DY. COMMISSIONER OF INCOME TAX(EXEMPTIONS)-2(1),MUMBAI, MUMBAI vs. MUMBAI RAILWAY VIKAS CORPORATION LTD, MUMBAI

3. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in disallowing Rs. 31,22,049/- u/s 40(a)(ia) of the Act ignoring the fact that the assessee has claimed Rs. 1,04,06,830/- as Professional / Consultancy fees / Fee for technical services in its return of income and that the assessee has failed to deduct TPS u/s 194J of the Act.

(Assessment Year 2017-18) 1. Whether, on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in allowing the benefit of exemption u/s 11 &12 of the I.T. Act, 1961 to the assessee, ignoring the fact that the objects of the assessee falls under the category of "advancement of any other object of general public utility" and the activities are clearly in the nature of providing services in relation to trade, business and commerce in lieu of fees and total receipts of the assessee from such activities which are more than 20% of total receipts, hence the proviso to section 2(15) of the I.T. Act is applicable and the assessee is not entitled to exemption u/s 11 of the Act in view of the provisions of section 13(8) of the I.T. Act, 1961?.

3818 and 3819/MUM/2024 Mumbai Railway Vikas Corporation Ltd. AYs 2018-19, 2017-18 and 2016-17 2. Whether on the facts and circumstances of the case and in law and in light of the law laid down by Hon'ble Supreme Court in Civil Appeal No. 21762 of 2017 in various batch of appeal and SLP's [lead case ACIT (Exemptions) Vs. Ahmedabad Urban Development Authority [2022] 143 taxmnn.com 278(SC)], the Ld.CIT(A) erred in not appreciating that even if the activities of the assessee are held to be covered under residuary part of section 2(15) as "advancement of any other object of general public utility" even then it is not entitled to exemption u/s 11 because it is hit by the proviso to section 2(15) as the income of the assessee consists of activities which are in the nature of trade, commerce or business?

(Assessment Year 2016-17) 1. Whether, on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in allowing the benefit of exemption u/s 11 &12 of the I.T. Act, 1961 to the assessee, ignoring the fact that the objects of the assessee falls under the category of "advancement of any other object of general public utility" and the activities are clearly in the nature of providing services in relation to trade, business and commerce in lieu of fees and total receipts of the assessee from such activities which are more than 20% of total receipts, hence the proviso to section 2(15) of the I.T. Act is applicable and the assessee is not entitled to exemption u/s 11 of the Act in view of the provisions of section 13(8) of the I.T. Act, 1961?.

2. Whether on the facts and circumstances of the case and in law and in light of the law laid down by Hon'ble Supreme Court in Civil Appeal No. 21762 of 2017 in various batch of appeal and SLP's [lead case ACIT (Exemptions) Vs. Ahmedabad Urban Development Authority [2022] 143 taxmann.coт 278(SC)], the Ld.CIT(A) erred in not appreciating that even if the activities of the assessee are held to be covered under residuary part of section 2(15) as "advancement of any other object of general public utility" even then it is not entitled to exemption u/s 11 because it is hit by the proviso to section 2(15) as the income of the assessee consists of activities which are in the nature of trade, commerce or business?

2.1. Common issue is involved in all the three appeals with same fact pattern relating to claim of exemption u/s 11 considering proviso to section 2(15) of the Act since activities of the assessee fall in the category of "advancement of any other object of general public utility". In appeal for Assessment Year 2018-19, one more issue is raised vide ground no. 3 in respect of disallowance towards non deduction of tax at source u/s. 40(a)(ia) on professional/consultancy fee/fee for technical services u/s 194J. We take up all the three appeals together for adjudication by this consolidated order since common issue is involved. Ground no. 3 for Assessment Year 2018-19 shall be dealt separately. For the purpose of 2.2. Assessee has placed on record its application dated 27.09.2024 under Rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963 [the ITAT Rules] raising legal ground that “The assessment is bad, illegal, void and non-est and without jurisdiction as the Applicant is “state” within the meaning of Article 289 of the Constitution of India and, therefore, the income of the Applicant is exempt from Union taxation.” In this respect, assessee submitted its contentions to admit the said application which is extracted below: “1. The present appeal filed by the Department is against the order passed by the Ld. Commissioner of Income - tax (Appeals), National Faceless Appeal Centre, Delhi ['Ld. CIT (A)'], in which the Ld. CIT (A) has deleted the additions made by the A.O on merits.

2. There was no occasion for the Applicant to file any appeal before the Hon'ble Tribunal against the order of the Ld. CIT (A), as the appeal was fully allowed in favour of the Applicant.

