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Income Tax Appellate Tribunal, Hyderabad ‘ B ‘ Bench, Hyderabad
Before: Before Shri Rama Kanta Panda & Shri Laliet Kumar
ITA Nos.1722 to 1726/Hyd/2019 and ITA Nos.1877 to 1881/Hyd/2019
IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ B ‘ Bench, Hyderabad Before Before Shri Rama Kanta Panda, Accountant Member AND Shri Laliet Kumar, Judicial Member
Sl. ITA No Assess- Appellant / Respondent No ment Year Assessee 1-5 1722 to 2009-10 to Kakatiya Urban ACIT 1726/Hyd/2019 2013-14 Development (Exemptions), Authority, Hyderabad Warangal. Circle, PAN : AAAJK465B Hyderabad. 6-10 1877 to 2009-10 to ACIT Kakatiya Urban 1881/Hyd/2019 2013-14 (Exemptions), Development Hyderabad Authority, Circle, Warangal. Hyderabad. PAN : AAAJK465B
Appellant by : Ms. Sandhya Respondent by : Shri Jeevanlal Lavidiya – CIT-DR Date of Hearing : 21.12.2022 Date of Pronouncement : 26.12.2022
ITA Nos.1722 to 1726/Hyd/2019 and ITA Nos.1877 to 1881/Hyd/2019
O R D E R PER BENCH : The captioned ten appeals filed by the assessee and Revenue are against the common order passed by the learned Commissioner of Income Tax (Appeals) – 9, Hyderabad dt.23.09.2019 for the above-mentioned assessment years.
The only effective ground raised by the assessee in ITA No.1722/Hyd/2019 for A.Y. 2009-10 reads as under :
“The Ld. CIT (A) ought to have held that 85% of the Development Charges do not represent the income of the appellant as the said amount always belong to the State Government and only to the extent of 15% of the development charges can be the income of the appellant.” 2. The Ld. CIT (A) ought to have appreciated that the provisions of
Similar grounds are raised by the assessee in other four appeals also i.e., ITA Nos.1723 to 1726/Hyd/2019 for A.Y.s 2010-11 to 2013-14.
The grounds raised by the Revenue in ITA No.1877/Hyd/2019 for A.Y. 2009-10 reads as under :
ITA Nos.1722 to 1726/Hyd/2019 and ITA Nos.1877 to 1881/Hyd/2019
(i) The Ld.CIT(A) erred in directing the AO to allow the claim of expenditure of the assessee of Rs.2,79,09,099/-in respect of development charges after verifying whether the same have been incurred out of the development charges, in violation of the powers vested with him under section 25l{l){a) of the LT.Act. (ii) The Ld.CIT(A) erred in directing the AO to allow the claim of expenditure of the assessee of Rs.2,79,09,099/-in respect of development charges after verifying whether the same have been incurred out of the development charges received by the assessee, without appreciating the fact that the expenditure is made at the behest and on the directions of the State Government and is not necessarily for the particular area from which the development charges have been received. (iii) The Ld.CIT(A) erred in not considering that the expenditure incurred is not relatable to the specific area from which the particular income was received and therefore the claim of expenditure is not admissible as it not expended towards the development of the particular area from which the corresponding income was earned. (iv) The Ld.CIT(A) erred in not considering the fact that the receipts of the assessee under the layout regularization scheme and building penalization expenses are a part and parcel of the overall general receipts of the assessee, irrespective of the lien on the same. (v) The Ld.CIT{A) erred in holding that the specific receipts from the layout regularization scheme of Rs.2,62,71,273/- and the specific receipts from the building penalization scheme of Rs.11,54,441/- will not form part of the general receipts of the assessee, but would be in the nature of corpus receipts, as the assessee did not have the power to incur expenditure from such receipts, as the same was maintained in an escrow account, and the withdrawals from the account was controlled by the State Government. (vi) The Ld.CIT(A) erred in holding that the specific receipts from the layout regularization scheme of Rs.2,62,71,273/- and the specific receipts from the building penalization scheme of Rs.11,54,441/- will not form part of the general receipts of the assessee based on the spending power from such receipts without
ITA Nos.1722 to 1726/Hyd/2019 and ITA Nos.1877 to 1881/Hyd/2019
considering the aspect that the amounts so received was required to be spent for improvement of amenities in that particular area, which was utilized by the assessee, without following the specific direction, of expending the same towards the particular area from which such receipts were received by the assessee.”
