charitable trust, if such trust carries activities in the nature of trade, commerce or business….irrespective of the nature of use or application or retention of the income from such activity. That, however, by the insertion of the second proviso w.e.f. 01.04.2009 the rigour of the first proviso has been diluted and that the first proviso will not apply even if the trust carrying on business activities in the course of its dominant activities for the purpose of advancement of any other objects of general public utility and the gross receipts from such activities is Rs.10.00 lacs or less in the previous year. However where the gross receipts of a charitable institution, from its business activities exceeds limit of Rs. 10 lakhs, assessee will not be entitled for exemption or other admissible tax benefits for that relevant year but it does not result in cancellation of its registration as charitable institution. The above view, now has been affirmed by the Hon'ble Bombay High Court in the case of DIT (Exemption) v. North Indian Association [2017] 79 taxmann.com 410/246 Taxman 318/393 ITR 206 wherein the Hon'ble High court while further relying upon its another decision in the case of "DIT (Exemption) v. Khar Gymkhana [2016] 385 ITR 162/240 Taxman 407/70 taxmann.com 181 (Bom.) has duly taken note of the provisions of section 13(8) of the Act inserted vide Finance Act 2012 w.r.e.f. 1.4.2009 as well as the CBDT Circular No.21 of 2016 and though, held that merely because in one year income of assessee-trust exceeded prescribed limit provided under second proviso to section 2(15), that by itself, could not warrant cancellation of registration of trust, however, where the receipts are hit by the proviso to Section 2(15) of the Act, the benefit of exemption to its income for the previous year relevant to the subject assessment year will not be available. However it has been further held that if this happens on continuous/regular basis, it could justify further probe/inquiry before concluding that the trust is not genuine. 63. Though in the above referred to decisions of Mumbai Bench of the Tribunal and that of the Hon'ble Bombay High Court (supra), the question was whether the registration granted u/s 12 to the charitable institution can be cancelled if the monetary receipts from its business activity crosses the limit prescribed as per the second proviso to section 2(15) of the Income Tax Act and it was held that the registration on this ground granted to a charitable institution cannot be cancelled. However, it is to be

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noted that it was also held that in the previous year during which such income from business activity of the trust or institution crosses the prescribed limit, benefit of exemption u/s 11 for that year will not be available to such trust or institution. It is, therefore, to be noted that not only second proviso to section 2(15) of the Income Tax Act but also insertion of corresponding provisions of section 13(8) of the Act have been duly noted and their effect discussed. What we want to convey is that existence and effect of the amended provisions of sections 2(15), section 13, section 23 and section 143 of the Act cannot be just ignored or negated rather the same are to be read along with other relating provisions of the Act such as sections 11(4) and 11 (4A) of the Act and a harmonious construction is to be arrived at. 64. to 68 ………………………………………………….

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is the question of claiming exemption is cornered, we may point out here that the income of a charitable institution cannot be only from commercial activity, but there are other modes of income also as per the provisions of section 2(24)(iia) of the Act. Voluntary contributions received by the trust created wholly or partly for charitable or religious purposes and included in the definition of income apart from voluntary contribution, such charitable trust or institution may receive grants from other modes or activity which may not in strict term to be said to be the activities in the nature of trade, commerce or business. Suppose, a trust or institutions engaged in the activity of imparting training in sports receives a nominal registration fee from the trainees. Can it be said to be an activity in the nature of trade, commerce or business? The answer will be in negative. Whether a particular activity is in the nature of trade, commerce or business is to be examined taking into consideration the nature of activity, the object and purpose of such activity, the volume of such activity and the nature and volume of the receipts and further the application thereof also. Every receipt of income, in our view, cannot be termed as activity in the nature of trade, commerce or business. 69(3).Moreover the restriction placed in the first proviso is only in respect of the institutions or trusts carrying out the activity for the advancement of any other object of Public Utility, and not in respect of activity for the other limbs of section 2(15). Hence, it cannot be said that the first proviso controls, restricts or bars any institution established for charitable purposes for carrying out the objects or activities in respect of other limbs and generating incidental income also therefrom. 69(4). Moreover, the anomaly, if any, has been removed with the introduction of second proviso to section 2(15) of the Act wherein the income from incidental or ancillary commercial activity has also been allowed and included while carrying out the advancement of object of general public utility also subject to the limit prescribed of the receipts. The second proviso of the section is in consonance of the provisions of section 11(4) & (4A) of the Income Tax Act. 69(5). We may point out here that the provisions of sections 11(4) and 11 (4A) of the Act are general provisions and are applicable to all the institutions claiming exemption u/s 11 of the Act carrying out activity for charitable purposes. Definition of the 'Charitable purposes' as provided u/s 2(15) of the Income Tax Act includes relief to the poor, education yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility. Sub- section 4A do not bar the carrying on of business activity , however, puts restriction that such business should be incidental to the attainment of the objectives of the trust or institution and separate books of account are maintained. The restriction put by earlier section 13(1)(bb) and after its omission and by the subsequently inserted section 11(4A) have been well considered, interpreted and applied by the Hon'ble Supreme Court in the case of "Thanthi Trust" (supra) and thus it can not be said to be said there is any anomaly created by the above provisions . 69(6). Then there is sub-section (8) to section 13 of the Income Tax Act which states that nothing contained in sections 11 or 12 shall operate so as to exclude any income from total income of the previous years if the provisions of first proviso to clause (15) of section 2 becomes applicable. So the construction that any type of receipt which is incidental or ancillary to the carrying out of the advancement of objects of general public utility will be considered as income from charitable purposes if applied, such construction would not only render the first and second proviso to section 2(15) as

