THE DY. COMMR. OF INCOME TAX, (EXEMPTION) CIRCLE-2,, AHMEDABAD vs. JAMNAGAR AREA DEVELOPMENT AUTHORITY, JAMNAGAR

आदेश/O R D E R

PER PRADIP KUMAR KEDIA - AM:

The captioned appeals filed at the instance of Revenue arise from the respective orders of the Commissioner of Income Tax (Appeals) (‘CIT(A)’) against respective assessment orders for different assessment years as tabulated below:

ITA Nos. 2425 to 2428/Ahd/17 [Jamnagar Area Development Authority] - 2 -

ITA Nos. Name of AY CIT(A)’s AO’s AO’s order assessee order order under Section dated dated 2425/Ahd/17 Jamnagar 2009-10 21.08.2017 28.12.2016 143(3) r.w.s. Area 147 of the Development Income Tax Authority Act, 1961 (‘the Act’) -Do- 2426/Ahd/17 -Do- 2010-11 -Do- -Do- -Do- 2427/Ahd/17 -Do- 2011-12 -Do- 143(3) r.w.s 263 of the Act 2428/Ahd/2017 -Do- 2014-15 -Do- -Do- 143(3) of the Act

ITA No. 2425/Ahd/2017-AY-2009-10

“1. The Ld. CITCA) has erred in the law and on facts in considering the activity of the assessee as engaged in the development of urban area of Jamnagar which is in the nature of advancement of general public utility not hit by the newly introduced first and second proviso to sec.2(15)of the Act.

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that amount which the assessee has received for the discharge of its objects. 5. The Ld CIT(A) has erred in the law and on facts in allowing the accumulation of Rs.79,11,578/- u/s.11(2) and accumulation @15% of Rs.59,04,481/- u/s11(1)(a) of the Act without appreciating the fact that once the proviso to section 2(15) is applicable, the benefit of section 11 & 12 cannot be allowed further.”

5.1 The main purpose of forming the said Act was for setting up an authority for planning, coordinating and supervising for proper, orderly and rapid development of the areas in various region and for executing plans, projects and schemes for such development and to provide for the matters connected therewith, so that housing, community facilities, civil amenities and other infrastructural facilities are created. Having constituted to achieve the above objects, the authority performs in the area of urban renewal, environment and ecology directly or through its functional boards and it is not only engaged in planning the urban area with master development plan and zonal development plan but also sanction projects and schemes for development. In fact, the authority is a tool of the State government for coordinated and planned development in a particular region. The authority also carries out work relating to construction of roads, sewerage, parks, play grounds, provide plots for educational, health and cultural institution for over all development of the community. The revenue generated through these activities is also finally utilized for the benefit of the public and while performing these activities, the intention of the authority is not to earn profit but recover the cost of the establishment as well as other expenditure to implement its objects.

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5.2 It was also stated that the authority has been granted registration u/s. 12A by the Commissioner of Income Tax, Jamnagar vide number CIT.J/Tech/12A(a)/66/2003-04/3484 on 17.03.2005.

5.3 The authority undertakes the following activities: • Preparation of development plans under the provisions of the Act for the development of area • Preparation and execution of town planning schemes under the provisions of the Act if so directed by the State Government • Carrying out surveys in the development area for the preparation of development plans or Town Planning Schemes • To levy and collect such fees for scrutiny of documents submitted to the appropriate authority for permission for development as may be prescribed by the Regulations. • To execute works in connection with supply of water, disposal of sewage and provision of other services and amenities • To levy and collect such fees for execution of works and for provision of other services and amenities as may be prescribed by regulation • To perform such other functions as are supplemental, incidental or consequential to the activities as mentioned hereinabove.

5.4 The AO while framing the assessment held that the nature of activity of authority is towards advancement of objects of general public utility and the same is in the nature of trade, commerce or business. As a sequel to such observations, the AO held that the activity of the assessee does not fall within the sweep of definition of ‘charitable purpose’ as defined under s.2(15) of the Act in view of the proviso to Section 2(15) of the Act. The AO accordingly denied the benefit of exemption under s.11 of the Act on the profits generated by the assessee authority and carried disallowances of benefits claimed by assessee under s.11(2)/11(1)(a) of the Act towards accumulations etc.

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“5.2 I have carefully considered rival contentions and observations made by the A.O. in the assessment order. The main issue raised by the appellant is covered by the latest judgment of Hon'ble Gujarat High Court in the case of AUDA vs ACIT in ITA No 423, 424, 425 of 2016 dated 02/05/2017. The question of law before the Hon'ble High Court was as follows :- "(1 Whether the Income tax Appellate Tribunal has erred in law and on facts in holding that the activity of the appellant was in the nature of trade, commerce or business and hence it cannot be regarded as activity for charitable purpose in view of the proviso to section 2(15) of the Income tax Act, 1961? (2) Whether the Income tax Appellate Tribunal has erred in law and on facts in disallowing the claim of exemption of the appellant under section 11 of the Income tax Act, 1961, and assessing the income of the appellant under sections 28 to 44 of the Income tax Act, 1961?" Findings of Hon'ble Gujarat High Court: 10. The short hut interesting question of law posed for the consideration of this Court in the present appeal is whether the activities of the of the Assessee AUDA can be said to be in the nature of trade, commerce or business so as to deny the status of the assessee as a charitable institution within the definition of Section 2(15) of the Act? The second question which is posed for the consideration of this Court is whether the activity of the assesses can be said to be activity of rendering any service in relation to any trade, commerce or business, for cess or fees or any other consideration, as the assessee is collecting / recovering fees by performing duty under the provision of Gujarat Town Planning Act and therefore, whether second part of the proviso to Section 2(15) of the Act shall be applicable so as to deny the exemption claimed by the assesses, claim under Section 11 of the Act? 11. While considering the aforesaid questions, the relevant provisions of the Gujarat Town Planning Act, under which, the Assessee has been constituted as Urban Development Authority and powers and functions of the Assesses as an Urban Development Authority are required to be considered, so as to appreciate whether the activities of the Assessed being Urban Development Authority can be said to be in the nature of trade, commerce or business ?