Similar grounds are raised by the Revenue in other four appeals also i.e., ITA Nos.1878 to 1881/Hyd/2019 for A.Y.s 2010-11 to 2013-14, except the amounts involved in.
First, we will take up the appeals filed by the assessee.
6.1. Before us, at the outset, both the parties submitted that the facts and grounds raised in all the appeals are identical. In view of the aforesaid submissions, we, for the sake of convenience proceed to dispose of all the captioned appeals by a consolidated order but however, refer to the facts in ITA No.1722/Hyd/2019 for A.Y. 2009-10 filed by the assessee.
The brief facts of the appeal in ITA No.1722/Hyd/2019 are that assessee is an Urban Development Authority established under the Andhra Pradesh Urban Areas Development Act, 1975. Assessee has not filed its original return of income u/s 139(1) of the Act before the due date and hence, notice u/s 148 of the Act dt.21.09.2015 was issued by the ACIT, Circle – 1, Warangal and served on the assessee on the belief that assessee’s income chargeable to tax had escaped assessment. In response, the assessee filed its return of income on 23.12.2015 declaring loss of
ITA Nos.1722 to 1726/Hyd/2019 and ITA Nos.1877 to 1881/Hyd/2019
Rs.13,24,744/-. As the assessee filed the return of income belatedly, it was treated as non-est and subsequently, notice u/s 142(1) of the Act was issued along with questionnaire and was duly served on the assessee for the purpose of completion of the escapement assessment proceedings u/s 144 of the Act. Accordingly, assessment was completed and taxable income was assessed at Rs.37,73,76,350/-.
Feeling aggrieved with the above order, assessee filed appeal before ld.CIT(A)-3, Hyderabad who vide consolidated order dt.10.02.2017 partly allowed the appeals. Meanwhile, the assessee society filed an application for registration u/s 12AA of the Act before the CIT(Exemptions), Hyderabad, who vide order dt.26.09.2016 rejected the same. Assessee further carried the matter before the Tribunal, wherein the Tribunal vide consolidated order dt.07.02.2018 set aside the issue to the file of Assessing Officer. Thereafter, ld.CIT(E) vide order dt.17.12.2018 granted registration u/s 12A of the I.T. Act w.e.f. 01.03.2016. However, during the assessment proceedings in the light of directions of Tribunal and grant of registration u/s 12AA of the Act, Assessing Officer had completed the re-assessment interalia by making additions of Rs.2,24,32,226/- towards development charges, Rs.2,62,71,273/- towards Layout Regulation Scheme and Rs.11,54,441/- towards Building Penalization Scheme.
ITA Nos.1722 to 1726/Hyd/2019 and ITA Nos.1877 to 1881/Hyd/2019
Feeling aggrieved with the order of re-assessment passed by the Assessing Officer, assessee carried the matter before ld.CIT(A), Hyderabad, who partly allowed the appeals of assessee vide its common order dt.23.09.2019.
Feeling aggrieved with the order of ld.CIT(A), assessee and Revenue both are now in appeal before us for the grounds mentioned hereinabove.
Before us, ld. AR submitted that assessee had collected Development Charges of Rs.2,53,90,853/- for the assessment year 2009-10 but considered only 15% of the said receipt as its income. The amount was collected as per the orders of the State Government issued from time to time. According to the said orders, the assessee was authorized to utilize 15% of the Development Charges for its purposes and 85% is required to be spent towards development of infrastructure and urban development. Ld. AR further submitted that only 15% of the Development Charges collected can be considered as its income and that the same was not accepted either by the Assessing Officer or the learned CIT (Appeals). Ld. AR relied on the decision of ITAT, Visakhapatnam Bench passed in the case of Andhra Pradesh Capital Region Development Authority (Formerly VGTM
ITA Nos.1722 to 1726/Hyd/2019 and ITA Nos.1877 to 1881/Hyd/2019
Urban Development Authority), Vijayawada Vs. ACIT, Vijayawada dt. 30.09.2022.