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amended from time to time and but also section 13(8) of the statute redundant and inoperative defeating the purpose for which they were brought into statute by Parliament will be defeated. At the same time, when we read the provisions of section 13(8) in isolation, it will make the provisions of sections 11 (4) and 11 (4A) of the Act inoperative for the institution carrying of object of advancement of general public utility, which also involves the activity of carrying of business, trade or commerce generating ancillary or incidental income. However, by the insertion of second proviso to section 2(15) as amended from time to time, the anomaly, if any, has been removed. 70. A harmonious construction of these amended provisions will lead to the conclusion that each of the provisions are in aid to and supplement each other. In our view, a reasonable and meaningful construction that may be arrived now is that as per the provisions of section 2(15) of the Act, 'charitable purposes' on the first part will include relief to the poor, education, medical relief, preservation of environment and preservation of monuments or places or objects of artistic or historic interest and advancement of any other object of general public utility and further as per the provisions of section 11(4) of the Act, such trust or institution can hold business assets also. However, as per the provisions of section (4A), such business for profit should be incidental to the attainment of the objectives of such trust or institution and separate books of account are to be maintained. Further, to claim exemption u/s 10(23C)(iv) of the Act, the fund or institutes must be established for charitable purpose and is approved/registered by the prescribed authority having regard to their objects and importance throughout India and otherwise fulfill the other conditions as enumerated u/s 10(23C) of the Income Tax Act. Here we may point out the restriction put by section 11(4A) or section 13(8) do not in any manner comes into play or otherwise restrict the business activity of the fund or institutions established for charitable purposes and claiming exemption u/s 10( 23C)(iv) of the Act. But the restriction inter alia created by the provisos to section 2(15) read with the newly inserted 18th proviso to section 10( 23C) (as reproduced above) and newly inserted proviso to section 143 (as inserted by Finance Act 2012 w.e.f. 1.4.2009) will apply that too only to the Institutions carrying on the activity of advancement of any other object of General public utility and not to the institutions established under other limbs of the definition of "Charitable Purposes". Thus the provisos to section 2(15) or to section 10(23C) or to section 143 do not make the provisions of section 10(23C)(iv) redundant or inoperative, but only put some restrictions on the institutions carrying on the object of General Public Utility in respect of their business activity. 71. As per the second proviso to section 2(15) of the Act, income from incidental business activity should not cross the limit as prescribed from time to time as per the amendments carried out in second proviso of the Income tax act and the provisions of sections 11(4) & (4A) and section 10(23C)(iv) can be applied accordingly and such a construction will not make any provision contrary or in contradiction to the other, rather will supplement each other. Even the section 13(8) of the Act can also be meaningfully applied which will be required to read in the light of the second proviso to section 2(15) of the Act and thus harmonious construction of the related provisions will give a meaningful and workable interpretation as intended by the Parliament. Hence, in the light of discussion made above of the relevant provisions of the Act, the interpretation that may be arrived is that for the trusts or the institutions carrying on the activity included in the first part of definition of 'charitable purposes' as defined u/s 2(15) of the Act viz. for the objects of relief to the poor, education yoga, medical relief, preservation of environment and preservation of monuments

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or places or objects of artistic or historic interest and are also carrying on the business activity which is incidental to the attainment of objective of such trust or institution [as provided u/s 11(4A)], they are entitled to claim exemption of their income including the income from incidental business activity under section 11 of the Act subject to compliance or fulfilment of the otherwise required conditions including inter alia registration of such trust or institution u/s 12 A of the Act or maintaining of separate books of account regarding business activity as per the provisions of section 11(4A) of the Act etc. and subject to the applicability of the relevant provisions of section 11, 12 and 13 of the Act, irrespective of the quantum of income earned from such incidental business activity. In other words, there is no cap or limit prescribed for such receipts to be eligible for claiming exemption from taxation u/s 11 of the Act. As discussed in the paras above of this order, any income received by a person on behalf of any fund or institutions established for charitable purposes as included in the first part of the definition as defined u/s 2(15) of the Act i.e. for the objects of relief to the poor, education yoga, medical relief, preservation of environment and preservation of monuments or places or objects of artistic or historic interest can be claimed as exempt from levy of tax u/s 10(23C)(iv) of the Act irrespective of the quantum of such income i.e without any cap or limit on such income subject to fulfilling the other conditions as prescribed therein such as approval of such fund or institution by the prescribed authority, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States. However, the trusts or institutions carrying on such activity or established to carry on such activity, as the case may be, that is falling in the last limb of the definition of charitable purposes as defined u/s 2(15) of the Act i.e. for the advancement of any other object of public utility which also involves the carrying of incidental activity 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, the restrictions inter alia put by the provisos to section 2(15) such as that the incidental business activity should be in the course of actual carrying out of the main object and the receipts therefrom should not cross the limit or cap (as applicable from time to time) and further that it will be immaterial that the funds or the profits from business activity are ploughed back to sub serve the main or the predominant object of the trust. In this respect the words "irrespective of the nature of use or application, or retention, of the income from such activity" finding place in the first proviso to section 2(15) of the Act would come into play. However, the other restrictions as provided under section 11(4A), 13(8) and 143(3) as discussed above, would accordingly apply for claiming exemption u/s 11 of the Act; However, the restriction inter alia put under the provisos to section 10(23C)(iv) and section 143(3) along with restrictions put by the provisos to section 2(15), as discussed above, will apply for claiming exemption u/s10(23) (iv). These restriction put under the provisos to section 2(15) are applicable only to the activity of advancement of any other object of general public utility. 72. However, even after holding that the harmonious reading of the related provisions of the Act, as discussed above, will lead to the conclusion that it cannot be said that any of the related section is in contradiction to the other or in any manner making inoperative or redundant the other, we still are of the view, that there remains still an anomaly which has not been addressed by the Parliament till date by way of introduction of the suitable provision. Suppose the income from incidental and ancillary activity of an institution in the course of carrying out of activity for advancement of object of general public utility crosses the limit, as prescribed for different assessment years as per the provisos to section

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2(15), can it be said that such an institution will not be an institution carrying out the objects for 'charitable purposes'. For example for the assessment year 2009-10, the total receipts of an institution from the ancillary activity in the shape of trade and commerce or business are Rs. 9.95 lacs, the institution will be treated as an institution for charitable purposes and its entire income exempt from taxation either u/s 11 or 10(23C) as the case may be, whereas, if there is a slight increase of Rs. six thousands only in such business income, say it crosses the limit of Rs. 10 lacs, i.e say at Rs. 10.01 lacs, then such trust or institution will be out of purview of the 'charitable purpose' and its entire income will be included in the total income, including the receipts which are not directly connected with the carrying of the incidental activity in the nature of trade, commerce or business. Such an anomaly will create utter confusion and will operate as restriction on the institution genuinely involved in carrying out the objects of general public utility. The Institutes which are rather carrying of the activity of general public utility on large scale will not be entitled to claim the benefit under the provisions of sections 11 & 12 of the Income Tax Act. Even the non-business income in the form of voluntary contribution and donations or directly relating to charitable activities (as discussed in para 61 (2) above) and not relating to the activity in the nature of trade, commerce or business would also become taxable. The moment the receipts from the commercial activity crosses the stipulated limit, the provisions of section 13(8) of the Act and provisos to section 10(23C) and section 143 , as the case may be, will come into play. It will mean that the entire income of an institution carrying on the object of general public utility on a small scale involving incidental commercial activity will be treated as exempt as it will not cross the prescribed limit of Rs. 10 lacs or Rs. 25 lacs or 20% of the total receipt as applicable for the different assessment years, however, the income of an institution carrying on the activity of general public utility on large scale will become taxable if the receipts from the incidental commercial activity crosses the limits as prescribed for different assessment years as noted above. Though by way of amendment to second proviso vide Finance Act 2015 w.e.f. 1.4.2016, the government has tried to remove the anomaly by substituting fixed limit of receipts of Rs. 25 lacs with the 20% of the total receipts, however, the question is that the receipts from the incidental or ancillary commercial activity cannot, in our view, be controlled or restricted by way of measuring or controlling the activities with golden scale or to say to check the same on day to day basis and the stop carrying out the incidental activity, which otherwise may be necessary to achieve the main object of general public utility, the moment the receipts touch the threshold. The Hon'ble Supreme Court in the case of " Surat Art Silk Cloth Manf. Assn." (supra) has held, "It would indeed be difficult for persons in charge of a trust or institution to so carry on the activity that the expenditure balances the income and there is no resulting profit. That would not only be difficult of practical realization but would also reflect unsound principle of management." The same analogy can well be applied in the facts and circumstances as discussed above.”