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The relevant provisions of the Gujarat Town Planning Act, under which, the Assesses AUDA has been constituted as Urban Development Authority are as under:

Section 2(viii): "Development", with all its grammatical variations and cognate expressions, means the carrying out of any building, engineering, mining, or other operations in, or over, or under land or the making of any material change in any building or land or in the use of any building or land, and includes layout and subdivision of any land; Section 2(xxviii):"Urban development authority" means an urban development authority constituted under section 22; Section 2(xxix):"Urban development area" means an area declared to be an urban development area under section 22. Section 22: Declaration Of Urban Development Area And Constitution Of Urban Development Authority: (1) Where the State Government is of opinion that the object of proper development or redevelopment of any urban area or group of urban areas in the State together with such adjacent areas as may be considered necessary, whether covered under a development area already declared as such under section 3 or not, will be best served by entrusting the work of development or redevelopment thereof to a special authority, instead of to an area development authority, the State Government may, by notification, declare such area to be an urban development area and constitute an authority for such area to be called the urban development authority of that area, and thereupon all the powers and functions of an area development authority relating to the development or redevelopment of a development area under this Act shall, in relation to such urban development area, be exercised and performed by such urban development authority 1"" (2) Every notification issued under subsection (1) shall define the limits of the area to which it relates. 2[(2A) The State Government may, by notification in the Official Gazette, include in or exclude any area from an urban development area, amalgamate two or more urban development areas into one urban development area, subdivide any urban development area into different urban development areas and include such subdivided urban development area in any other urban development area.]

(3) Every urban development authority constituted under subsection (1) shall be a body corporate by the name aforesaid, having perpetual succession and a common seal, with power to acquire, hold and dispose of property, both movable and immovable, and to contract, and by the said name sue and be sued. (1) The urban development authority shall consist of the following members namely: (i) a Chairman to be appointed by the State Government; (ii) such persons, not exceeding 3 [four in number] who are members of the local authority or authorities functioning in the urban development area, as may be nominated by the State

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Government: (iii)4[Three officials] of the State Government, to be nominated by that Government, exofficio; (iv) the Presidents of the district panchayats functioning in the urban development area, or, as the case may be, part thereof, exofficio: (v) the Chief Town planner or his representative, exofficio: (vi) the Chief Engineer or Engineers (Public Health) of the local authority or authorities functioning in the urban development area or his or their nominee or nominees, exofficio: 5[(via) the Municipal Commissioner of the Municipal Corporation, if any, functioning in the urban development area, exofficio:] (vii) a member secretary to be appointed by the State Government who shall also be designated as the Chief Executive Authority of the Urban Development Authority. (5) The provisions of subsections (5) to (12) of section 5 shall apply in relation to an urban development authority as they apply in relation to an area development authority, with the modification that references to an area development authority in the said subsection shall be construed as references to an urban development authority.

Section 23. Powers And Function Of Urban Development Authority: (1) [The powers and functions of] an urban development authority shall be:(i) To undertake the preparation of development plans under the provisions of this Act, for the urban development area: (H) To undertake the preparation [and execution] of town planning schemes under the provisions of this Act, if so directed by the State Government: (Hi) To carry out surveys in the urban development area for the preparation of development plans or town planning schemes: (iv) To guide, direct and assist the local authority or authorities and other statutory authorities functioning in the urban development area in matters pertaining to the planning, development and use of urban land, (v) To control the development activities in accordance with the development plan in the urban development area: 3 [(va) to levy and collect such security fees for scrutiny of documents submitted to the appropriate authority for permission for development as may be prescribed by regulations;] (vi) To execute works in connection with supply of water, disposal of sewerage and provision of other services and amenities: 4 [(via) to levy and collect such fees for the execution of works referred to in clause (vi) and for provision of other services and amenities as may be prescribed by regulations;] (vii) To acquire, hold, manage and dispose of property, movable or immovable, as it may deem necessary; (viii) To enter into contracts, agreements or arrangements, with any local authority, person or organisation as the urban development authority may consider necessary for performing its functions; (ix) To carry any development works in the urban development area as may be assigned to it by the State Government from time to time; (x) To exercise such other powers and perform such other functions as are supplemental, incidental or consequential to any of the foregoing powers and functions or as may be directed by the State Government. (2) The urban development authority may. with the approval of the State Government, delegate 5 [any of its powers and functions] to the local authority or authorities functioning in the urban development area.

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(3) The urban development authority shall have its office at such place as the State Government may specify in this behalf. Section 40 Making And Contents Of A Town Planning Scheme : (1) Subject to the provision of this Act or any other law for the time being in force, the appropriate authority may make one or more town planning schemes for the development area or any part thereof, regard being had to the proposals in the final development plan,if any. (2) A town planning scheme may be made in accordance with the provisions of this Act in respect of any land which is(i) In the course of development; 1 [(ii) likely to be used for residential or commercial or industrial or for building purposes; or] (iii) Already built upon. Explanation: For the purpose of this subsection the expression "land likely to be used for building purposes" shall include any land likely to be used as, or for the purpose of providing, open spaces, roads, streets, parks, pleasure or recreation grounds, parking spaces or for the purpose of executing any work upon or under the land incidental to 3 town planning scheme, whether in the nature of a building work or not.