3. The present appeal, alongwith other two appeals, involve a common issue of denial of exemption u/s 11 of the Income tax Act, 1961 ['the Act'] by the assessing authority. This very issue was also involved in the Applicant's own case for earlier years [A. Y. 2009-10 to 2015-16] before the Hon'ble Tribunal, where the claim of the Applicant stood allowed on merits. The Applicant had also raised additional / alternate ground before the Tribunal for the first time to the effect that the Applicant, being a "state", was exempt from tax under Article 289 r.w. Article 12 of the Constitution of India. As the Hon'ble Tribunal found the Applicant being entitled for full relief on merit, the Hon'ble Tribunal kept this alternate e issue alive, so that it may be pressed in future.

4. For the present, in fact, this specific ground was taken by the Applicant before the Assessing Officer ['A.O.'], which was rejected by the A.O. By this time, the first of the orders of the Hon'ble Tribunal was already passed allowing the relief claimed. Before the Commissioner of Appeals ['CIT (A)'] the Applicant did take general ground against the action of the A.O. However, the ground of exemption from taxation on account of the Applicant being 'state' was not raised specifically, due to inadvertence on account of bona fide belief and lack of adequate knowledge about the law and procedure before the Tribunal.

3818 and 3819/MUM/2024 Mumbai Railway Vikas Corporation Ltd. AYs 2018-19, 2017-18 and 2016-17 6. In view of the above, the Applicant-Respondent most respectfully seeks to support the appellate order impugned in the present appeal also on the following alternate ground: ‘The assessment is bad, illegal, void and non-est and without jurisdiction as the Applicant is "state" within the meaning of Article 289 of the Constitution of India and, therefore, the income of the Applicant is exempt from Union taxation.’ 7. The Applicant most respectfully requests that the Applicant be allowed to raise this alternate ground attached herewith in terms of Rule 27 of Income-Tax (Appellate Tribunal) Rules, 1963, for the following reasons: (i) The issues raised is purely legal and go to the very root of the jurisdiction to assessee the Applicant. (ii) The facts relevant for arguing this alternate ground are already on the records of the Applicant and, as such, entertaining this ground will not require investigation into any fresh facts. (iii) No prejudice would be caused to the Revenue as, ultimately, this ground is to be decided on merit, along with other grounds. (iv) This ground is admitted and entertained by the Hon'ble Tribunal in all earlier years.”

2.3. Per contra, ld. CIT DR by way of her written submission dated 17.10.2024 objected on the ground raised by the assessee under rule 27 of the ITAT Rules. According to her, assessee was never intended to be an instrumentality of the State, but an independent entity set up to plan and execute growth of suburban railway infrastructure in Mumbai.

2.4. On the above submissions made by both the parties, we have carefully gone through the same and given our thoughtful consideration for the purpose of admissibility of the ground raised by the Assessee under rule 27 of the ITAT rules. We find that it is a legal issue raised by the assessee since there was no occasion for it to file any appeal before the Tribunal against the order of ld. CIT(A) as its appeal at the first appellate stage was allowed in toto. We note that this ground has been admitted by the Co-ordinate bench in earlier years also for adjudication. Further, since facts relating to the issue raised by the assessee are

3.1. Registration u/s 12AA of the Act was cancelled by ld. DIT(E), Mumbai vide orders No. DIT(E)/Registration 12AA/2013-14/2 dated 10-01-2014 and No. DIT(E)/Registration 12AA/Rect/2013-14/1 dated 24-03-2014, on the ground of application of proviso to section 2(15) for which assessee went in appeal before the Tribunal vide appeal nos. ITA 1057 & 2626/Mum/2014. The Co-ordinate bench vide its order dated 03.08.2016 quashed the order cancelling the registration. While restoring the registration, Co-ordinate bench examined the background and essential features of the assessee, its objectives for which it was set up, sources of funds and their utilization, modus operandi of its administrative operations and concluded that task of assessee is to act as an overall co-ordination and implementing agency for the railway component of MUTP works. It was observed and held that revenue has not disputed the fact of assessee executing rail projects identified under 3818 and 3819/MUM/2024 Mumbai Railway Vikas Corporation Ltd. AYs 2018-19, 2017-18 and 2016-17 the MUTP. According to the Co-ordinate bench, administrative set up and its functions cannot be viewed in isolation and say that assessee is not carrying out activities in accordance with its objectives which in the given case is being carried out by executing railway component of projects under MUTP. On the aspect of receipt of Direction and General (D&G) charges by the assessee, it was noted by the bench that they are nothing but inter-departmental allocations to cover administrative overheads. These D&G charges for work under MUTP are based on quantum of work to be carried out by the assessee and are determined in terms of standard policy of the Railways. Bench also noted that assessee functions under complete superintendence and control of Government of India, exercised through Ministry of Railways. Further, it was noted that projects undertaken by the assessee were funded by World Bank and / or budgetary support from the State Exchequer and nothing is received by the assessee from any outside third party. Considering these features elaborately, it concluded that task of assessee is to act as an overall co-ordination and implementing agency for the railway component of MUTP works. It was thus held that there is no reason to uphold that activities are not in accordance with the objects of the assessee. Relevant paragraphs from this order are extracted below for ready reference: “6.1 In the above background, we may now examine the impugned order of the Director as to whether the conditions prescribed in section 12AA(3) of the Act are satisfied. Before we proceed further, we find it appropriate to briefly touch upon the peculiar features of the appellant before us. As noted earlier, the appellant before us is a Government Company incorporated on 12/07/1999 under section 617 of the Companies Act, 1956. It’s shareholding is owned by the Ministry of Railways (Government of India) and the State Government of Maharashtra. At certain point of time, before appellant company was incorporated, certain projects relating to the transport needs of Mumbai Metropolitan Region (MMR) commuters were identified under MUTP. Such projects related to the urban transport infrastructure in MMR, which included the Sub-urban Rail Net Work of Mumbai also. Such projects involved huge financial resources, and the Railways were already facing severe operational problems in MMR, the Government at the Centre and in the State of Maharashtra found a resolution by setting-up a Special Purpose Vehicle (SPV) for speedy and efficient implementation of railway component of MUTP. Accordingly, assessee 3818 and 3819/MUM/2024 Mumbai Railway Vikas Corporation Ltd. AYs 2018-19, 2017-18 and 2016-17 company was set-up as a SPV for taking up projects concerning Mumbai Sub- urban Rail Network. In fact, a perusal of the Main Objects clause in the Memorandum and Articles of Association of the assessee company bears testimony to the above, and it reads as under:-