In support of its case, ld. AR filed the written submissions which are to the following effect :
“Appeals filed by the assessee: 5. The only effective ground of appeal in the assessee's appeal is that the learned CIT (Appeals) ought to have held that 85% of the Development charges do not represent the income of the appellant as the said amount always belong to the State Government and only the amount to the extent of 15% of the development charges can be the income of the appellant. 6. The relevant portion of the order of assessment in this regard is Extracted hereunder: "During the assessment proceedings, it is observed that the assessee was in receipt of Rs.2,63,90,853/- towards development charges collected by it. But the assessee has shown only 15% of it as its receipts. The assessee has not offered any explanation as to why only 15% of development charges collected by it are treated as receipts. However, an identical issue was dealt with in the case of HMDA, Hyderabad wherein the assessee submitted that the Municipal Administration and Urban Development [H] Department of the erstwhile Government of Andhra Pradesh through several Government Orders [vide (1) G.O. Ms.No.51, MA dt.05.02.1996, (2) G.O. Ms. No.530 dt.28.09.1998 and (3) G.O. Ms. No.439 dt.13.06.2007] has authorized the utilization of an amount equivalent to 15% of the Development Charges collected towards administration and other maintenance expenditure of the assessee. The balance 85% is to be utilized for development of infrastructure facility of the urban area.
Considering that the assessee KUDA is also following the GO of the State Government, the issue has been examined and the treatment of only 15% of Development charges as receipts has been found to be not acceptable particularly when the assessee has been claiming all the expenditure incurred on infrastructure development as application of income. The assessee cannot have benefit of application of income when the corresponding income is
ITA Nos.1722 to 1726/Hyd/2019 and ITA Nos.1877 to 1881/Hyd/2019
not offered. Since the assessee has already claimed the application of income towards infrastructure development, the 85% of Development Charges collected by the assessee have necessarily to be treated as income. Addition: Rs.2,24,32,226
Extract from CIT(A) Order 5.1. Although in the written submissions, there is a mistake in quoting the ground numbers, however, substantially in all these appeals only three grounds are there. Rest of the issues are either general or consequential in nature. The first substantial ground is in respect of addition on receipt of development charges. The appellant has taken only 15% as receipts whereas the Assessing Officer has added the entire receipt of development charges. In this assessment year, the Assessing Officer on this issue has held that the entire receipts of Rs.2,63,90,853/- towards development charges are to be considered as income, instead 15% as considered by the appellant. 5.2. In my considered opinion the entire receipts are available with the authority for expenditure, no doubt the expenditure as well as income are subject to control of state government. Considering only the 15% as income, instead of entire 100% is not correct approach, if the 85% could not be spent on developmental activities during the yar, then the appellant has the option to put money in accordance to the provisions of section 11(2) and 11(5) of the I.T. Act, 1961. However, the appellant has not submitted any evidence of making any representation before CIT(E) with regard to accumulation of the funds, though it is claimed that it is being done, since the issue is not before me so it does not require any adjudication. However, I uphold the approach of Assessing Officer in taxing the full receipts. 5.3. As far as the expenditure of Rs.2,79,09,099/- incurred from development charges not considered by the Assessing Officer, I direct that this may be allowed after verification of the Receipt and Payment account, that it has been spent out of development charges. The financial statements for A.Y.2009-10 have been submitted from page 39 to 53 of the paper book, however, from the perusal of these accounts, the amount spent out of development fund cannot be ascertained. In the result, this ground of appeal is partly allowed".