(3) A town planning scheme may make provision for any of the following matters, namely:(a) The laying out or relaying out of land, either vacant or already built upon; (b) The filling up or reclamation of low lying, swampy or unhealthy areas, or levelling up of land; (c) Layout of new streets or roads, construction, diversion, extension, alteration, improvement and closing up of streets and roads and discontinuance of communications; (d) The construction, alteration and removal of buildings, bridges and other structures; (e) The allotment or reservation of/and for roads, open spaces, gardens, recreation grounds, schools, markets, greenbelts, dairies, transport facilities, public purposes of a/I kinds; (f) Drainage, inclusive of sewerage, surface or subsoil drainage and sewage disposal; (g) Lighting; (h) Water supply; (i) The preservation of objects of historical or national interest or natural beauty, and of buildings actually used for religious purposes; (J) The reservation of land to the extent of ten per cent, or such percentage as near thereto as possible of the total area covered under the scheme, for the purpose of providing housing accommodation to the members of socially and economically backward classes of people; 2 [3 [(jj) (a) the allotment of land from the total area covered under the scheme, to the extent of.(i) Fifteen per cent, for roads, (ii) five per cent, for parks, play grounds, gardens and open space, (iii) five per cent, for social infrastructure such as school, dispensary, fire brigade, public utility place as earmarked in the Draft Town Planning Scheme, and (iv) fifteen per cent- for sale by appropriate authority for residential, commercial or industrial use depending upon the nature of development: Provided that the percentage of the allotment of land specified in paragraphs (i) to (Hi) may be altered depending upon the nature of development and for the reasons to be recorded in writing; (b) the proceeds from the sale of land referred to in para (iv) of sub clause (a) shall be used for the purpose of providing infrastructure facilities; (c) the land allotted for the purposes referred to in paragraphs (ii) and (Hi) of sub clause (a)

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shall not be changed by variation of schemes for the purposes other than public purpose;]] (k) the imposition of conditions and restrictions in regard to the open space to be maintained around buildings, the percentage of building area for a plot, the number, size, height and character of building allowed in specified areas, the purposes to which buildings or specified areas may or may not be appropriated. the subdivision of plots, the discontinuance of objectionable uses of lands in any area in specified periods, parkings space and loading and unloading space for any building and the sizes or locations of projections and advertisement signs; (I) the suspension, so far as may be necessary, for the proper carrying out of the scheme, of any rule, byelaw, regulation, notification or order mode or issued under any Act of the State Legislature or any of the Acts which the State Legislature is competent to amend: Provided that any suspension under this clause shall cease to operate in the event of the State Government refusing to sanction the preliminary scheme, or in the event of the withdrawal of the scheme under section 66, or on the coming into force of the final scheme; (m) such other matters not inconsistent with the objects of this Act as may be prescribed.

Section 91: Fund Of The Appropriate Authority : (1) An appropriate authority shall have and maintain its own fund to which shall be credited(a) All moneys received by the authority by way of grants, loans, 1 [advances, fees, development charges or otherwise:} (b) All moneys derived from its undertakings, projections and other sources; fc) Such amount of contributions from local authorities as the State government may specify from time to time to be credited to the fund of the authority. (2) The fund of an appropriate authority shall be applied towards meeting (a) Expenditure incurred in the administration of this Act; (b) Cost of acquisition of land for the purposes of this Act; (c) Expenditure for any development of land in the development area; (d) Expenditure for such other purposes as the State Government may direct. (3) An appropriate authority may keep in current account with the State Bank" of India or any other bank approved by the Slate Government in this behalf, such sums of money out of its fund as may be prescribed and any money in excess of the said sum shall be invested in such manner as may be approved by the State Government. (4) The State Government may. make such grants, advances and loans to an appropriate authority as !he State Government may deem necessary for the performance of its functions under this Act and all grants, loans and advances so made shall be made on such terms and conditions as the State Government may determine.

Section 55:Accounts And Audit: (1) An appropriate authority shall maintain proper accounts and other relevant records and prepare an annual statement of accounts including the balance sheet in such form as the State Government may proscribe. (2) The accounts of an appropriate authority shall be subject to audit annually by the Accountant Genera! of the State and any expenditure incurred by him in connection with such audit

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shall be payable by the authority to the Accountant General. (3) The Accountant General or any person appointed by him in connection with the audit of accounts of an appropriate authority shall have the same rights, privileges and authority in connection with such audit as the Accountant Genera! has in connection with Government accounts and in particular shall have the right to demand the production of books, accounts, connected vouchers and other documents and papers and to inspect the office of the appropriate authority. (4) The accounts of an authority as certified by the Accountant General or any other person authorised by him in this behalf, together with the audit report thereon, shall be forwarded annually to the State Government.

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the scheme are allotted earmarked. Fifteen percent of total area is allotted for the purpose of roads, five percent for parks, play grounds, gardens and open space, five percent for social infrastructure such as school, dispensary, fire brigade, public utility place as earmarked in the Draft Town Planning Scheme and Fifteen percent for sale by appropriate authority for residential, commercial or industrial use depending upon the nature of development. Last Fifteen percent is earmarked under the Town Planning Scheme for sale, by appropriate authority for residential, commercial or industrial use. The appropriate authority / Urban Development Authority is permitted to sale the said plots / lands to the extent of 15% of the total area to meet with the expenditure towards drainage, roads, gardens, schools, markets, water supply etc. So that maximum price can be fetched and the same can be utilized for the development of the Urban Development Area and so as to avoid any allegation of favoritism and nepotism, the plots are sold by public auction it is required to be noted the entire amount realized by the assessee being Urban Development Authority either by selling plots or by recovery of some fees / charges, Urban Authority is required to use only for the purpose of development in the Urban Development Area and not for any other purpose. The learned Tribunal has observed and held that as the assessee is selling the plots, to the extent of 15% of total area, by public auction and gets maximum amount, it amounts to profiteering and therefore, the activities of the -Assesses can be said to be in the nature of business. However, while holding so, learned Tribunal has not properly appreciated the object and purpose of permitting the Urban Development Authority to sale the plots, maximum to the extent of 15% of the total area i.e. to meet with the expenditure for providing them infrastructural facilities like gardens, roads, lighting, water supply, drainage system etc. The learned Tribunal has also not properly appreciated the reasons for selling the plot by holding public auction i.e.; (1) to avoid any further allegation of favoritism and nepotism and (2) so that maximum market price can be fetched, which can be used for the development of the Urban Development Area.