“A. MAIN OBJECTS OF THE COMPANY TO BE PURSUED ON ITS INCORPORATION: (i) To develop coordinated plans and implement the rail infrastructure projects, integrate urban development plan for Mumbai with rail capacity and purpose investments, undertake commercial development Railway land and air space, coordinate and facilitate improvements of track, drainage and removal of encroachments and trespassers and coordinate with organizations operating the train services and responsible for protection of Railway’s right of way and urban development for purposeful resolution of allied issues and problems, and discharge its liabilities arising due to such projects and action.”

Before us, it has been elaborately brought out that under the first phase of MUTP (at a cost of Rs.4501 crores) 101 EMU rakes have been procured, which have made 418 additional train services possible and generated an additional 33% carrying capacity in local trains in Mumbai. It has also been pointed out that a state of the art EMU maintenance car shed has been set up at Virar and additional 93 track kilometres have been added, which has facilitated segregating mainline operations from suburban operations. It was extended further to network expansion, service efficiency improvement, rolling stock procurement, institutional strengthening and R&R is under progress under MUTP-II at approximate cost of Rs.7000 crore. Although detailed written submissions have been filed pointing out various activities undertaken, but we do not dilate further on it; it would suffice to notice that the projects which are being undertaken by the assessee company are in public interest with the ultimate aim of improving transportation infrastructure in MMR. It was also emphazised before us, with reference to the material on record, that the projects undertaken by the assessee company were being earlier executed by Ministry of Railways itself departmentally. It has also been pointed out that the work undertaken by the assessee company is treated at par with Railways and reference has been made to the Memorandum of Understanding between the Government of India (Ministry of Railways) and assessee in this regard, a copy of which is placed in the Paper Book at pages 13-18. It is also clear that the funds for such projects are disbursed to the assessee out of budgetary allocation of Indian Railways, including the specific funds received from the World Bank. The Ld. Representative for the assessee had emphasized that all operating assets created under MUTP, through assessee are transferred to / retained by the Railways for operations, maintenance and replacement. 6.2 It was also pointed out that the Direction & General (D&G) charges being received by the assessee are nothing but interdepartmental allocations to cover administrative overheads. It has been explained that the D&G charges for work under MUTP is based on the quantum of work to be carried out by the assessee and are determined in terms of a standard policy of the Railways. It is also clear that assessee company functions under complete superintendence and control of Government of India, exercised through the Ministry of Railways. It is also asserted before us, and without any controvertion, that assessee has not undertaken any activity for any party other than the Government of India, and that the projects being undertaken by the assessee company are funded by the 3818 and 3819/MUM/2024 Mumbai Railway Vikas Corporation Ltd. AYs 2018-19, 2017-18 and 2016-17 World Bank and/or by the budgetary support provided by the State Exchequer, and no funds are received from any outside party. All the aforesaid features do show that the task of the assessee is to act as an overall co-ordination and implementing agency for the railway component of MUTP works.