DEVELOPMENT AUTHORITY [2019] 106 taxmann.com 111 (SC)/[2019]

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264 Taxman 26 (SC) the Jurisdictional High Court had concluded as under

:

“60. Having considered the arguments so made by learned counsel for the parties on question no.2, we find, in the instant case, the notice proposing to cancel the registration granted to the assessee w.e.f. 01.04.2003 was issued on a solitary ground that the activity of the assessee did not fall within the meaning of the term charitable purpose, as defined under Section 2(15) of the Act. It is also not the case of the revenue that the assessee had engaged in any new or other activity other than that for which it had been granted registration. In fact, it is an admitted case between the parties that the activities of the assessee had remained one and the same for all years since the registration had been granted, on 01.04.2003. 61. Then, upon receipt of the notice under Section 12-AA(3) of the Act dated 06.03.2012, it was first required to be examined whether the assessee was engaged in an activity covered under section 2(15) of the Act. If the assessee was found to be pursuing such an activity, then the registration granted would not be liable to be cancelled. However, if it were to be found that the assessee was not engaged in such an activity, it would then necessarily require examination as to the date from which such registration could be cancelled. 62. The notice for cancellation of registration being occasioned and being based on the allegations that the assessee had not engaged in any activity that was covered by "charitable purpose" as defined under Section 2(15) of the Act, the finding of the Tribunal setting aside the entire order of the Commissioner on the reasoning that such registration could not be cancelled w.e.f. A.Y. 2009-10, cannot be sustained. 63. In our view, the Tribunal should have considered whether the registration could have been cancelled because the assessee was not pursuing a "charitable purpose". If the Tribunal found that the registration granted to the assessee was liable to be cancelled because it had not engaged in any activity in pursuance of "charitable purpose", then, the date from which such registration could be cancelled, would become relevant and be given effect to. At present, there is no finding of the Tribunal as to the merits of the matter. 64. The cancellation notice appears to have been issued only in light of amendment made to Section 2(15) of the Act. By that amendment, the first proviso had been added to that section. The first proviso applies to an assessee who may claim to be engaged in the 'advancement of any other object of general public utility'. In respect of such an assessee it had been provided (by amendment), if the activity in respect of which it claimed exemption, be in the nature of trade, commerce or business or any other activity rendering any service in relation of any trade, commerce or business for consideration, such activity shall not constitute an activity of charitable purpose. However, the second proviso to Section 2(15) of the Act (introduced by Finance Act, 2010 with effect from 1.4.2009), created an exception to the first proviso. Thus, the

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first proviso to Section 2(15) of the Act would not apply in the event, the receipt from activities referred to in the first proviso did not exceed Rs. 10,00,000/-, in a previous year.

67.1 The scheme of the Act has to be understood that the benefit of exemption otherwise available under sections 11 and 12 of the Act has to be denied to the assessee in question if his receipts arising from activities falling under the first proviso to Section 2(15) exceed Rs. 10 lacs, but not otherwise.

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'8. We must not lose sight of the fact that there is a difference between registration and exemption. This understanding of ours is fortified by virtue of section 13(8) of the Act. In fact, section 13(8) of the Act was introduced into the Act, with effect from April 1, 2009 by the Finance Act, 2012. It provides that where the receipts are hit by the proviso to section 2(15) of the Act, the benefit of exemption to its income for the previous year relevant to the subject assessment year will not be available. Thus, income is brought to tax to secure the Revenue's interest but it does not necessarily result in automatic cancellation of registration. Therefore, the mere fact that in one particular year, the respondent assessee may have income receipts in excess of Rs. 10 lakhs or such other limit as provided in the proviso to section 2(15) of the Act, that by itself would not warrant cancellation of the registration under section 12AA(3) of the Act. A similar issue had arisen before us in DIT (Exemptions) v. Khar Gymkhana [2016] 385 ITR 162(Bom.) where we had rejected the Revenue's appeal. In the above decision, we relied upon the Central Board of Direct Taxes' Circular No. 21 of 2016, dated May 27, 2016* to conclude that the amendment to the definition of "charitable purpose" by addition of the proviso with effect from April 12, 2009 would not ipso facto give jurisdiction to the Commissioner of Income- tax to cancel the registration. Circular No. 21 of 2016 in terms directed the authorities not to cancel the registration of the charitable institution only because the proviso to section 2(15) of the Act comes into play as the receipts are in excess of the specified limits therein. It also refers to section 13(8) of the Act to support the view of the non cancellation. In fact, we may usefully reproduce the relevant extract of Circular No. 21 of 2016, dated May 27, 2016, which reads as under (see [2016] 384 ITR (St.) 180 ) :

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"(3) Temporary excess of receipts beyond the specified cut off in one year may not necessarily be the outcome of alteration in the very nature of the activities of the trust or institution requiring cancellation of registration already granted to the trust or institution. Hence, section 13 of the Act has been amended vide Finance Act, 2012 by insert ing a new sub-section (8) therein to provide that such organisation would not get benefit of tax exemption in the particular year in which its receipts from commercial activities exceed the threshold whether or not the registration granted is cancelled. This amendment has taken effect retrospectively from April 1, 2009 and accordingly, applies in relation to the assessment year 2009-10 onwards.

(4) In view of the aforesaid position, it is clarified that it shall not be mandatory to cancel the registration already granted under section 12AA of a charitable institution merely on the ground that the cut off specified in the provision to section 2(15) of the Act is exercised in a particular year without there being any change in the nature of activities of the institution. If in any particular year, the specified cut off is exceeded, the tax exemption would be denied to the institution in that year and cancellation of registration would not be mandatory unless such cancellation becomes necessary on the ground(s) prescribed under the Act.

(5) With the introduction of Chapter XII-EB in the Act vide Finance Act, 2016, prescribing special provisions relating to tax on accreted income of certain trusts and institutions, cancellation of registration granted under section 12AA may lead to a charitable institution getting hit by sub- section (3) of section 115TD and becoming liable to tax on accredited income. The cancellation of registration without justifiable reasons may, therefore, cause additional hardship to an asses see institution due to attraction of tax liability on accredited income. The field authorities are, therefore, advised not to cancel the registration of a charitable institution granted under section 12AA just because the proviso to section 2(15) comes into play. The process for cancellation of registration is to be initiated strictly in accordance with section 12AA(3) and 12AA(4) after carefully examining the applicability of these provisions."