12.1. At this stage decision of the Hon'ble Supreme Court in the case of Ahmedabad Green Belt Khedut Manrial (supra) ((2014) 7 SCO 357) is required to be referred to. Before the Hon'ble Supreme Court, it was contended on behalf of original land owners whose lands were included in the TP Scheme that by permitting the Area Development Authority / Urban Development Authority to sell 15% of the total area, by that the Urban Development Authority will be making profit, the Hon'ble Supreme Court has negatived the aforesaid and has observed that the activities of the Urban Development Authority / Area Development Authority while selling the land to the extent of 15% to the total area covered under the scheme cannot be said to be profiteering. It is observed and held that sale upto 15% is from total area covered under the scheme and not in respect of every plot of land. In order to generate financial resources for the development of infrastructure, the salable plot for residential, commercial and industrial use are allotted by the appropriate authority. It is further observed that the provision of the Act have to be read as a whole and therefore, the provision of

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Section 40(3)(jj)(a)(iv) for sale is to be in consonance / conjointly with other statutory provisions and not in isolation. Under the circumstances, the learned Tribunal has committed gross error in considering the activities of the appellant Urban Development Authority for profit by selling 15% of the total area and thereby has committed gross error in holding the activities of the assessee in the nature of trade, commerce or business.

12.2 Whether the activities of the appellant AUDA can be said to be in the nature of trade, commerce or business as occurring in the first proviso to Section 2(15) of the Act, few decisions of the Hon'ble Supreme Court as well as other High Courts are required to be referred to at this stage. 12.3. In the case of Khoday Distilleries Ltd and Others vs. State of Karnataka and others reported in (1995) 1 SCC 574, the Hon'ble Supreme Court had an occasion to consider the word "trade". In the said decision, the Hon'ble Supreme Court has held that "the primary meaning of the word "trade" is the exchange of goods for goods or goods for money".

12.4. In the case of State of Andhra Pradesh vs. Abdul Bakhi and Bros reported in 1964(5) STC 644 (SC) while considering the word "business", the Hon'ble Supreme Court has held that "the word "business" was of indefinite import and in a taxing statute, it is used in sense of an occupation, or profession which occupies time, attention or labour of a person, and is clearly associated with the object of marking profit".

12.5 In the case of Institute of Chartered Accountants of India (supra) while considering the whether activities of Indian Trade promotion organization can be said to be in the nature of "business", despite the fact that the said organization was collecting rent for providing the space at trade, fair and exhibitions and though was receiving income by way of sale of tickets and income from tickets and sale in Pragati Maidan etc., after considering the various decisions of the Hon'ble Supreme Court as well as decisions of the other High Courts, it is held that activities of the said organization cannot be considered as "business". While holding so, Delhi High Court has observed and 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 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. "

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12.6. In the aforesaid decision, after considering the decision of the Hon'ble Supreme Court in the case of Commissioner of Sales Tax vs. Sai Publication Fund reported in (2002) 258 ITR 70(SC), it is held by the Delhi High Court that "thus, if the dominant activity of the assessee was not business, then any incidental or ancillary activity would also not tall within the definition of business." In para 64, 67, 69, 70, 71 and 72 the Delhi High Court has observer and held as under:

"64. It is not necessary that a person should give something for free or at a concessional rate to qualify as being established for a charitable purpose. If the object and purpose of the institution is charitable, the fact that the institution collects certain charges, does not alter the character of the institution.

Charitable purpose includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under charitable purpose. Obviously, this was not the intention of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected.' 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.

The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where profit making is the predominant

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object of the activity, the purpose, though an object of general public utility would cease to be a charitable purpose. But where the predominant object of the activity is to any out the charitable/e purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity.'

The expression "business" though extensively used a word of indefinite import, in taxing statutes it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure. (Underlining added)

12.7. Identical question came to be considered by the Delhi High Court, in the case of Bureau of India Standard vs. Director General of Income Tax (Exemptions) reported in (2013) 212 Taxman 210 (Delhi). In the said decision, the Delhi High Court was considering whether the activities of the Bureau of Indian Standards (supra) in granting licenses and trading certificates and charging amounted to carrying on business, trade or commerce and while considering the said question, it is observed as under:

" In these circumstances, rendering any service in relation to trade, commerce or business cannot, in the opinion of the Court, receive

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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 coercive powers, including inspection, raids; they possess search and seizure powers and are invariably subjected to Parliamentary or legislative oversight. The primary object for setting up such regulatory bodies would be to ensure general public utility. The prescribing of standards, and enforcing those standards, through accreditation and continuing supervision through inspection etc.. cannot be considered as trade, business or commercial activity, merely because the testing procedures, or accreditation involves charging of such fees, it cannot be said that the public utility activity of evolving, prescribing and enforcing standards, involves the carrying on of trade or commercial activity." 12.8. Circular No. 11 of 2008 issued by the CBDT felt for consideration by the Delhi High Court in the case of M/s G.S. 1 India v. Director General of Incometax (Exemption) and Another : WP(C) 7797/2009. decided on 26.09.2013 (2013) 219 Taxman 205. It is held that even as per the said circular, proviso to Section 2(15) of the Act is applicable to assessee, 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'. Thus, it is evident that introduction of 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 is 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.