6.3 Be that as it may, in the background of the aforesaid features of assessee company, we now refer to the specific points raised by the Director to say that the activities of the assessee are not being carried out in accordance with its objects in order to justify his invoking of section 12AA(3) of the Act. As per the Director, the activities carried on by the assessee are not in accordance with the objects because – (i)assessee is only leveraging its funds to earn interest income and the same is not applied for its objects; and (ii) the expenses are incurred for establishment, administrative functions and not for any charitable or general public utility purpose. On both the aspects, Ld. Representative for the assessee pointed out that the activities of assessee are totally controlled/managed by Government of India and subject to review by the Comptroller and Auditor General of India. It has also been pointed out that the activities of the assessee have been scrutinized by the Assessing Officer in the course of scrutiny assessments made under section 143(3) of the Act for various assessment years starting from 2003-04 to 2010-11 without any adverse findings, and copies of such assessment orders have been placed in the Paper Book at pages 399 to 472. Ld. Representative for the assessee explained that no profits are earned from the activity of executing projects of MUTP and the inflow by way of D&G charges is an inter-departmental allocation to meet the administrative costs. It was pointed out that such charges are not even sufficient to cover the entire administrative cost, and the only other source of income is interest earnings on bank deposits, which is being earned from a permitted mode of investment. It was pointed out that even interest income is utilized towards the objects of the assessee company and in support reference has been made to a communication from Railway Board, a copy of which is placed at page 53 of the Paper Book titled ‘INDEX of NOTES filed before us. It is also prescribed therein that any surplus with the assessee is also to be ploughed for funding of the MUTP projects. It is also pointed out that no commercial activity has been carried out and that all its activities are for the purpose for which assessee was set-up. In this context, we have carefully perused the impugned order of the Director and find that his averment in the concluding paragraph “that the activities of the trust are not in accordance with the objects” is only a bald assertion, devoid of any factual support. In fact, the main object of the assessee, as reproduced earlier, is to develop coordinated plans and the railway infrastructure projects, integrate urban development plan for Mumbai with rail capacity, etc. In order to achieve the aforesaid, assessee company is an SPV tasked to execute the Sub- urban rail projects identified under MUTP. In our considered opinion, the Director has completely misdirected himself in construing the activities of the assessee. The various projects being undertaken by the assessee have been completely lost sight of and rather much has been made of the items of receipts by way of D&G charges, interest incomes and expenses on administrative and establishment overheads. Quite clearly, any organization would require to spend on administrative overheads in order to carry out its objectives. So however, the function of maintaining an administrative set-up cannot be confused with the objects for which the assessee company has been set-up, and which it has been undertaking ever since namely, the execution of the railway component of the MUTP. In fact, at no stage has Revenue disputed the fact that the assessee company is executing rail projects identified under the MUTP. In 3818 and 3819/MUM/2024 Mumbai Railway Vikas Corporation Ltd. AYs 2018-19, 2017-18 and 2016-17 our considered opinion, the Director erred in not appreciating the difference between the functioning of administrative set-up, which is essential to execute the objects entrusted to the assessee and, the activity of executing the railway component of the MUTP. The administrative set-up and its functions cannot be viewed in isolation to say that assessee company is not carrying out activities in accordance with its objectives, which in the present case is quite clearly being undertaken by the assessee by executing the railway component of the projects under MUTP. Therefore, in our considered opinion, the Director has clearly misdirected himself in coming to conclude that assessee has carried out activities that are not in accordance with its objects. Thus, factually speaking, we find no reason to uphold the inference of the Director that the activities are not in accordance with its objects.”

3.2. Exemption u/s 11 was denied to the assessee for AYs 2009-10, 2010-11, 2011-12 and 2014-15. However, the same allowed by the ld. CIT(A) after dealing with proviso to section 2(15) and by placing reliance on the decision of Co-ordinate bench in assessee’s own case (supra) which dealt with restoration of registration u/s 12A as discussed in detail in above paragraphs. Similar denial was made for AYs 2012-13, 2013-14 and 2015-16 which was allowed by the Co-ordinate Bench in 2881 & 2883/Mum/2019, dated 05.01.2021 by relying on the outcome of appeal of assessee which dealt with restoration of registration u/s 12A (supra). Based on orders for these three Assessment Years, exemption u/s 11 for AYs 2009-10, 2010-11, 2011- 12 and 2014-15 was allowed by the Co-ordinate Bench in 2878, 2879 & 2882/Mum/2019 dated 29.01.2021.

4.1. On appeal by the assessee before the ld. CIT(A), relief was granted to the assessee by making following observations and findings – a) Assessee is formed by the Government of India through Ministry of Railways and Government of Maharashtra, both holding shares in the ratio 51: 49. b) It plans and executes a more efficient Mumbai suburban railway system and its projects are approved by the Government of Maharashtra and the Ministry of Railways. c) It is financed by the Government of Maharashtra and the Ministry of Railways. Its receipts include the funds which are part of budgetary allocation for Indian Railways. It receives Direction & General (D&G) charges as inter-departmental allocation provided in the sanctioned estimates pertaining to MUTP to cover administrative overheads. d) The only other income of the assessee is interest income from the fixed deposits placed with banks out of the monies not deployed for the work for the time being.