"The fact that the receipts from commercial activities are more compared to the overall receipts of the charitable organisation can neither lead to the conclusion that the activities of the trust or

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Institution are not genuine nor can it be said that the activities of the trust or institution are not being carried out in accordance with objects of the Trust or Institution and, therefore, the two conditions stipulated under the provisions of sub-section (3) of section 12AA of the Act which empowers the authority to cancel the registration, do not exist in the present case." Further, we note that the Madras High Court in Tamil Nadu Cricket Association v. DIT (Exemptions) [2014] 360 ITR 633 (Mad) has also taken a similar view."' (emphasis supplied) 73. We are in respectful agreement with the view taken by the Bombay High Court in the case of North Indian Association (supra). The cancellation of registration would not be automatic or natural or the only consequence of the receipts (arising from an activity specified in the first proviso to Section 2(15) of the Act), exceeding Rs. 10,00,000/- in any previous year. In case of the assessee before us to whom registration under Section 12A of the Act had been granted before incorporation of the provisos to Section 2(15) of the Act, in the event of its receipts from activities specified in the first proviso to Section 2(15) of the Act exceeding Rs. 10,00,000/- in a subsequent year, cancellation of the registration under Section 12-A of the Act would not be the natural or the only consequence of such an event, if established. 74. Therefore, in the entirety of the facts and circumstances of the case, we answer the question no.2 in favour of the revenue and against the assessee. According to us the cancellation notice having been issued on 06.03.2012, it did not suffer from any jurisdictional error. On that date the Commissioner had vested (in him) the power to cancel a registration granted to the assessee under Section 12A of the Act (on 24.09.2003). Therefore, merely because the Commissioner had wrongly given effect to such cancellation w.e.f. A.Y. 2009-10, it did not vitiate the entire order. 75. However, since the Tribunal has not recorded any finding either on the merits of the contention raised by the assessee, that it was pursuing a charitable purpose and as to the date from which the registration could have been cancelled in pursuance of the notice dated 06.03.2012, we consider it necessary to remit the matter to the Tribunal to decide this issue afresh in accordance with law. Needless to add while making such decision the Tribunal would abide by the observations made above and consider all relevant law including the division bench judgment of this Court in the case Yamuna Expressway Industrial Development Authority (supra). Such exercise may be completed within six months from today.”

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tribunal in the said case, the activities of the assessee on the face of it are not charitable and are not driven on account of the statutory obligations under the act and therefore the activities are required to be examined with a specific reference to the Parent Act. He had also made the reference of the recent statement given by the Hon’ble Prime Minister, wherein it was mentioned that”The government has no Business to be in Business”, hence it was submitted that the activities which are purely in the nature of commercial, trade and occupation should be segregated from the activities which are purely charitable in nature and thereafter the third provision to section 12 AA should be applied . If the total receipt from such activities are found to be more than the threshold limit fixed by the act, than consequences as provided by the act should follow. He had drawn our attention to the following prahraphs of CIT(A) order, wherein the lower authority had dealt with these issues and came to conclusion that the activites of the assessee are not charitable in the following manner :

“4.5 In order to consider the issue, I have given my meticulous thoughts to The Uttar Pradesh Urban Planning and Development Act, 1973 (UPUPO Act, 1973) along with various sources of income of the assessee, as given in income and expenditure statement, from which following facts emerge out suggesting that the activities of the assessee are hit by newly introduced first proviso to section 2(15) a. The assessee is engaged in acquiring land from the farmers, converting the land use, plotting the land and selling it at higher price thereby making a profit. The assessee also sells such land to colonizers and builders for further development and constructions. The assessee received Rs.16,36,08,451/- (schedule 8 of Annual Statement) during A. Y. 2011-12 by sale of the properties. It is also noticed that assessee has himself furnish profit &loss account in his annual audited balance sheet which is separate from Income &Expenditure account filed by the assessee. So, it is clear that assessee has himself admitted that he is doing commercial activity. These activities are clearly in the nature of trade and commerce and therefore the same attracts

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proviso to section 2(15) of I. T. Act. profit and loss accounts reproduced as under,

b. The assessee converts a lease hold land to Free Hold Land thereby increasing its value and rendering it useful for further sale and development by builders and colonizers and common people. The assessee earned Rs . 3,63,20,831/- (schedule 9 of Annual Statement) during the relevant Assessment Year from such activities. This activity clearly attracts the new proviso as it is an activity of rendering service in relation to a trade, commerce or business .

c) The assessee owns numerous properties/public utilities like buildings, community centers, parks, conference halls, auditorium like Sursadan etc. It regularly gives them on hire for rent. It earned Rs. 56,15,048/(schedule 13 of Annual Statement) from such activities. These are business or commercial activities .

d. The assessee sold master plan book and tender forms and earned an income of Rs.23,51, 704/-. It gives scooter and car stand to contractors and earns Rs.1,53,83,520/-. The assessee earns Rs.5,54,96,955/- as income from stamp duty and Misc. income of the assessee itself is Rs.2, 70,27,4431- . All these activities are in the nature of commerce or business or they are in the nature of rendering any service for trade or commerce and attract proviso to section 2(15) as such.

e. The assessee approved building plans of builders and common people and it earned Rs.46, 60,22,334/- (schedule 12 of Annual Statement) . This activity is clearly commercial in nature . f. The assessee allots plots/houses to allottees and fixes a schedule of installments for payment. These installments include principal plus interest. The assessee also charges penal interest for any default. It earned a total of Rs. 14,69,36,609/- from such activities. This activity is clearly commercial in nature .

g. Section 2(ddd) defines 'city development charge' as the charge levied on private developer Uls 38A for the development of land. Section 38A says that