In the case of M/s G.S. 1 India (Supra), in para 21, 22 and 27, the Delhi High Court has observed and held as under

"21. ... As observed above, legal terms, trade, commerce or business in Section 2(15), mean activity undertaken with a view to make or earn profit. Profit motive is determinative and. a critical factor to discern whether an activity is business, trade or commerce. The court further held:-

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but it is not equivalent to self sacrifice and abnegation. The antiquated definition of charity, which entails giving and receiving nothing in return is outdated. A mandatory feature would be; charitable activity should be devoid of selfishness or illiberal spirit. Enrichment of oneself or self gain should be missing and the predominant purpose of the activity WP(C) 1872/13 Page 52 of 55 should be to serve and benefit others. A small contribution by way of fee that the beneficiary pays would not convert charitable activity into business, commerce or trade in the absence of contrary evidence. Quantum of fee charged, economic status of the beneficiaries who pay, commercial value of benefits in comparison to the fee. purpose and object behind the fee etc. are several factors which will decide the seminal question, is it business?

"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 fowl of the principle of equality enshrined in Article 14 of the Constitution 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 purposes 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

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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 WP(C) 1872/13 Page 54 of 55 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."

13.1. In the case of Lucknow Development Authority, Gomti Nagar (supra), it is held by the Allahabad High Court that the activities of the authority cannot be said to be in the nature of trade, commerce or business and / or profiteering and therefore, proviso to Section 2(15) of the Act shall not be applicable.

13.2. Similar, view has been expressed by the Rajasthan High Court in the case of Commissioner of Income Tax, Jodhpur vs. Jodhpur Development Authority, Jodhpur Tax Appeal No. 63 of 2012 decided on 5.7.2016.

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even accounts are also subjected to audit and there is no element of profiteering at all, the activities of the assesses 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 assesses 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.

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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 us advancement of any other object of general public utility.

3.1 There ore industry and trade associations who claim exemption from tax under section 11 on the ground that their objects are for charitable purpose as these are covered under any other object of general public utility. Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between the contributors and the participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2 (15) owing to the principle of mutuality. However, if such organizations have dealings with nonmembers, their claim to be chargeable organizations would now be governed by the additional conditions stipulated in the proviso to section 2 (15).

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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 assesses 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.

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 ho/ding 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 masons stated above, it is held that the

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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 under Section 11 of the Act Both the questions are therefore, answered in favour of the assessee and against the revenue.

5.3 Both, i.e. the appellant and AUDA are constituted as Authorities under the Gujarat Town Planning and Urban Development Act, 1976. The powers and functions of both the authorities have been laid down under the said Act and are identical in nature. Nowhere in the order of assessment the AO pointed out that the appellant has undertaken functions beyond the mandate of Gujarat Town Planning and Urban Development Act. The appellant is a registered u/s 12A of the IT Act. Therefore as held by Hon'ble Gujarat H.C. in decision quoted above, the appellant cannot be considered to covered by the proviso to section 2(15) of the Act. Thus AO cannot withdraw the claim of exemption by invoking proviso to section 2(15) r w.s. 13(8) of the Act. The corollary is that the appellant cannot be assessed u/s 28 to 44 of the Act.

5.4 Although hon'ble High Court of Gujarat has denied applicability of provisions of proviso to section 2(15) r.w.s. 13(8) to the appellant, the AO needs to be careful while computing the income of the appellant. There are issues with regard to maintenance of accounts and the appellant has treated the various grants received by it. There are issues with regard (a) to claim of accumulation@ 15% u/s 11(1)(a) of the Act; (b) to claim u/s 11(1)(d) of the act; (c) to claim of correct rate of depreciation; (d) to claim of income receipts being reflected in the balance sheet; (e) to claim of application of income from project specific grants, (f) to claim of capital expenses as application of income etc. As certain grounds of appeal pertain to these issues, the relevant discussion in subsequent paras has been made. 5.5 With reference to treatment of specific project grants, Hon'ble High Court of Delhi has held in the case of DIT vs Society for Development Alternatives 18 taxman.com 364 that grants with specific directions from the Govt. cannot be treated as income. These grants will have to be spent as per the conditions and purpose laid down by the donor. As per sec.12(1) any voluntary contribution received by a trust/institutions created fully for charitable or religious purpose shall for purposes of sec. 11 be deemed to be income derived from property held by said trust/institutions and sec.13 shall apply accordingly. However Sec.12(1) has made an exception to the voluntary contributions as deemed income of the trust or institution if such contribution has been made with a specific direction Further sec.11(1)(a) states: '(a) Income derived from properly held under trust wholly for charitable or religious purpose, to the extent to which such income is applied to such purposes in India and whom &ny such income is accumulated or set apart for application to such purpose in India, to the extent to which the income so accumulated or set apart is not in excess of 15% of the income from such property.' Further sec.11(1)(d) states that '(d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution'. It can be seen from the combined reading of sec.11(1)(a) and 11(1)(d) as well as sec.12(1) that the grants given for the specific purpose cannot be considered as income in the form of voluntary