ITA Nos.1722 to 1726/Hyd/2019 and ITA Nos.1877 to 1881/Hyd/2019
The appellant submits that it collected Development Charges of Rs.2,53,90,853/- for the assessment year 2009-10 but considered only 15% of the said receipt as its income. The amount is collected as per the orders of the State Government issued from time to time. According to the said orders, the assessee is authorized to utilize 15% of the Development Charges for its purposes and 85% is required to be spent towards development of infrastructure and urban development. The assessee's claim is that only 15% of the Development Charges collected can be considered as its income. This is not accepted either by the Assessing Officer or the learned CIT (Appeals). 8. In this regard the appellant humbly submits that the Hon'ble ITAT, Visakhapatnam Bench in the case of Andhra Pradesh Capital Region Development (APCRDS) vide order in ITA Nos. 395,396, 397, 398 & 399/Viz/2017 dated 30.9.2022(copy submitted) held that only 15% of the Development Charges can be considered as the income of the appellant and not the entire receipt. In view of the order of the Hon'ble ITAT, Visakhapatnam stated supra, the assessee requests the Hon'ble ITAT to allow the ground raised by the appellant. 9. Further, it is humbly submitted that the issue in all the appeals filed by the assessee for the rest of the assessment years i.e. AYs. 2010-11 to 2013-14 is the same and therefore, the assessee requests the Hon'ble ITAT to kindly consider the above submissions for the Asst. years, 2010¬11 to 2013-14 also.
ITA Nos. 1877 to 1881/Hyd/2019 (By Revenue):
The grounds of appeal raised by the department for all the five assessment years viz 2009-10 to 2013-14 are common. The details of the issues and the direction of the learned CIT (Appeals) in this regard are furnished in the Annexure. The same may kindly be considered.
ITA Nos.1722 to 1726/Hyd/2019 and ITA Nos.1877 to 1881/Hyd/2019
A.Y.2009- A.Y.2010-11 A.Y.2011-12 A.Y.2012-13 A.Y.2013-14 10 ITA ITA ITA Issue Grounds of Appeal ITA ITA 1877/H/2019 (D) 1878/H/2019 (D) 1879/H/2019 (D) 1880/H/2019 (D) 1881/H/2019 (D) 1 Common Ground by DeptT Allowability of expenditure from out of development charges Rs 24,32,226 Rs.2,20,73,242 Rs.2,64,96,444 Rs.4,16,30,110 Rs.3,24,01,207 collected, to the tune of ' which is not discussed in the assessment order 2 Common Ground by Dept Layout Regularization Scheme receipts of are not Rs.2,62,71,273/- Rs.4,13,85,359/- Rs.4,61,56,306/- Rs.7,11,46,522/- Rs.12,18,19,361/- completely offered as receipts for the year under consideration 3 Building Penalization Scheme receipts of are not Rs.11,54,441/- Rs.2,20,886/- Rs.12,05,651/- Rs.10,355/- Nil completely offered as receipt for the year under consideration
The appellant humbly submits that in so far as the Development charges is concerned, in the ground of appeal raised by the Revenue it is mentioned that the Assessing officer has not considered the claim for expenditure against the Development Charges. The receipt of the Development charges to the extent of 85% is recorded in the books of account in a separate account and the expenditure is also claimed therein. When the Assessing officer is considering 100°/0 as receipt, the expenditure recorded already in the books of account and mentioned in the final accounts separately is required to be considered as expenditure. The CIT (A directed to allow the expenditure debited to the Development Charges account. In each of the final accounts filed before the Hon'ble ITAT the they contain the expenditure incurred against development charges which is allowable as a deduction. 12. In so far as the receipts on account of Layout Regularisation Charges (LRS) and Building Penalisation Charges (BPS), according to the Assessing officer, 100% of the receipt is to be considered as income. Whereas the learned CIT (Appeals) held that only the amount allowed to be utilized by the assessee as per the Govt. order can be treated as income and balance cannot be considered as income of the assessee. Thois view I supported by the decision of the Hon'ble ITAT,Visakhpatnam bench in the case of APCRDS stated supra. In view of the above, the appellant requests the Hon'ble ITAT to kindly dismiss the appeals filed by the Revenue.”