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the Authority shall levy and collect city development charge from a private developer who has been given a license to develop land in a development area. Attention is drawn to schedule 12 of the Annual Statement which says that the assessee collected the said charges ie., External Development Charges Rs.17,71,12,259/- and Internal Development Charges Rs.18,82,160/- during A. Y. 2011-12. This charge is collected from a private developer who in turns develops and profits from such business. This activity clearly attracts the new proviso as it is an activity of rendering service in relation to a trade or business . h. Section 38A of UPUPD Act, 1973 provides for land use conversion charge for the change of land use in the MASTER PLAN. This section enables the authority to charge money when non-agricultural land is converted to residential or commercial land or Residential land is converted to commercial land thereby increasing its valuation. This charge is paid by general public including the colonizers and builders who acquire agriculture land and later on use it for developing residential or commercial property for sale. This activity clearly attracts the new proviso as it is an activity of rendering service in relation to a trade or business . i. Section 39B of UPUPD Act, 1973 provides for imposition of license fee, on a private developer who has been authorized for assembly and development of land in the development area. j. Section 15 of UPUPO Act, 1973 provides for imposition of stacking fees from the general public who use authorities land for keeping building material. This activity is in the nature of trade as Authority gives the right to use of its land in consideration of a fee thereby attracting provisions of proviso to section 15. k. The assessee invests the surplus money in FDRs and other deposits like any regular businessman and earns Rs.18,95,22,200/- (schedule 14 of Annual Statement). This is a commercial activity which attracts the proviso to section 2(15). 4.6 So, from the discussion above it is clear that above activities of the assessee are in the nature of trade, commerce or business or they are rendering service in relation to trade, business or commerce. The perusal of balance sheet, Profit and loss account, Income and Expenditure account and report in form 1OB along with UP Urban Planning and Development Act, 1973, unequivocally suggests that the activities of the assessee were

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hit by newly introduced first proviso to section 2(15). The activities of the assessee are also aimed at earning profit, which is neither incidental nor by-product of assessee and the activities of purchase and sale of assessee makes it to be a commercial organization. It is pertinent to mention that Hon'ble ITAT, Amritsar Bench in its decision in the case of M/s Kapurthala Improvement Trust Vs CIT ITA No. 732/AMR./2013 dated 03.06.2015, has analyzed the scope of section 11. The relevant portion as per Para 14, 15 and 16 of the order of Hon'ble ITAT is reproduced as under:- 14. "It is thus clear that the impact of the proviso to Section 2(15) in the case of the appellant will be that, the assessee will not be eligible for exemption under section 11 of the Act. The mere fact that the assessee is granted registration under section 12 A or 12AA as a charitable institution will have no bearing on this denial of exemption u/s 11. As a corollary to this legal position, the fact that the objects of the assessee may be hit by the proviso to section 2(15) cannot have any bearing on the grant, denial or withdrawal of the registration under section 12AA. 15. It is also important to bear in mind the fact that in terms of the second proviso to Section 2(15), which was introduced by the Finance Act 2010 with retrospective effect from 1st April 2009, the legal proposition set out in first proviso to section 2(15) cannot come into play "if the aggregate value of the receipts from the activities referred to therein is twenty-five lakh rupees or less in the previous year". Clearly, therefore, in order that the benefits under section 11 are declined to the assessee on the ground that it is engaged in such activities as may be hit by the first proviso to Section 2(15), not only the assessee must be engaged in carrying out such activities as may hit the first proviso to Section 2(15) but also the receipts of the assessee from such activities must exceed a specified limit. The second limb of this disability clause needs to be satisfied with respect to each assessment year. Obviously, therefore, this aspect of the matter cannot be examined at the stage of the grant or withdrawal of registration since the registration exercise is a one time exercise and not something which must be done for each assessment year separately. That is precisely the reason, as noted in the Explanatory Memorandum, as to why the remedy for the activities being hit by the first proviso to Section 2(15) lies not in grant, decline or withdrawal of registration but in declining the benefits of exemption under section 11 on that count, on year to year basis, notwithstanding the status of registration.

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of the Government. it can be said that object/ activities of the assessee are more of commercialized nature and no charity is involved in it. At the time, if these facilities are not provided, then nobody will purchase a plot. It can be said that it is a means of attracting the people so that maximum people may apply for the same and the hidden cost is already added, so no charity is involved. At best, the assessee can be said to be an authority created to help it to achieve certain objects. It can be said that it is the duty of the Government to create I provide all these facilities; to public large, which is being done through an agency in a particular area. At the same time, the funds which are provided to the assessee by the Government is again a public money or generated from public itself. The objects of the assessee, though claimed to be charitable, but actually are of purely commercial nature where profit motive is involved. it is a known fact that the assessee is acquiring the land at very low prices and selling the same land on very higher rates and is earning profit there from. A new trend has also emerged that the assessee has started auctioning the plots by way of bidding at the market rate and sometimes more than that and charging interest on belated payments in such a situation, no charity is involved. Rather the assessee has converted itself into a big businessman. Similar development infrastructure facilities are also provided by private developers these days, them they will also claimed the status of a charitable institution. The facilities which are provided to the plot holders are incidental to the commercial activity carried out by the assessee and if certain facilities like parks, community centre. school are provided. It is not only basic requirement, rather a tool attracting the investors wherein the hidden cost of these facilities is already included. In the absence of these facilities. normally the purchaser may not invest and the prices may be less. In view of these facts. the assessees activities not being of charitable nature, the application of registration under section 12A been rightly rejected by Ld. CIT." 5.11 it is relevant to refer here to another decision of Hon'ble ITAT, Amritsar in the case of MIs Jammu Development Authority, Jammu ITA No. 30 (Asr)/2011dated 14.06.2012, which has been upheld by the Hon'ble High Court of Jammu & Kashmir in ITA No. 164/2012 dated 07.11.2013. This order of Hon'ble High Court of Jammu &Kashmir has been confirmed vide Hon'ble Supreme Court decision in Special Leave Petition in Appeal No. 4990/2014 vide order dated 24.07.2014 . 12 In view of the above judicial decisions, it is clear that the registration u/s 12A/ 12AA may be a necessary component but not sufficient condition for

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claiming exemption u/s 11 which is permissible only when the assessee fulfill the conditions as laid down in section 11 and section 13 of the Act. It is notable that the AO has plenary powers to examine the allowability of exemption under section 11 where the proviso to section 2(15) is attracted, even if the assessee has got registration u/s 12A before considering the benefit of exemption. As the assessee does not fulfill the criteria for 'charitable purpose', its activities, as discussed above cannot be regarded for charitable purposes, rather the same are in the nature of trade or commerce . 13 With regard to the nature of commercial activities stated aforesaid, my findings further get support from the provisions of section 13(8) of the Act, which in expressApart from the above, Hon'ble jurisdictional High Court has held vide its several pronouncements that the registration u/s 12A is no guarantee for exemption uls 11. The exemption uls 11 will depend upon the activities which are carried on in that particular year in the light of provisions of section 2(15) of the IT Act 5.15 Thus in substance, I am of the opinion that the entitlement of exemption u/s 11, after the amendment, can be examined by the AO and if during the course of assessment proceedings, it is found that the activities of the Trust/ Institution are in the nature of trade, commerce or business, the exemption u/s 11 can very well be denied by the AO. From the facts as involved in the instant appeal before me, it is very clear that the activities of appellant are wholly commercial and as such the benefit u/s 11 cannot be allowed. it is relevant to mention that In the assessee's appeals pertaining to AY 2009-10 and AY 2010-11, the identical issue was raised and disposed offby my predecessor in office, the CIT(Appeals)-II, Agra, by holding that the appellant is not entitled for the exemption u/s 11 of the Act.

