THE COMMISSIONER OF INCOME TAX (EXEMPTIONS) vs. SURAT URBAN DEVELOPMENT AUTHORITY (SUDA)

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TAXAP/268/2020HC GujaratGJHC24039624202030 September 2020Bench: HONOURABLE THE CHIEF JUSTICE MR. JUSTICE VIKRAM NATH,HONOURABLE MR. JUSTICE J.B.PARDIWALA4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that all the substantial questions of law proposed by the Revenue were no longer res integra. The Court found that these questions were squarely covered by the judgment of the same Court in the case of Ahmedabad Urban Development Authority vs. ACIT (Exemption), reported in 2017 396 ITR 323 (Guj.). Consequently, the Tax Appeal filed by the Revenue was dismissed. The reasoning implies that the ITAT's order, which favored the assessee on all these points, was upheld based on the precedent established in the Ahmedabad Urban Development Authority case. The principle derived is that the specific issues raised by the Revenue regarding reassessment validity, the nature of activities under Section 2(15), and various additions/deductions are to be decided in line with the Gujarat High Court's prior ruling on similar matters concerning urban development authorities. No specific issue was left undecided; rather, all were deemed resolved by the cited precedent.

What were the facts?

This case involves a Tax Appeal filed by the Revenue against an order of the Income Tax Appellate Tribunal (ITAT), 'D' Bench, Ahmedabad, for Assessment Year 2010-11. The assessee is the Surat Urban Development Authority (SUDA). The Revenue is aggrieved by the ITAT's decision which purportedly found reassessment proceedings to be void ab initio and held that SUDA's activities were not commercial in nature, thus not hit by the provisos to Section 2(15) of the Income Tax Act. The ITAT also deleted additions made by the Revenue concerning fixed assets, expenditure on a housing project, and general development expenditure. The appeal challenges the ITAT's findings on multiple grounds, including the validity of reassessment, the nature of SUDA's activities, and the deletion of specific additions.

What were the issues?

The Tribunal had to decide the following questions of law: 1. Whether the reassessment proceedings were valid, or void ab initio, despite the Revenue claiming to have valid reasons and information for reopening the assessment, as per Section 147/148 of the Income Tax Act. 2. Whether SUDA's activities are commercial/trade in nature, falling under the first and second provisos to Section 2(15) of the Act, or if they constitute advancement of general public utility not hit by these provisos. 3. Whether the deletion of an addition of Rs. 1,75,577/- by the Tribunal on account of fixed assets was justified, considering the Revenue's contention of double deduction. 4. Whether the deletion of an addition of Rs. 9,02,48,177/- on account of expenditure on a housing project was justified, with the Revenue arguing that capital expenditure by a person need not be a capital receipt for the recipient. 5. Whether the deletion of an addition of Rs. 3,25,70,789/- for General Development Expenditure Fund was justified, on similar grounds as the housing project expenditure. 6. Whether the benefit of accumulation under Section 11(1)(a) of the Act, amounting to 15% of Rs. 5,09,62,027/-, was rightly given by the Tribunal, given the applicability of the proviso to Section 2(15). 7. Whether the carry forward of a deficit of Rs. 18,22,36,546/- against future income was permissible in the absence of an express provision in the Act. Assessee's Contentions: The judgment does not record specific contentions made by the assessee before the High Court. The High Court notes that the issues are covered by previous judgments. Revenue's Contentions: The Revenue argued that the reassessment proceedings were valid. It contended that SUDA's activities were commercial and hit by the provisos to Section 2(15). It also argued against the deletion of additions related to fixed assets (double deduction), housing project expenditure, and general development expenditure fund, asserting that capital expenditure need not be a capital receipt. Furthermore, the Revenue questioned the benefit of accumulation under Section 11(1)(a) and the carry forward of deficit, arguing these were not permissible under the Act, especially when the proviso to Section 2(15) was applicable.

Which sections of the Income-tax Act were involved?