ITA Nos.1722 to 1726/Hyd/2019 and ITA Nos.1877 to 1881/Hyd/2019
The grounds of appeal raised by the department for all the five assessment years viz 2009-10 to 2013-14 are common. The details of the issues and the direction of the learned CIT (Appeals) in this regard are furnished in the Annexure. The same may kindly be considered. 4. The appellant humbly submits that in so far as the Development charges is concerned, in the ground of appeal raised by the Revenue it is mentioned that the Assessing officer has not considered the claim for expenditure against the Development Charges. The receipt of the Development charges to the extent of 85% is recorded in the books of account in a separate account and the expenditure is also claimed therein. When the Assessing officer is considering 100°/0 as receipt, the expenditure recorded already in the books of account and mentioned in the final accounts separately is required to be considered as expenditure. The CIT (A directed to allow the expenditure debited to the Development Charges account. In each of the final accounts filed before the Hon'ble ITAT the they contain the expenditure incurred against development charges which is allowable as a deduction. 5. In so far as the receipts on account of Layout Regularization Charges (LRS) and Building Penalization Charges (BPS), according to the Assessing officer, 100% of the receipt is to be considered as income. Whereas the learned CIT (Appeals) held that only the amount allowed to be utilized by the assessee as per the Govt. order can be treated as income and balance cannot be considered as income of the assessee. This view is supported by the decision of the Hon'ble ITAT, Visakhpatnam bench in the case of APCRDS stated supra. In view of the above, the appellant requests the Hon'ble ITAT to kindly dismiss the appeals filed by the Revenue.”
Per contra, the ld. Ld. DR had supported the orders of lower authorities and relied on the decision of Hon’ble Supreme Court in the case of ACIT (EXEMPTIONS) vs. AHMEDABAD URBAN DEVELOPMENT AUTHORITY (449 ITR 0001 (SC), and ACIT (Exemptions) Vs. Ahmedabad Urban Development Authority dt.03.11.2022 reported in (2022) 144 taxmannl.com 78 (SC). Ld.
ITA Nos.1722 to 1726/Hyd/2019 and ITA Nos.1877 to 1881/Hyd/2019
DR submitted that these matters are required to be remanded back to the file of Assessing Officer for denovo examination in the light of the decision of hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority (supra).
We have heard the rival submissions and perused the material available on record. The Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority (supra) in Paras 176 to 190 had held as under :
“176. It would be essential now to deal with certain kinds of receipts which GPU charities, typically statutory housing boards, regulatory authorities and corporations may be entitled to, if mandated to collect or receive During the course of hearing, learned counsels highlighted that statutory boards, and corporations have to recover the cost of providing essential goods and services in public interest, and also fund large scale development and maintain public property These would entail recovering charges or fees, interest and also receiving interest for holding deposits It was further pointed out that in some cases, income in the form of rents - having regard to the nature of the schemes which the concerned board, trust or corporation may be mandated or permitted to carry on, has to be received For instance, in some situations, for certain kinds of properties, the boards may be permitted only to lease out their assets and receive rents. 177. The answers to these, in the opinion of this court, are that the definition ipso facto does not spell out whether certain kinds of income can be excluded However, the reference to specific provisions enabling or mandating collection of certain rates, tariffs or costs would have to be examined Generically, going by statutory models in enactments (under which corporations boards or trust or authority by whatsoever name, are set up), the mere fact that these bodies have to charge amounts towards supplying goods or articles, or rendering services ie , for fees for providing typical essential services like providing water, distribution of food grains, distribution of medicines, maintenance of roads, parks etc , ought not to be characterized as "commercial receipts" The rationale for such exclusion would be that if such rates, fees, tariffs, etc , determined by statutes and collected for essential services, are included in the overall income as receipts as part of trade, commerce or business, the quantitative limit of 20% imposed by second proviso to Section 2(15) would
ITA Nos.1722 to 1726/Hyd/2019 and ITA Nos.1877 to 1881/Hyd/2019
be attracted thereby negating the essential general public utility object and thus driving up the costs to be borne by the ultimate user or consumer which is the general public By way of illustration, if a corporation supplies essential food grains at cost, or a marginal mark up, another supplies essential medicines, and a third, water, the characterization of these, as activities in the nature of business, would be self-defeating, because the overall receipts in some given cases may exceed the quantitative limit resulting in taxation and the consequent higher consideration charged from the user or consumer. (a) Interpretation of Section 10(46) and Section 2(15) 178. Section (20A) was inserted by Finance Act, 1970 with effect from 01 04 1962 It had excluded certain classes of income, of corporations[145] This court had occasion to deal with the provision while it was in force in the GIDC case (supra) The court had then emphasized that the expression "development" in Section 10(20A) should be understood widely; thus, all development programmes "relating to any industry" fell within the purview of "development" The court also highlighted that nothing in the IT Act laid down how a corporation could be termed as a development corporation nor was there anything mandating that fee chargeable by such corporations was confined to non-industrial activities. 