5.16 As regards the issue at hand, while going through the appellant's authority's website, it is clearly borne out that the activities of the appellant are commercial in nature. The undernoted information as culled form the assessee's website sufficiently prove that the assessee's authority activities are of commercial in nature- "Agra Development Authority or ADA was formed by the government of Uttar Pradesh in order to meet the growing housing needs of the people of Agra and its nearby areas. The main aim of the Agra Development Authority was to reform the growing real estate business in the city. This has in turn resulted in complete transformation of the landscape of the city. With well-planned and

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organized development projects, the ADA Agra was successful in achieving a decent infrastructural set up for the city. Agra Development Authority Agra has provided a uniform structure to the constructions of residential flats, luxurious bungalows and duplexes. The ADA is not only engaged in building economical residential projects in Agra but also undertakes construction of commercial as well as office spaces, which will further help in boosting the Agra property market." 5.17 Thus it is clear from above that activities of the appellant are purely commercial in nature, and which is further established by accumulation of funds appearing in the assessee's balance sheet. Thus, while considering the legal and factual aspects of the assessee's case, I find myself in full agreement with the findings of my predecessor and hence no interference is called for in the order of AO on this issue. Thus, as a result, Ground Nos. 2 & 3 of assessee are dismissed.”

FINDINGS

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assessment year under consideration and the said activities are as follows:

“Point 10 – Violations of provisions of section 12A/12AA and Section 11. As per Section 2(15) of the Income Tax Act, 1961, following activities are included for ‘charitable purposes’: I. Relief of the poor II. Education III. Medical relief, and IV. the advancement of any other object of general public utility.

Moreover, proviso to section 2(15) states that “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.” Provided further that “the first proviso shall not apply if the aggregate value of the receiptsfrom the activities referred to therein is ten lakh rupees or less in the previous year.”

There are many activities which are in the nature of trade, commerce or business in which assessee was engaged and income earned during the concerned previous year from the said activities are as follows: (Amount in Lacs) A. Income from sale of plots/lands : Rs.998.43 B. Freehold Conversion Income : Rs.162.31 C. Interest Income from Installments : Rs.495.53 D. Development Charges : Rs.372.00 E. Building Plans Sanction Fees : Rs.29.42 F. Lease Rent : Rs.12.68 G. Building Rent : Rs.38.26 H. Intt. Income from FDR and Savings account: Rs.2516.16 I. Sale of Master Plan Book/Tender Form : Rs.451.63 J. Cycle/Scooter/Car Stand Charges : Rs.79.97 K. Income from Stamp Duty : Rs.1633.33 L. Misc. Income : Rs.66.73

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The above activities are in the nature of business activities and the same cannot be said to be for ‘charitable purposes’ within the meaning of Section 2(15) of the Income Tax Act, 1961. We have also given our specific comments on violation of provisions of Section 11 of the Act at point no. 1 above.” (page of 217-221of PB-4)

“ After examination of the activities of the assessee (appellant) and keeping in view the provisions of section 2(15) read with proviso, the Special Auditor has confirmed that the above activities are in the nature of business activities and the same cannot be said to be for charitable purpose within the meaning of section 2(15) of the Income-tax Act, 1961.”

assessing officer had submitted that these were intrinsically plea related to

the regulatory and development work assigned to the assessee by the Act

under which it was created and therefore these activities are charitable in

nature.

driven by profit earning and not at all related to the powers given to the

assessee under the Act to regulatory and development work. It was

submitted that assuming that some of the activities of the assessee,

are/were necessitated on account of discharge of the statutory duties, it

was submitted that the activities like lease rent, sale of masterplan, building

rent, car parking charges, and miscellaneous income cannot by any stretch

of reasoning were incidental to the activities of development and regulation

of the assessee. It was submitted that there was no first-degree nexus for

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doing these activities. It was submitted that the total receipt from these

activities, were far more than the threshold limit of 25 lakhs fixed by the act

and therefore the assessee is not entitled to the benefit of a charitable trust

/body under Income tax act.

objectionable by the special auditor as well as by the assessing officer

were reproduced herein above, we are duty-bound to examine all these

activities, for the purpose of ascertaining whether these activities were

having backing of law/U.P. URBAN PLANNING AND DEVELOPMENT

ACT 1973. ( herein after called as Development Act)

Income from sale of plots/land .

from sale of plots/land ,the assessee received an amount of Rs 9

98.43(lacs) during the year under consideration.Reading of section 17 and

18 of development act makes it abundantly clear that the assessee

authority which was created under the development act, was having power

to not only acquired the land but also having power to dispose of the land,

transfer it in such manner and on such conditions as it considered

expedient for securing the development of the development area. The

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assessee while exercising its powers under the said provisions had sold

the lands and plots to various person and have received the amount of Rs

998.43 lacs. Thus it is abundantly clear that the amount was received while

discharging the essential and integral function by the assessee authority

i.e. to acquire the land, development and then transfer/dispose of in the

manner provided by the act. The primary activity of the assessee is

acquisition of land and development of it and the inflow of the money is on

account of that. To say in other words the prime motive of the assessee for

selling the land/plots was not there as that of the developer but the prime

motive and purpose of the assessee was to develop the land after

acquiring it or without requiring it to fulfil the aims and objects of the

development act. The reasons for enactment of the development act are

reproduced herein above, for the sake of completeness, we, may mention

that the objects of the authority are to promote and security development of

the development area according to plan and for that purpose the authority

has power to acquire, hold, management dispose of the land and other

properties, to carry out building, engineering, mining and other operation

related to supply of water and electricity and disposal of sewage and to

provide and maintain other services and emeritus and generated to

necessary or expedient for purpose of such development and for purposes

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incident thereto.

duties as bestowed on it by the Act had acquired the land, made

development on it and carved out the plots and thereafter sold theland

/plots to various persons. Thus in our viewthe assessee was discharging a

statutory and sovereign function which are charitable in nature and

therefore we have no hesitation to hold that the selling of plots/land and receipt thereof was a charitable receipt. The Hon’ble Supreme Court, in the matter of Meerut development authority (2009)2 SCC (civ) 803 , had laid

down the principle for distributing/transferring of state largesse and held ,

the state is required to act fairly and try to get the highest price for plot/

land sold by it. In paragraph 37, 38 and 39 it was held as under:

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Stores vs. Indian Oil Corporation11, Sterling Computers Ltd. vs. M & N Publications12 and A.B. International Exports vs. State Corporation of India.13

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by the assessee by selling of plots/land was on account of the discharge of its

primary duties under the development act. Therefore the said activities are

charitable in nature. In our view , selling of plots/ land etc at market rate or by

auction would not disentitle the assessee of being Charitable for these activities, as

in our opinion it is duty of assessee(state) to ensure highestprice for state largesse

.( Meerut Development authority).