3818 and 3819/MUM/2024 Mumbai Railway Vikas Corporation Ltd. AYs 2018-19, 2017-18 and 2016-17 e) Assessee functions under close supervision and control of the Government of India through the Ministry of Railways including the fund flow. Its activities are also monitored by the World Bank and Government of Maharashtra and are under audit control of the Comptroller & Auditor General. f) Vide order dated 03.08.2016, Co-ordinate bench of ITAT, Mumbai in & 2626/Mum/2014 in the assessee's own case, had restored the registration granted to the assessee u/s 12A of the Act. g) Vide order dated 05.01.2021, Coordinate bench of ITAT Mumbai in assessee’s own case in Mum/2019 for Assessment Year 2012-13 had held that a public sector undertaking cannot be denied exemption u/s 11 merely on the ground that it is not a trust or a company not incorporated u/s 25 of the Companies Act, 1956. h) Vide orders dated 05.01.2021, Co-ordinate bench of ITAT Mumbai in 2881 & 2883/Mum/2019 in assessee's own case for AYs 2012-13, 2013-14 and 2015-16 had held that assessee is not hit by the proviso to section 2(15) of the Act. i) Considered the principles laid down by the Hon'ble Supreme Court in the case of Ahmedabad Urban Development Authority (supra) as – i. Assessing Officer has not made out any case that assessee is not carrying out activities of general public utility or that its sole intent is making handsome profits akin to private developer; ii. Assessee did not receive any income from public at large. Its commercial transactions with others were duly authorized by the iii. Its deposits with the banks were not static but parked only when not required in short term in its projects; iv. Mere receipt of interest from deposits in banks does not disentitle the assessee to claim exemption u/s 11 or take the assessee out of the definition of charitable purpose as laid down in section 2(15) of the Act.

5. Department is in appeal in all the above-mentioned AYs 2016-17, 2017-18 and 2018-19 against the order of ld. CIT(A) allowing the benefit of exemption u/s 11 and 12 of the Act which has been allowed to the assessee without considering the fact that the assessee falls under the ambit of the proviso to section 2(15) of the Act as it is carrying on activities which are in the nature of trade, commerce or business. Further, Department is aggrieved that ld. CIT(A) failed to appreciate the principles laid down by the Hon'ble Supreme Court in the case of ACIT (Exemptions) vs Ahmedabad Urban Development Authority [2022] 143 taxmann.com 278 (SC) since assessee is hit by the proviso to section 2(15) of the Act.

5.1. According to the ld. CIT DR, reliance placed by the ld. CIT(A) on the decision of Co-ordinate bench which restored the registration of the assessee u/s 12AA is erroneous since in the said decision, the finding is restricted to whether the power of cancellation of registration u/s 12AA(3) of the Act has been justifiably executed by the DIT(E) or not. She referred to para 6.5 of this order where it is specifically observed that whether an income is eligible for the benefit of section 11/12 of the 3818 and 3819/MUM/2024 Mumbai Railway Vikas Corporation Ltd. AYs 2018-19, 2017-18 and 2016-17 Act is not a relevant criterion to justify invoking of section 12AA(3) of the Act. These issues are to be decided in the course of the quantum assessment proceedings by the AO and do not enter the requisites contained in section 12AA(3) of the Act. It would be open for the AO to examine such aspects as to whether the assessee is hit by the proviso to section 2(15) of the Act in appropriate proceedings, but the same are outside the purview of the pre-requisites contained in section 12AA(3) of the Act. According to ld. CIT DR, applicability of proviso to section 2(15) of the Act to the assessee has not been examined by the Co- ordinate bench in the said order and hence, the said decision does not offer any cover to the assessee on the issue in the present appeals. Also, according to her, reliance placed on orders dated 05.01.2021 in 2881 & 2883/Mum/2019 in the assessee's own case for AY 2012- 13, 2013-14 and 2015-16 is not proper since these orders also relied upon the above order dated 03.08.2016 of the Co-ordinate bench in the assessee's own case for giving relief to the assessee. Further, ld. CIT DR submitted that law of the land has now been clearly laid down by the Hon'ble Supreme Court in the judgment of Ahmedabad Urban Development Authority (supra) which needs to be followed in the appeal at hand. According to her, this judgment mandates the AO to scrutinize the records for every AY and independently apply mind to determine if and to what extent the consideration or amounts charged are significantly higher than the cost and a nominal mark-up. If such is the case, then the receipts would indicate that the activities are in fact in the nature of trade, commerce or business and would have to comply with the quantified limit, as amended from time to time, in the proviso to section 2(15) of the Act.

5.2. Ld. CIT DR also submitted that D&G charges received by the assessee are budgetary allocation from the Ministry of Railways or there 3818 and 3819/MUM/2024 Mumbai Railway Vikas Corporation Ltd. AYs 2018-19, 2017-18 and 2016-17 are grants from the World Bank which are allocated to the assessee for undertaking works under its approved projects. Hence, the question of calculating mark-up on the cost does not arise. According to her, ld. CIT(A) has failed to consider that no mark-up or surplus / deficit can be worked out in the assessee's case because D&G charges are not charged to / collected from any private party. It is also submitted that assessee is merely acting as coordination and implementing agency of the Ministry of Railway and Government of Maharashtra for the railway component of MUTP projects and therefore, assessee's activities do not qualify to be for 'charitable' or 'general public utility purpose’ as laid down in section 2(15) of the Act.