179. The decision in Gujarat Maritime Board case (supra) was rendered in the context of Section 10(20) That provision exempts income accruing to local authorities, from taxation By Finance Act, 2002, an Explanation was added to Section 10(20) which defined "local authority" retrospectively The Board ceased to enjoy exemption which it had hitherto, in the absence of the retrospective definition It, therefore sought exemption, as a GPU category charity claiming that it was controlled by objects of general public utility having regard to the provisions of its parent Act, i e , the Gujarat Maritime Board Act This court refuted the argument of the revenue that if a corporation did not fall within the definition of "local authority" it could not claim to be a GPU charity It was held that Section 10(20) and Section 11 of the 1961 Act operate in totally different spheres Even if the Board is not considered as a local authority, it is not precluded from claiming exemption under Section 11(1) of the 1961 Act Therefore, the court read Section 11(1) in light of the definition of the words "charitable purposes" as defined under Section 2(15) This court also relied upon the ruling in CIT v APSRTC (supra) where the APSRTC - constituted under the Road Transport Corporation Act, 1950 - having regard to the objectives of the Act, was held to be a GPU charity, thus entitling it to exemption in terms of the IT Act. 180. In the light of these decisions, it is evident that the revenue's narrow construction by which tax exemption is denied on the ground that if an entity is not covered by Section 10(20A) - or the newly applicable Section 10(46), it cannot claim benefit as a GPU charity under Section 11, is unsound These
ITA Nos.1722 to 1726/Hyd/2019 and ITA Nos.1877 to 1881/Hyd/2019
two provisions confer different though overlapping benefits If an entity does not fulfil the requirement of one provision because it does not answer the description of a body under that provision, that ipso facto is not a bar for it to claim benefit of another provision. 181. Section 10(46) re-incarnated so to say Section 10(20A), which had been deleted w.e.f. 01 04 2003 This provision, i e , Section 10(46) was inserted with effect from 01 04 2009 retrospectively by the Finance Act, 2011[146] The conditions for applicability of Section 10(46), i e , that specified income or a class of specified income of ports, trusts or commissions, etc , established or constituted by or under Central or State enactments with the object of regulating or administering any activity in the general public, is on similar lines as in the case of GPU charities Like in the case of GPU charities, there is a prohibition by Section 10(46)(b) against such corporations, etc engaging in commercial activity This restriction has been introduced for the first time [as that prohibition was absent in the now repealed Section 10 (20A)] 182. The term "commercial" is closely similar to, if not identical, with the phrase "in the nature of trade, commerce or business." The other condition in Section 10(46) is that the specified income to be exempted, is to be notified by the Central Government in the Official Gazette Facially the allusion to commercial activity, appears to be in the nature of a complete bar to activities which are akin to commerce or business, yielding profit However, what needs to be kept in mind is that the object of Section 10 is to remove from the taxable net, an entire class of receipts of income Given this object of Section 10, the interpretation of "commercial" activity has to be on the same lines as in the case of income derived by GPU charities, in the course of their actual functioning, by involving in activities in the nature of trade, commerce or business Thus, if statutory corporations within Section 10(46) derive their income by charging a nominal mark-up over the cost of service rendered or goods supplied, meant to recover the costs of the activities they engage in primarily or to achieve the object for which they were set up, such as development of housing, road infrastructure, water supply, sewage treatment, supply of food grains, medicines, etc , with or without regulatory powers, the mere fact that some surplus or gain is derived would not disentitle them from the benefit of Section 10(46). 183. In this context, it would be useful to consider the judgment of the Delhi and Allahabad High Courts in Greater Noida Industrial Development Authority v Union of India[147] (hereafter "GNIDA") and CIT v Yamuna Expressway Industrial Development Authority[148] In GNIDA (supra), the High Court drew a distinction between bodies set up by the government with commercial purpose and objects - which are motivated by profit, and other government bodies The court held, correctly so - that other government bodies are not entitled to exemption as they are motivated by profit Then, dealing with the term "commercial activity" under Section 10(46), it was held