,Freehold conversion income, interest income from instalments,development

charges, building plan sanction fees, lease rent, income from stamp duty , Building

rent,Sale of masterplan book/tender form,Cycle/scooter/car stand charges

and Miscellaneous incomewere discharged by the assessee in accordance with

the objects of the Development Act 1973 and other statutory obligations , and

therefore we have no hesitation to hold that all these activities are charitable in

nature. These activities were undertaken by the assessee on account of the mandate

given to it to do generalize charitable activities for the planned development of the

city. These are regulatory and development activities which were done by the

assessee and the receipt of the revenue was on account of the said activities. The

predominant character of the activities continues to be that of the state and

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therefore the element of welfare and charity is inbuilt. In the light of the above we

hold that these activities also charitable in nature. At this stage we may refer to

section 18 of U.P Urban Planning & Development Act 1973 which

provides as under :

(1) Subject to any directions given by the State Government in this behalf, the Authority or, as the case may be, the local Authority concerned may dispose of any land acquired by the State Government and transferred to it, without undertaking or carrying out any development thereon; or any such land after undertaking or carrying out such development as it thinks fit.

to such persons, in such manner and subject to such terms and conditions as it considers expedient for securing the development of the development area according to plan. (2) Nothing in this Act shall be construed as enabling the Authority or the local Authority concerned to dispose of land by way of gift,(***) but subject thereto, references in this Act, to the disposal of land shall be construed as references to the disposal thereof in any manner, whether by way of sale, exchange or lease or by the creation of any easement, right or privilege or otherwise.

(7)The land so re-entered upon after forfeiture of lease may be disposed of in accordance with the provisions of Sub-sections (1) and (2)].

authorities entitled to transfer, dispose of and use the land in the manner provided

by the state government or in any other manner as deemed fit. In our considered

opinion, the giving of building on rent, parking space, sale of tender document for

the purpose of development etc are having direct nexus with the obligation of the

assessee under the act. The receipt of the amount on account of the above said

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activities are related to the statutory and state function of the assessee authority. In

our view the above said activities were undertaken by the assessee on account of

its obligation under the act and were done by the assessee keeping in mind the

welfare and interest of the citizen in mind. The said activities were undertaken by

the assessee without any discrimination and on the basis of the guidelines issued

by the state government and other authorities in this regard.

case of Jhansi Development Authority for the purposes of determining whether the

activity is done by the authorities like the assessee before us are charitable in

nature or not. In the said decision we held as under:

50 “ At this stage we may mention that the judgements relied upon by the revenue Chandigarh Lawn Tennis Association [2018] 95 taxmann.com 308 (Chandigarh - Trib.) is not applicable to the present case, asan authority created by the statute, cannot be equated with the private club or institution fulfilling its object. The objects of the state authority ( appellant ) are ofdevelopment of landetc( section 7) whereas that of Tennis association etc are to organize tournaments on commercial lines and earn revenue . Both are having different set of responsibilities,obligation, regulatory regime and purpose of discharging their duties . 51 Similarly the Judgment in the matter of Agra Development (supra), relied upon by the revenue is also not applicable ,as there was no finding of fact by the Court in this case rather , court in para 63 had recorded as under; “63. In our view, the Tribunal should have considered whether the registration could have been cancelled because the assessee was not pursuing a "charitable purpose". If the Tribunal found that the registration granted to the assessee was liable to be cancelled because it had not engaged in any activity in pursuance of "charitable purpose", then, the date from which such registration could be cancelled, would become relevant and be given effect to. At present, there is no finding of the Tribunal as to the merits of the matter.” ( emhasis supplied by us )

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There is no cavil, for the applicability to proviso to section 2 of the Act ,in case the revenue receipt from the such activities exceeded the threshold limit provided by the Act for the relevant assessment year, however, as mentioned herein above , the proviso is only applicable if the assessee is involved into trade, commerce or business not in any other case.

“ 2. By this appeal under section 260-A of the Income-tax Act, 1961 (hereinafter referred to as the "Act" for the sake of brevity) the appellant - Revenue has challenged the order dated 16-1-2020 passed by the Income-tax Appellate Tribunal, D Bench, Ahmedabad in ITA No. 2431/AHD/2017 for AY 2011-12. 6.1 The Division Bench after considering the catena of decisions on the subject, has further observed thus: 14. Considering the aforesaid facts and circumstances and more particularly, considering the fact that the assessee is a statutory body Urban Development Authority constituted under the provisions of the Act, constituted to carry out the object and

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purpose of Town Planning Act and collects regulatory fees for the object of the Acts; no services are rendered to any particular trade, commerce or business; whatever the income is earned/received by the assessee even while selling the plots (to the extent of 15% of the total area covered under the Town Planning Scheme) is required to be used only for the purpose to carry out the object and purpose of Town Planning Act and to meet with expenditure while providing general utility service to the public such as electricity, road, drainage, water etc. and even the entire control is with State Government and even accounts are also subjected to audit and there is no element of profiteering at all, the activities of the assessee cannot be said to be in the nature of trade, commerce and business and therefore, proviso to section 2(15) of the Act shall not be applicable so far as assessee is concerned and therefore, the assessee is entitled to exemption under section 11 of the Income-tax Act. Therefore, the question no. 1 is to be held in favour of the assessee and against the revenue. 1. Now, so far as another question which is posed for the consideration of this Court i.e. whether while collecting the cess or fees, activities of the assessee can be said to be rendering any services in relation to any trade, commerce or business is concerned, for the reasons stated above, merely because the assessee is collecting cess or fees which is regulatory in nature, the proviso to section 2(15) of the Act shall not be applicable. As observed herein above neither there is element of profiteering nor the same can be said to be in the nature of trade, commerce or business. At this stage, decision of the Division Bench of this Court in the case of Sabarmati Ashram Gaushala Trust (supra) is required to be referred to. In the case before the Division Bench, the assessee Trust Sabarmati Ashram Gaushala Trust was engaged in the activity of breeding milk cattle; to improve the quality of cows and oxen and other related activities. The Assessing Officer denied the exemption to the trust under section 11 of the Act on the ground that considerable income was generated from the activities of milk production and sale and therefore, considering the proviso to section 2(15) of the Act, the said Trust assessee was denied the exemption under section 11 of the Act. While holding that the activities of the assessee trust still can be said to be for charitable purpose within the meaning of section 2(15) of the Act and same cannot be said to be in the nature of trade, commerce or business for which proviso to section 2(15) of the Act is required to be applied. In para 6, 7, 8 and 12, it is observed and held as under: 7.The legal controversy in the present Tax Appeal centers around the first proviso. In the plain terms, the proviso provides for exclusion from the main object of the definition of the term Charitable purposes and applies only to cases of advancement of any other of general general public utility. If the conditions provided under the proviso are satisfied, any entity, even if involved in advancement of any other object of generalpublic utility by virtue to proviso, would be excluded from the definition of charitable trust. However, for the application of the proviso, what is necessary is that the entity should be involved in carrying on activities in the nature of trade, commerce or business, or any activity of rendering services in relation to any trade, commerce or business, for a cess or fee or any other consideration. In such a situation, the nature, use or application, or retention of income from such activities would not be relevant. Under the circumstances, the important elements of application of proviso are that the entity should be involved in carrying on the activities of any trade, commerce or business or

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any activities of rendering service in relation to any trade, commerce or business, for a cess or fee or any other consideration. Such statutory amendment was explained by the Finance Ministers speech in the Parliament. Relevant portion of which reads as under : I once again assure the House that genuine charitable organizations will not in any way be affected. 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 members would not be affected by the amendment and their activities would continue to be regarded as advancement of any other object of general public utility.