6.1. According to him, by the very nature of services provided by the Suburban Railway Network, there is absolutely no profit motive of the assessee. On the contrary, these projects are mammoth money consuming projects, executed solely for providing better facilities to the Suburban Railways Commuters and, consequentially, entail huge losses. Reference was made to details of profitability for the financial years from 2004-05 to 2013-14, tabulated below to demonstrate the losses incurred by the assessee.

6.2. Ld. Counsel reiterated that purely to meet the administration cost, Ministry of Railways allocates certain money known as Direction and General Charges [D & G charges] based on, among other things, amount of work allocated / executed. Pertinently, the D&G charges are allocated to all Railway Departments to cover their respective administration cost. Most importantly, such D&G charges are not enough to cover the entire administration cost of the assessee. It is the interest income yielding from funds parked temporarily which helps to meet shortfall towards these costs and also leads to surplus in the hands of the assessee. It was submitted that there are time gaps between receipt of the budgeted funds from the Ministry of Railways and disbursements towards the corresponding expenses on various projects for which payments are made in a phased manner. In order to conserve the capital and to reduce the burden of huge cost, pending their disbursements, such moneys laying idle for the time being are kept as fixed deposits with banks. Interest earned on such fixed deposits is also plagued back for meeting the project cost as prescribed. Further, assessee has no ownership, control or discretion over the various assets that get created and also over such surplus income which gets accrued in the process of implementing various projects. It is important to note that accounts of the assessee are subjected to audit every year by the Comptroller and Auditor General of India [C&AG]. Details in this respect covering several financial years is extracted below.

6.3. In support of the above submissions, ld. Counsel made reference to clause (12) from the object clause of the assessee which is extracted below: “(12) Over and above the tariff the Railways may revise from time to time, the Railways may, in mutual agreement with GOM, levy surcharge for the Mumbai suburban rail system. The entire proceeds from the surcharge will be used not only to supplement financing of suburban rail projects under MUTP Il to be implemented by MRVC, but also towards repayment of loan for such rail projects under MUTP Il by Government of Maharashtra and Indian Railways in the ratio of 50:50.”

7.1. Considering the litigation history as narrated above, applicable law u/s 2(15) of the Act and position of law emanating from the decision of Hon'ble Supreme Court in the case of Ahmedabad Urban Development Authority (supra), the question to be addressed is that if 3818 and 3819/MUM/2024 Mumbai Railway Vikas Corporation Ltd. AYs 2018-19, 2017-18 and 2016-17 an institution is already registered u/s. 12A with the charitable object falling in the category of “Object of General Public Utility (GPU)” holding it to be charitable in nature then, is it still to be seen whether the object and activity for which it has been granted registration, has any element of trade, commerce or business.

8.1. From the submission by the ld. Counsel of the assessee before us and in the written note, details of activities pursued by the assessee for year under consideration, including financial statistics have already been discussed above with extraction of certain relevant data. Tariffs recovered by the assessee are regulated by the Railways Department and revision for the same also happens by the Railways in mutual agreement with Government of Maharashtra as stated in clause (12) of the objects of the assessee. Therefore, activities undertaken by the assessee cannot be held to be in the nature of trade, commerce or business or providing service in relation thereto.

8.2. It is an undisputed fact on record that the main objects of the assessee based on which registration was granted u/s. 12A of the Act and, which objects have been accepted to be of charitable nature have not undergone any change till date. Therefore, it is to be accepted that assessee is a charitable organization existing for charitable purpose 3818 and 3819/MUM/2024 Mumbai Railway Vikas Corporation Ltd. AYs 2018-19, 2017-18 and 2016-17 having the object of general public utility in terms of Section 2(15) of the Act. A careful reading of the proviso to section 2(15) clearly indicates that it applies only to 'advancement of any other objects of general public utility’.

8.3. As could be seen from the reading of proviso to section 2(15), it carves out an exception in the sense that advancement of any other object of general public utility shall not be regarded as charitable purpose in the following situations: i. if it involves any activity in the nature of trade, commerce or business. ii. or it involves any activity of rendering of any service in relation to any trade, commerce or business, iii. the activities in item (i) and (ii) are for a fee or cess or any other consideration and aggregate of such receipts do not exceed twenty percent of the total receipts of that year.

8.4. Meaning of the words 'trade', 'commerce' and "business' have to be understood in their ordinary sense and as known in common parlance. The word 'trade' would mean exchange of goods for goods or for money. The word 'business', though, has been defined under section 2(13) of the Act, however, is generic. 'Business' in its ordinary sense would mean an occupation, or profession which occupies time, attention or labour of a person and is generally undertaken with a profit motive. The word 'commerce' again is of same connotation as 'trade' or 'business'.