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that the decisive test is whether the activities for which consideration in the form of fee, service charge etc , is collected, is "intrinsically associated, connected and had minimum nexus with the object of regulating and administering the activity for the benefit of the public". 184. It was also held that if the activity is not carried on commercial lines, i.e, with the profit motive in mind, but the body is assigned an administrative role, having regard to the objects of the controlling statute or law, exemption cannot be denied under Section 10(46) As juxtaposed, activities for profit or activities which clearly were motivated by profit - carried on by government or statutory bodies, cannot avail of exemption The judgment in Yamuna Industrial Development Authority (supra) is along the similar lines. 185. As far as boards and corporations which are tasked with development of industrial areas, by statute, the judgments of this court, in Shri Ramtanu Cooperative Housing Society (supra) and Gujarat Industrial Development Corporation (supra) have declared that these bodies are involved in 'development' and are not essentially engaged in trading In Shri Ramtanu Cooperative Housing Society (supra) this court, by a five judge bench, held that the Maharashtra Industrial Development Corporation is not a trading concern, and observed as follows: "These features of transfer of land, or borrowing of moneys or receipt of rents and profits will by themselves neither be the indicia nor the decisive attributes of the trading character of the Corporation Ordinarily, a Corporation is established by shareholders with their capital The shareholders have their Directors for the regulation and management of the Corporation Such a Corporation set up by the shareholders carries on business and is intended for making profits When profits are earned by such a Corporation they are distributed to shareholders by way of dividends or kept in reserve funds In the present case, these attributes of a trading Corporation are absent The Corporation is established by the Act for carrying out the purposes of the Act The purposes of the Act are development of industries in the State The Corporation consists of nominees of the State Government, State Electricity Board and the Housing Board The functions and powers of the Corporation indicate that the Corporation is acting as a wing of the State Government in establishing industrial estates and developing industrial areas, acquiring property for those purposes, constructing buildings, allotting buildings, factory sheds to industrialists or industrial undertakings It is obvious that the Corporation will receive moneys for disposal of land, buildings and other properties and also that the Corporation would receive rents and profits in appropriate cases Receipts of these moneys arise not out of any business or trade but out of sole purpose of establishment, growth and development of industries.
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The Corporation has to provide amenities and facilities in industrial estates and industrial areas Amenities of road, electricity, sewerage and other facilities in industrial estates and industrial areas are within the programme of work of the Corporation The found of the Corporation consists of moneys received from the State Government, all fees, costs and charges received by the Corporation, all moneys received by the Corporation from the disposal of lands, buildings and other properties and all moneys received by the Corporation by way of rents and profits or in any other manner The Corporation shall have the authority to spend such sums out of the general funds of the Corporation or from reserve and other funds The Corporation is to make provision for reserve and other specially denominated funds as the State Government may direct The Corporation accepts deposits from persons, authorities or institutions to whom allotment or sale of land, buildings, or sheds is made or is likely to be made in furtherance of the object of the Act A budget is prepared showing the estimated receipts and expenditure The accounts of the Corporation are audited by an auditor appointed by the State Government These provisions in regard to the finance of the Corporation indicate the real role of the Corporation viz the agency of the Government in carrying out the purpose and object of the Act which is the development of industries If in the ultimate analysis there is excess of income over expenditure that will not establish the trading character of the Corporation There are various departments of the Government which may have excess of income over expenditure. * * * 20 The underlying concept of a trading Corporation is buying and selling There is no aspect of buying or selling by the Corporation in the present case The Corporation carries out the purposes of the Act, namely, development of industries in this State The construction of buildings, the establishment of industries by letting buildings on hire or sale, the acquisition and transfer of land in relation to establishment of industrial estate or development of industrial areas and of setting up of industries cannot be said to be dealing in land or buildings for the obvious reason that the State is carrying out the objects of the Act with the Corporation as an agent in setting up industries in the State The Act aims at building an industrial town and the Corporation carries out the objects of the Act The hard core of a trading Corporation is its commercial character Commerce connotes transactions of purchase and sale of commodities, dealing in goods The forms of business transactions may be varied but the real character is buying and selling The true character of the Corporation in the present case is to act as an architectural agent of the development and growth of industrial towns by establishing and developing industrial estates and industrial areas We are of opinion that the Corporation is not a trading one."