Section 2(15),Section 11(1)(a),Section 11(2)

AI-generated summary — verify with the full judgment below

C/TAXAP/268/2020 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 268 of 2020 ========================================================== THE COMMISSIONER OF INCOME TAX (EXEMPTIONS) Versus SURAT URBAN DEVELOPMENT AUTHORITY (SUDA) ========================================================== Appearance: MR MR BHATT, SR. ADVOCATE WITH MRS MAUNA M BHATT(174) for the Appellant(s) No. 1 for the Opponent(s) No. 1 ========================================================== CORAM: HONOURABLE THE CHIEF JUSTICE MR. VIKRAM NATH and HONOURABLE MR. JUSTICE J.B.PARDIWALA

Date : 30/09/2020

ORAL ORDER (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1 This Tax Appeal is at the instance of the Revenue, being dissatisfied with the order passed by the Income Tax Appellate Tribunal, “D” Bench, Ahmedabad, in the ITA No.2430/Ahd/2017 for the A.Y.2010-11. 2 The Revenue has proposed the following substantial questions of law for the consideration of this Court: “[A] Whether on the facts and circumstances of the case and in law, the Hon’ble Tribunal was justified in holding that the re-assessment proceedings to be wrong and void ab initio whereas the proceedings for reassessment for reopening of assessment was validly on the basis of information and after recording proper reason? Page 1 of 4

C/TAXAP/268/2020 ORDER [B] Whether on the facts and circumstances of the case and in law, the Hon’ble Tribunal was justified in holding that activities of the assessee are not in the nature of commerce/trade without considering the fact that the assessee is involved in widespread commercial activities which is covered under first and second provisos to section 2(15) of the Act without considering the merit of the issue? [C] Whether on the facts and circumstances of the case and in law, the Hon’ble Tribunal was justified in considering the activity of the assessee as engaged in the development of urban area which is in the nature of advancement of general public utility not hit by the newly introduced first and second proviso to section 2(15) of the Act without considering the merit of the issue? [D] Whether on the facts and circumstances of the case and in law, the Hon’ble Tribunal was justified in deleting the addition of Rs.1,75,577/- by not appreciating the fact that the addition to fixed assets has already been allowed in earlier years as application of income which amounts to double deduction without considering the merit of the issue? [E] Whether on the facts and circumstances of the case and in law, the Hon’ble Tribunal was justified in deleting the addition of Rs.9,02,48,177/- on account of expenditure on housing project considering that a capital expenditure by a person need not to be a capital receipt of the person receiving that amount which the assessee has received for discharge of its objects without considering the merit of the Page 2 of 4

C/TAXAP/268/2020 ORDER issue? [F] Whether on the facts and circumstances of the case and in law, the Hon’ble Tribunal was justified in deleting the addition of General Development Expenditure Fund of Rs.3,25,70,789/- considering that a capital expenditure by a person need not be a capital receipt of the person receiving that amount which the assessee has received for the discharge of its objects without considering the merit of the issue? [G] Whether on the facts and circumstances of the case and in law, the Hon’ble Tribunal was justified giving benefit in accumulation @15% of Rs.5,09,62,027/- u/s. 11(1)(a) of the Act without appreciating the fact that once the proviso of section 2(15) is applicable, the benefit of section 11(2) cannot be allowed further without considering the merit of the issue? [H] Whether on the facts and circumstances of the case and in law, the Hon’ble Tribunal was justified in allowing carry forward of deficit of Rs.18,22,36,546/- against its future income in absence of any express provision in the Act regarding the same without considering the merit of the issue? 3 We have heard Mr. M.R.Bhatt, the learned Senior Counsel assisted by Mrs. Mauna Bhatt, the learned Senior Standing Counsel appearing for the Revenue and have perused the materials on record. The questions proposed Page 3 of 4

C/TAXAP/268/2020 ORDER by the Revenue are no longer res integra in view of the judgment of this very Court rendered in the Tax Appeal No.79 of 2020 dated 25.02.2020. All the questions proposed are squarely covered by the decision rendered in the case of Ahmedabad Urban Development Authority vs. ACIT (Exemption), 2017 396 ITR 323 (Guj.). 3 In the result, the Appeal fails and is hereby dismissed. (VIKRAM NATH, CJ) (J. B. PARDIWALA, J) A. B. VAGHELA/P.SUBRAHMANYAM Page 4 of 4

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