8.5. As could be seen from the main objects of the assessee, it is not in any manner involved in any activity of trade, commerce or business. Factual position of the assessee is summarized as under:

(a) Assessee is not involved in any sale or purchase activity or sale and purchase of any assets created under MUTP;

(b) All the assets created by MRVC under MUTP are handed over to respective zonal railways for operations and MRVC is not carrying out the operational part of railway activities using Railways Assets where tickets are sold to general public;

(c) It is not dealing with public in any manner of whatsoever nature;

(d) It receives money from Ministry of Railways (MoR) and Government of Maharashtra (GoM) for execution of work under MUTP;

(e) It receives D&G charges which are already fixed by MoR for taking care of its establishment expenses;

(f) Not only the dominant part but the only part of activity of MRVC is to execute Railway Projects and it is not concerned with any other activity of commercial nature.

(g) It is not carrying out any other activity which is in the nature of trade, commerce or business or providing any service in the nature of trade, commerce or business;

(h) There is no profit motive involved in the activity of MRVC.

8.6. Ld. CIT(A) has elaborately dealt with the observations and findings of the ld. Assessing Officer and also discussed the findings in the decisions of Co-ordinate bench in assessee’s own case for past several years. He also dealt with the decision of Hon'ble Supreme Court in the case of Ahmedabad Urban Development Authority (supra) which covers the case of the assessee. Ld. CIT(A) also dealt with the factual aspect of the case to note that assessee is covered under the charitable object of 3818 and 3819/MUM/2024 Mumbai Railway Vikas Corporation Ltd. AYs 2018-19, 2017-18 and 2016-17 ‘general public utility’ as contained in section 2(15) of the Act. According to him, mere receipt of interest income on account of funds kept with bank does not disentitle it to claim exemption u/s 11. He also noted that ld. Assessing Officer has not made out a case that assessee is making profit and that its predominant motive is that of making profit. Ld. Assessing Officer did not establish that deployment of funds in fixed deposits is on a perpetual basis and that they are not utilized for developing public infrastructure of railway projects under MUTP. Fact of assessee not dealing with public and having any commercial transactions is taken note of by the ld. CIT(A). Details of finances and revenue for AYs 2006-07 to 2018-19 noted by the ld. CIT(A) is tabulated below which reflects that assessee did not receive income from public at large nor did it have any commercial transactions with public except as authorized by its MoU and approved by MoR and GoM.

8.7. Ld. CIT(A) also noted the movement of deposits with banks and interest thereon as reported in annual reports of the assessee which demonstrates that these deposits were not static but varying widely over the years and were thus parked only for short term, when not required for the projects. Making of these deposits was obviated by the objects of the assessee even though they yielded interest income higher than its operating and other income. Details of the deposits and their movement is tabulated below:

9.1. From the reading of above explanatory notes, it transpires that it was brought to the statute keeping in view the fact that in the garb of advancement of object of general public utility, many institutions/organizations are actually engaged in income generating commercial activities. Therefore, to prevent misuse of the exemption provision in the statute intended for genuine charitable institutions/organizations, the proviso was introduced.

A.3. Generally, the charging of any amount towards consideration for such an activity (advancing general public utility), which is on cost-basis or nominally above cost, cannot be considered to be "trade, commerce, or business" or any services in relation thereto. It is only when the charges are markedly or significantly above the cost incurred by the assessee in question, that they would fall within the mischief of "cess, or fee, or any other consideration" towards "trade, commerce or business". In this regard, the Court has clarified through illustrations what kind of 3818 and 3819/MUM/2024 Mumbai Railway Vikas Corporation Ltd. AYs 2018-19, 2017-18 and 2016-17 services or goods provided on cost or nominal basis. would normally be excluded from the mischief of trade, commerce, or business, in the body of the judgment. H. Application of interpretation H. At the cost of repetition, it may be noted that the conclusions arrived at by way of this judgment, neither precludes any of the Assessee's (whether statutory, or non-statutory) advancing objects of general public utility, from claiming exemption, nor the taxing authorities from denying exemption, in the future, if the receipts of the relevant year exceed the quantitative limit. The assessing authorities must on a yearly basis, scrutinize the record to discern whether the nature of the Assessee's activities amount to "trade, commerce or business" based on its receipts and income (de, whether the amounts charged are on cost-basis, or significantly higher). If it is found that they are in the nature of "trade, commerce or business", then it must be examined whether the quantified limit (as amended from time to time) in proviso to section 2(15), has been breached, thus disentitling them to exemption."

10.1. From the above, it is noted that intention to earn profit is an essential ingredient for an activity to be considered in the nature of trade, commerce or business. If a charitable trust or institution charges a nominal profit above cost in respect of its activities, it would not fall within the vice of proviso to section 2(15). As elaborately dealt in the above paragraphs in the present case, assessee has not even covered its expenses in respect of activities undertaken by it, there being deficit in its income and expenditure statement except for interest income on fixed deposits where the funds were parked on short term basis depending on the need for the projects.