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donation and are eligible for deduction u/s,11(1)(d). Thus, such specific project grants cannot be considered as income derived from the property held under the trust u/s.11(1)(a). Such projects specific grants cannot be used by the trust/institution freely towards the objects of the trust Such trusts/institutions have to act as a trustee of a special fund granted by the donor and hence it cannot be pooled or integrated with its normal income or the corpus created by the trusts. (Nirmal Agricultural Society vs ITO 71 ITD 152 (Hyd.). The incoming and outgoing from such tied up grants cannot be reflected in the income and expenditure account of trusts/institutions. In the case of CIT vs Sthanakwasi Vardhman Vanik Jain Sangh 151 Taxman 270 Hon'ble Gujarat High Court has held that contribution received by the assessee trust towards construction of wadi for caste people would form part of corpus of trust and therefore would not be treated as income of assessee trust. It further held that on the plain reading of sec.12, any voluntary contribution made with a specific direction would not be deemed to be income derived from property held under trust wholly for charitable or religious purpose. In the case of DIT vs Sri Ramakrishna Seva Ashram 18 Taxman.com 37 (Kar.) it was held that donation for specific project shall be treated as corpus donation and the 85% application condition shall not apply. It was held that the word 'corpus' is used in the context of the Act. Therefore, it any voluntary contribution is made with a specific direction, it shall be treated as the capital of the trust for carrying on its charitable or religious activities, then such an income falls u/s.11(1)(d) and is not liable to tax. In many other cases various High Courts have held that any receipt of capital nature cannot be treated as income and hence it was outside the purview of sec 12. 5.6 It would be pertinent here to refer to Accounting Standard (AS) 12 that deals with the accounting for Govt. Grants. According to the clause-4 AS-12 the receipt of Govt. Grants by an enterprise is significant tor preparation of the financial statements for two reasons. Firstly, if the Govt. Grant has been received an appropriate method of accounting therefore is necessary. Secondly, it is desirable to give an indication to the extent to which the enterprise has benefitted from such grant during the reporting period. Para-5 of AS-12 deals with the treatment of Govt. Grants, It is reproduced below for the sake of convenience :- "Accounting Treatment of Government Grants 5. Capital Approach versus Income Approach 5.1 Two broad approaches may be followed for the accounting treatment of government grants: the 'capital approach', under which a grant is treated as part of shareholders' funds, and the 'income approach', under which a grant is taken to income over one or more periods. 5.2 Those in support of the 'capital approach' argue as follows: (i) Many government grants are in the nature of promoters' contribution, i.e., they are given with reference to the total investment in an undertaking or by way of contribution towards its total capital outlay and no repayment is ordinarily expected in the case of such grants. These should, therefore, be credited directly to shareholders' funds, (ii) It is inappropriate to recognise government grants in the profit and loss statement, since they are not earned but represent an incentive provided by government without related costs.

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5.3 Arguments in support of the 'income approach' are as follows: (i) Government grants are rarely gratuitous. The enterprise earns them through compliance with their conditions and meeting the envisaged obligations. They should therefore be taken to income and matched with the associated costs which the grant is intended to compensate, (ii) As income tax and other faxes are charges against income, it is logical to deal also with government grants, which are an extension of fiscal policies, in the profit and loss statement (Hi) In r.nse grants are credited to shareholders' funds, no correlation is done between the accounting treatment of the grant and the accounting treatment of the expenditure to which the grant relates. 5.4 It is generally considered appropriate that accounting for government grant should be based on the nature of the relevant grant. Grants which have the characteristics similar to those of promoters' contribution should be treated as part of shareholders' funds. Income approach may be more appropriate in the case of other grants. 5.5 It is fundamental to the 'income approach' that government grants be recognised in the profit and loss statement on a systematic and rational basis over the periods necessary to match them with the related costs. Income recognition of government grants on a receipts basis is not in accordance with the accrual accounting assumption (see Accounting Standard (AS) 1, Disclosure of Accounting Policies). 5.6 In most cases, the periods over which an enterprise recognises the costs or expenses related to a government grant are readily ascertain able and thus grants in recognition of specific expenses are taken to income in the same period as the relevant expenses.

"8. Presentation of Grants Related to Specific Fixed Assets

8.1 Grants related to specific fixed assets are government grants whose primary condition is that an enterprise qualifying for them should purchase, construct or otherwise ncquitv sur/j asse/s. Other conditions may also be attached restricting the type or location of the assets or the periods during which they are to be acquired or held.

8.2 Two methods of presentation in financial statements of grants (or the appropriate portions of grants) related to specific fixed assets are regarded as acceptable alternatives.

8.3 Under one method, the grant is shown as a deduction from the gross value of the asset concerned in arriving at its book value. The grant is thus recognised in the profit and loss statement over the useful life of a depreciable asset by way of a reduced depreciation charge. Where the whole, or virtually the whole, of the cost of the asset, the asset is shown in the balance sheet at a nominal value."

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"13- Government grants should not be recognised until there is reasonable assurance that (i) the enterprise will comply with the conditions attached to them, and (ii) the grants will be received.

(i) Appellant might have shown certain grants which are not projects specific grants or the grants given for generic purpose. The donor allows appellant to apply these funds for any of its objects. If such grants are received by the appellant which does not have any specific direction for the purpose, then it will have to be considered as voluntary donation and will be included as the income of the appellant u/s.12(1) of the Act. Even if appellant has

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shown such grants in the balance sheet then the appellant (a) would be eligible to claim expenses out of them as application of income and if the appellant creates fixed assets out of such grants, appellant (b) would be eligible to claim capital expenditure as application of its income and (c) would be eligible to claim depreciation on such fixed assets as application of income. Reliance placed on the judgment of Hon'ble High Court of Gujarat in the case of CIT vs Sheth Manilal Ranchhoddas Vishram Bhawan Trust, 198 ITR 598. A.O. is directed to calculate the income of the appellant from the property held by it accordingly. (ii) Further, the appellant might have received certain funds in the form of grants, for a specific purpose or for a specific project that is capital in nature. The sanction letter from the Institution/Authorities giving grant to the appellant categorically mentions that funds received under these grants cannot be utilized for any other purpose except for the purpose for which the grant is given. As the appellant has received such kind of grants with a specific direction, all such grants are required to be considered as capital receipts. Such capital receipts would be part of Balance sheet and not its income. The appellant would be eligible to claim deduction u/s 11(1)(d) of the Act on such capital receipts. But since these cannot be a part of the income of the appellant, the appellant (a) cannot claim accumulation @ 15% u/s 11(1)(a) of the Act on such specific grants. The assets creation made out of these grants would be reflected in the balance sheet and the appellant (b) cannot claim capital expenditure out of these grants as the money applied towards its objects as application of income. Finally, the appellant (c) cannot claim depreciation on fixed assets created out of grants given for specific purpose, as application of income.