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such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of general public utility will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assessees, who claim that their object is charitable purpose within the meaning of section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business. 8. What thus emerges from the statutory provisions, as explained in the speech of Finance Minister and the CBDT Circular, is that the activity of a trust would be excluded from the term charitable purpose if it is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business for a cess, fee and/or any other consideration. It is not aimed at excluding the genuine charitable trusts of general public utility but is aimed at excluding activities in the nature of trade, commerce or business which are masked as charitable purpose. 12. All these were the objects of the general public utility and would squarely fall under section 2(15) of the Act. Profit making was neither the aim nor object of the Trust. It was not the principal activity. Merely because while carrying out the activities for the purpose of achieving the objects of the Trust, certain incidental surpluses were generated, would not render the activity in the nature of trade, commerce or business. As clarified by the CBDT in its Circular No. 11/2008 dated 19th December 2008 the proviso aims to attract those activities which are truly in the nature of trade, commerce or business but are carried out under the guise of activities in the nature of public utility. 15.1 Applying the aforesaid decision to the facts of the case on hand and the object and purpose for which the assessee is established/constituted under the provisions of the Gujarat Town Planning Act and collection of fees and cess is incidental to the object and purpose of the Act, even the case would not fall under second part of proviso to section 2(15) of the Act. 15.2 Considering the aforesaid facts and circumstances of the case, we are of opinion that the learned Tribunal has committed a grave error in holding the activities of the assessee in the nature of trade, commerce or business and consequently holding that the proviso to section 2(15) of the Act shall be applicable and therefore, the assessee is not entitled to exemption under section 11 of the Act. For the reasons stated above, it is held that the proviso to section 2(15) of the Act shall not be applicable so far as assessee AUDA is concerned and as the activities of the assessee can be said to be providing general public utility services, the assessee is entitled to exemption undersection 11 of the Act. Both the questions are therefore, answered in favour of the assessee and against the revenue.After considering the aforesaid decision, the Division Bench was pleased to allow the appeal filed by the respondent-assessee.

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“8. The Tribunal, inter alia by taking into account the provisions of the Act, has held that the primary and dominant object of the assessee is not profit making. It has further been held that income side of income and expenditure account shows that the main component of income of the assessee is derived in the form of interest of Rs. 131.17 crores and the interest of fixed deposits is Rs.120.90 crores. Therefore, there is no profit element in earning income as interest. It has also been noticed that the income of the assessee comprises of repairs and maintenance, administrative expenses, water and electricity charges, special and other charges, depreciation. It has also been held by the Tribunal that the assessee has been established to promote rapid and orderly development of industries in the State and to assist in implementation of the policy of the Government within the purview of the KIAD Act, to facilitate in establishing infrastructure projects and to function on 'No Profit-No Loss' basis. It has also been held that the State Government acquires the land for the scheme of the assessee and hand over the same to the assessee after the acquisition for the development of the industrial area. The Tribunal has further held that the profit making is not the driving force or objective of the assessee. The Tribunal has therefore, recorded the conclusion that theassessee is engaged in the charitable activity through advancement of an object of general public utility and therefore, has concluded that the Proviso to section 2(15) of the Act is not applicable to the case of the assessee and has further held that the assessee is entitled to benefit of Section 11 of the Act. It has also been noticed that the Assessing officer has not disputed that the assessee fulfills the conditions, which is necessary for allowing the exemption of the deductions applicable under the Act except Proviso to Section 2(15) of the Act. Thus, the Tribunal has held that the Proviso to section 2(15) of the Act is not applicable to the case of the assessee. 9. The order passed by the Tribunal, in our considered opinion, is based on the meticulous appreciation of materials on record and by no stretch of imagination can be said to be perverse. The issue with regard to the perversity is not raised on behalf of the revenue. Besides that, in case of various statutory bodies, the different High Courts have taken a similar view, namely, in the cases (a) to (f) stated (supra)that which we respectfully agree. In view of the said enunciation of law, substantial question of law, which has been framed by this Court, is answered in the negative and against the revenue.” 56.It is the settled proposition of law that the when two views arepossible, the view favorable to assessee should be followed . Hence respectfully Following the decision of the Gujrat High Court

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in the matter of. SUDA (supra) and in the matter Karnataka Industrial Area Development Board 2020] 121 taxmann.com 88 (Karnataka), we allow Ground no.3 of the appeal of the assessee .

matter of JHANSI DEVELOPMENT AUTHORITY ( supra) we hold that the

assessee activities like Income from sale of plots/ lands ,Freehold conversion

income, interest income from instalments, development charges, building plan

sanction fees, lease rent , income from stamp duty , Building rent, Sale of

masterplan book/tender form, Cycle/scooter/car stand charges and

Miscellaneous incomewere discharged by the assessee in accordance with the

objects of the Development Act 1973 and other statutory obligations , and

therefore we have no hesitation to hold that all these activities are charitable in

nature.The activities of the assessee in receipt of amount from such activities

cannot be examined in isolation, as the assessee was propelled to do all these

activities under the statutory obligation under Development Act 1973 and therefore

even if there is receipt more than the threshold limit, then also these activities

which were driven by the Development Act, 1973 cannot be held to be in the

nature of trade commerce or business.

Development authority, NOIDA development authority etc , which are discharging

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the similar functions as that of the assessee and were created under the

Development Act 1973, wereheld to be entitled for deduction under Section 11 the

Income Tax Act by ITAT, Delhi. In the light of the above we are of the opinion

that the assessee is also entitled to deduction under section 11 of the Income Tax

Act for the activities mentioned hereinabove.

Sd/- Sd/- (Dr. Mitha Lal Meena) (Laliet Kumar) Accountant Member Judicial member Copy of order forwarded to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order

Sr. Private Secretary Income Tax Appellate Tribunal Agra Bench, Agra