10.2. We also take note of the decision of Coordinate Bench of ITAT, Mumbai in the case of Media Research Users Council vs. ADIT [2024] 205 ITD 170 (Mum) wherein the judgement of Hon'ble Supreme Court in the case of Ahmedabad Urban Development Authority (supra) was analysed and is relevant in the present case. The analysis made by the Coordinate Bench in para-19 of its order is extracted below for ease of ready reference:

3818 and 3819/MUM/2024 Mumbai Railway Vikas Corporation Ltd. AYs 2018-19, 2017-18 and 2016-17 “19. The Hon'ble Supreme Court after analysing the law which was prevalent and applicable prior to insertion of proviso w.e.f. 01/04/2009 and amendments made thereafter, have clarified the amended position of law in the following manner:-

➤ if at all any activity in the nature of trade, commerce or business, or a service in the nature of the same, for any form of consideration is permissible, then activity should be intrinsically linked to, or is part of the GPU category charity's object.

➤ the test of the charity being driven by a predominant object is no longer good law. Likewise, the ambiguity with respect to the kind of activities generating profit which could feed the main object and incidental profit-making also is not good law.

➤ What instead, the definition under section 2(15) through its proviso directs and thereby marks a departure from the previous law, that if a GPU charity is to engage in any activity in the nature of trade, commerce or business, for consideration it should only be a part of this actual function to attain the GPU objective; and equally important consideration is the imposition of a quantitative standard i.e., income (fees, cess or other consideration) derived from activity in the nature of trade, business or commerce or service in relation to these three activities, should not exceed the quantitative limit.

The Hon'ble Apex Court has further held that the idea of providing services or goods at no consideration or at cost may not be relevant factor as it has to be given a wider meaning. But now there is an inhibition against making profit though there may be a little surplus left over the end of the year. Thus, concept of pure charity i.e. the performance of an activity without consideration is not envisioned under the Act, however, as long as GPUs object involves activities which also generates profits, it can be granted exemption provided the quantitative limit under second proviso to section 2(15) for receipts from such profits, is adhered to.

➤ In para 171, it has been stated that if the charity involves itself in activities that entail charging amounts only at cost or marginal markup over cost and also derives from profit, the prohibition against carrying on business or service relating to business is not attracted (if the quantum of such profits did not exceed 20% of its overall receipts) has been adhered to.”

11.1. Further, we note that since inception in the year 1999 and grant of registration u/s 12A in the year 2001, assessee has been found to be pursuing these activities for charitable purpose, which is available for the benefit of public at large without any discrimination. It is undisputed that activities undertaken by the assessee falls within the charitable cause of advancement of any other object of General Public Utility. Merely because proviso has been inserted in Section 2(15), it does not render activities which has been consistently found to be charitable to become commercial in nature. We find that in absence of intention to generate profit from the activities undertaken by the assessee, in view of continuous deficit, the same cannot be regarded as commercial in nature. Thus, in view of these findings and observations, we uphold the findings of ld. CIT(A) that assessee is not hit by the proviso to Section 2(15) of the Act allowing the claim of exemption u/s.11. Accordingly, grounds raised by the Revenue are dismissed.

by the assessee under rule 27 of the ITAT Rules claiming itself to be a ‘State/instrumentality of State’. This issue has already been dealt by Co-ordinate bench in assessee’s own case for Assessment Year 2012-13, 2013-14 and 2015- 16 whereby consistent view is taken negating such a claim made by the assessee. Observation and finding in this respect in appeal for Assessment Year 2012-13 is extracted below:

9. The assessee has also filed a cross objection claiming that the assessee, being State/ an instrumentality of the State, cannot be imposed the income tax, but given the fact that the departmental appeal has been dismissed, and given 3818 and 3819/MUM/2024 Mumbai Railway Vikas Corporation Ltd. AYs 2018-19, 2017-18 and 2016-17 the fact that the learned counsel has stated that in the event of the departmental appeal being dismissed, the cross objection may be treated as not pressed, we see no need to deal with the same. We may, however, take on record learned counsel's statement that he may not press the issue raised in the cross objection at this stage, he would like to keep the issues raised therein alive, so that if required, this issue be pursued in future.”

12.1. Similar view was adopted in the other two AYs 2013-14 and 2015- 16 by noting that “We see no reason to take any other view of the matter than the view so taken by us in assessee’s own case. Respectfully following the same, the cross objection must also be dismissed as such.” In the present case, assessee has not filed cross objections but come up by making application under rule 27 of the ITAT Rules. The were admitted for adjudication in terms of above stated paragraphs. Considering the findings of Co-ordinate bench in assessee’s own case for the aforesaid three years, we respectfully follow the same to dismiss the ground raised by the assessee in its application made u/r 27 of the ITAT Rules. Accordingly, the same is dismissed.