(iii) (a) During the appellate proceedings it is seen from the Balance Sheet and Income and Expenditure Account of the appellant that certain receipts have been taken by the appellant directly to the Balance Sheet, The AG. Audit had been raising audit objection for treating them as revenue receipts and hence the said receipts have been considered as capital receipts. According to these audit objections for e.g. receipt from 'Betterment Charges' are required to be shown as liabilities in Balance sheet because they should be adjusted against the net amount to be paid by the owners. Similarly as per the Form Q under GTPUD Rules, 1979, 'Development Charges' are required to be shown in the Balance Sheet under the head of 'Capital Receipts'. Audit department also wants the Part Plan Fees, Additional FSI charges etc. to be reflected as 'capital receipts' as per the requirement of Format of Annual Accounts. There are many other issues on which 'Audit' wing had been raising audit objection with regard to classification of receipts. Be as it may, as far as Audit objections are concerned. Here, we are concerned with computation of income under the Income Tax Act. b) It is a matter of fact that Appellant has received these funds as per the provisions of GTPUD Act. The GTPUD Act authorizes the appellant to receive funds under various categories such as Development Charges, Betterment charges, Impact fees, Amenities fees, Scrutiny fees, Zoning fees "etc. These fees/funds or the

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sources of receipts have been received by the appellant during the discharge of its functions. These are recurring and operational receipts of the appellant. The appellant is required to apply these receipts towards its objects. I am of the considered opinion that a capital expenditure by a person need not be a capital receipt of the person receiving that amount. Therefore, A.O. is directed to consider all these receipts as the income of the appellant irrespective of the fact that it has treated them as balance sheet item.

(c) The appellant has to keep in mind that if these receipts are considered as capital receipts as a balance sheet item then appellant would be eligible to claim deduction u/s 11(1)(d) of the Act on such capital receipts. But since these cannot be a part of the income of the appellant, the appellant (a) cannot claim accumulation @ 15% u/s 11(1)(a) of the Act on such capital receipts. The assets creation made out of these receipts would be reflected in the balance sheet and the appellant (b) cannot claim capital expenditure out of these receipts as the money applied towards its objects as application of income. Finally, the appellant (c) cannot claim depreciation on fixed assets created out of receipts, as application of income. (iv) Further, AO is directed to verify the rate of depreciation claimed by the appellant. Section 32 of the Act is not applicable to the exempt person. The income of exempt person has to be calculated on the basis of normal commercial principles and by rule of accountancy. Accordingly the rate of depreciation would apply and not the rates of depreciation as per section 32 of the Act.

(v) A.O. is directed to calculate the expenditure incurred or amount towards the objects of the appellant. The amount applied would also include the capital expenditure as per the direction given above (Reliance placed on the judgment of Gujarat High Court in the case of Satyavijay Patel Hindu Dharmashala Trust vs CIT 86 ITR 683, Hon'ble Supreme Court in the case of SRM CTM Tirupanni Trust, 230 ITR 636, Hon'ble Allahabad High Court in the case of CIT vs Moolchand Sharbati Devi Hospital Trust 190 Taxman 338).

(vi) After the calculation of expenses or amount applied for the objects of the appellant, A.O. will allow the accumulation u/s 11(1)(a)of the Act to the extent of 15% of income. If the excess of income over the expenditure is less than 15% of the income, then A.O. shall allow accumulation to the extent of 15% u/s.11(1)(a) of the Act. (For example: If appellant earns Rs. 100 and applies Rs 90 then only Rs. 10 would be allowed to be accumulated u/s 11(1)(a) of the Act.)

(vii) If the appellant has applied more than the income during the year then A.O. is directed to allow carry forward of deficit of that year to be set off against future income of the appellant (Reliance placed on the judgment of Hon'ble Gujarat High Court in the case of CIT vs Sri Plot Swetamber Murtipujak Jain Mandal 211 ITR 293). In that year, the AO shall not allow any accumulation u/s.11(1)(a) of the Act @ 15%. (For example; If appellant earns Rs.

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100 and applies Rs. 110 then Rs. 10 would be allowed to be carried forward as deficit and there will be no accumulation u/s.11(1)(a).) In an immediate subsequent year, AO will allow, firstly, the set off of the deficit carried forward from earlier year. Then, AO shall reduce the amount applied during the year. If, after the adjustments of carried forward deficit and application of income, the appellant has any surplus of income over the expenditure then the appellant would be eligible to accumulate to the extent of 15% u/s.11(1)(a) from the income. (For example: If appellant earns Rs. 100 in immediate succeeding year and applies Rs. 80 then Rs. 90, i.e. Rs. 10 as earlier year deficit and Rs. 80 being current years application, would be allowed against income of Rs. 100. The remaining Rs. 10 will be allowed to be accumulated u/s 11(1)(a).) And, if there happens to be still any excess income left over, then remaining amount shall be allowed by the A.O. to be accumulated u/s. 11 (2) of the Act and according to the stipulations mentioned therein i.e. filing of Form 10 and purpose for which accumulation u/s.11(2) has been made etc. In short, the AO will not allow accumulation of income either u/s 11(1)(a) @15% or u/s 11(2) of the Act along with carry forward of deficit. Application of income shall precede accumulation.

(viii) If the appellant incurs any expenditure out of the accumulated amount u/s. 11 (2) of the Act, then the said expenditure will not be allowed as application against the current year's income of the appellant. It will have to be set off from the accumulated funds u/s 11 (2) of the Act. A.O. is accordingly directed to calculate the income of the appellant as per the directions given above.

10.1 Vide ground of appeal No 4, the appellant has raised the issue of considering receipt of Infrastructure Fund as income by the A O. It is already held that the appellant is an exempt entity. I have discussed the issue of receipt of exempt entity under various categories at para 9(i), (ii) and (iii) above. The treatment for receipts from generic grants, project specific grants and operational and recurring income has been discussed at these paras and A.O has been given specific directions for computing the income of appellant. The A.O is directed to verify and recomputed the income accordingly. This ground is allowed subject to these directions.

10.2 Vide ground of appeal Nos.5 & 8, the appellant has raised the issue of denial of expenditure incurred on addition to fixed assets and on capital expenditure by the A.O. At para-9(i), 9(ii) and 9(v) have already given directions to the A.O to allow such expenses subject to certain conditions. If the addition to fixed assets has been made from the project specified grants then that expenditure will not be allowable to the

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appellant as application of income or if the project expenses have been incurred from the project specific grant, again the similar treatment will follow. If the expenses on addition to fixed assets and on capital expenses have been incurred from the operational income or the generic grants received by the appellant, then only A.O is directed to allow the expenditure on addition to fixed assets and project expenses as application of income. Therefore, subject to the verification of facts by the A.O, the ground of appeal is allowed for statistical purpose. 10.3 Ground of appeal nos.6, 7 & 9 relates to claim of accumulation at the rate of 15% u/s.11(1)(a) and u/s.11(2). The appellant would be eligible to claim the benefit u/s.11 of the Act. A.O is directed to allow the accumulations u/s.11(1)(a) and 11(2) of the Act. However, during the appellate proceedings and as per the discussions with the A.R, the appellant has filed the revised computation of income The A.O is directed to follow the directions given at para-9(i) to para-9(viii) and accordingly allow the quantum of accumulation u/s.11(1)(a) and 11(2) of the Act. The appellant has been claiming the various operational receipts as capital receipts in the balance sheet. However, as mentioned at para-9(iii), I am of the considered opinion that these cannot be the capital receipt but will have to be considered as income from the property held by the trust. The A.O is directed to compute the income and allow the accumulations u/s.11(1)(a) of the Act and u/s.11(2) of the Act accordingly. Subject to these remarks the ground of appeal no.9 is allowed for statistical purpose. 11. In the result, the appeal is partly allowed.”

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2013-14 in ITA No. 435/Ahd/2018 concerning AY 2013-14 as well. The learned AR accordingly submitted that the grievance of the Revenue as taken in Ground Nos. 1 & 2 is not justified. It was further submitted that Ground No.5 is consequential once the activity of the assessee is considered to be charitable in nature for availing benefit of exemption under s.11 of the Act. As regards Ground Nos. 3 & 4 of the Revenue’s appeal, the learned AR for the assessee submitted that it is incorrect to say that the CIT(A) has deleted the additions per se but has directed the AO to make suitable verifications and ascertain the issues in the light of facts that may emerge. The learned AR thus submitted that the Revenue ought not to be aggrieved for such observations raised in Ground Nos. 2 & 3 of the Revenue’s appeal. In the rejoinder, the learned DR for the Revenue did not offer any comment in rebuttal.

10.1 Ground Nos. 1 & 2 concern as to whether the activity of the assessee company is in the nature of ‘advancement of any other object of general public utility’ and whether the nature of activity is commercial and akin to ‘trade, commerce or business’ etc. The first issue that the object of the assessee authority is to engage in advancing of objects of public utility is not in dispute. The dispute relates to the second limb i.e. whether such object of advancement of general public utility also acquires the character of trade, commerce or business with commercial intent or whether the authority exists solely for advancement of object of public utility and do not exist with a motive to make profit in a commercial spirit. As observed, the assessee is a Government agency and is engaged in co-ordinate and planned development of Jamnagar region which is pre-dominant object of the authority. The authority has been granted registration under s.12A of the Act for claiming deduction/exemption under s.11 of the Act. On similar facts, the Hon’ble Gujarat High Court in Ahmedabad Urban Development Authority

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vs. ACIT (2017) 83 taxmann.com 78 (Guj) held that general public utility services and amenities provided by such authorities would fall within the meaning of ‘charitable purposes’ as contemplated under s.2(15) of the Act and consequently, the assessee is entitled to claim exemption of income under s.11 of the Act. The issue has already been adjudicated in favour of the assessee in other assessment years by the co-ordinate bench as noted above. We thus see no error in the conclusion drawn by the CIT(A) in favour of the assessee. We thus decline to interfere.

10.2 Ground Nos. 1 & 2 of the Revenue’s appeal are accordingly dismissed.

10.3 Once the activity is considered to be charitable in nature, the assessee would be entitled to all consequential benefits flowing to income generated from such activity including the benefits provided under s.11(2) of the Act and 11(1)(a) of the Act towards accumulation of profits without any demur. Thus, Ground No.5 of the Revenue’s appeal is also bereft of any merit.

10.4 Ground No.5 of the Revenue’s appeal is accordingly dismissed.

10.5 As pointed out on behalf of the assessee, Ground Nos. 3 & 4 has been addressed by the CIT(A) and certain directions have been given to the AO in this regard. We have pursued the direction of the CIT(A) and we find the approach adopted to be just and reasonable. The Revenue has failed to demonstrate the grievance arising from such directions of CIT(A) as raised in Ground Nos. 3 & 4 of its appeal. We are thus inclined to uphold the findings of the CIT(A) in this regard.

10.6 Ground Nos. 4 & 5 of the Revenue’s appeal is dismissed.

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This Order pronounced in Open Court on 15/11/2019

Sd/- Sd/- (MADHUMITA ROY) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad: Dated 15/11/2019 True Copy S. K. SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,

उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।