ITA Nos.1722 to 1726/Hyd/2019 and ITA Nos.1877 to 1881/Hyd/2019
In Shri Ramtanu Cooperative Housing Society (supra) no doubt, this court did not have to decide whether the Maharashtra Industrial Development Corporation was entitled to tax exemption However, it examined the provisions of the Act, and the ratio, that such industrial development corporations are not engaged in trading, is binding Like in that case, here too, the concerned state Acts (Gujarat Industrial Development Act, 1962 and the Karnataka Industrial Areas Development Act, 1966) tasked the boards with planning and development of industrial areas Their personnel are appointed under the enactments and are deemed to be public servants The state government is empowered to acquire land, in exercise of eminent domain power, for their purposes; their audits are by the Accountant General of the concerned state, or auditors appointed by the state They are authorized by law, to levy rates and charges, for the services they provide, on pre-determined basis In the light of these provisions, clearly, these boards and authorities perform objects of general public utility; and they are not driven by profit motive. 187. There is a two-fold distinction between the now-deleted Section 10(20A) and the newly added Section 10(46) (w.e.f. 01 06 2011) Firstly, that the erstwhile Section 10(20A) applied to a limited class of undertaking i e , the bodies, or corporations, constituted by or under any law-confined to the planning and development of housing infrastructure However, the newly added Section 10(46) is wider in comparison and the activities of any body or authority or board constituted by or under any central or State Act with "the object of regulating or administering any activity for the benefit of the general public", has broader import In a sense, the newly added Section 10(46), resembles a GPU category charity classified under Section 2(15) The second distinction is that Section 10(20A) did not bar any board, or corporations, etc from indulging in commercial activities However, sub-clause (b) of Section 10(46) imposes such a bar, and the concerned body cannot claim tax exemption if it engages in commercial activity. 188. The manner in which GPU charities has been dealt with under the definition clause, i e , Section 2(15), indicates that even though trading or commercial activity or service in relation to trade, commerce or business appears to be barred - nevertheless the ban is lifted somewhat by the proviso which enables such activities to be carried out if they are intrinsically part of the activity of achieving the object of general public utility Furthermore, in the case of GPU charities there is a quantified limit of the overall receipts, which is permissible from such commercial activity In the case of local authorities and corporations covered by Section 10(46) no such activities are seemingly permitted.
ITA Nos.1722 to 1726/Hyd/2019 and ITA Nos.1877 to 1881/Hyd/2019
As was observed in the earlier part of this judgment - while considering whether for the period 01 0 2003 - 31 05 2011, statutory boards, corporations, etc could have lawfully claimed to be GPU charities, this court has observed that the nature of such corporations is not to generate profit but to make available goods and other services for the benefit of public weal If such corporations (falling within the description of Section 10(46)) applied to the Central Government for exemption, the treatment of their receipts, should be no different than how such receipts can and should have been treated for the purposes of determining whether they are GPU charities, during the period when Section 10(46) was not in existence Furthermore, this court is of the opinion that having regard to the observations in Gujarat Maritime Board case (supra), the denial of exemption under one category cannot debar such corporations from claiming income exempt status under another category. (b) Summary in relation to statutory authorities/corporations 190. In light of the above discussion, this court is of the opinion that: (i) The fact that bodies which carry on statutory functions whose income was eligible to be considered for exemption under Section 10(20A) ceased to enjoy that benefit after deletion of that provision w.e.f. 01 04 2003, does not ipso facto preclude their claim for consideration for benefit as GPU category charities, under Section 11 read with Section 2(15) of the Act. (ii) Statutory Corporations, Boards, Authorities, Commissions, etc (by whatsoever names called) in the housing development, town planning, industrial development sectors are involved in the advancement of objects of general public utility, therefore are entitled to be considered as charities in the GPU categories. (iii) Such statutory corporations, boards, trusts authorities, etc may be involved in promoting public objects and also in the course of their pursuing their objects, involved or engaged in activities in the nature of trade, commerce or business. (iv) The determinative tests to consider when determining whether such statutory bodies, boards, authorities, corporations, autonomous or self- governing government sponsored bodies, are GPU category charities: (a) Does the state or central law, or the memorandum of association, constitution, etc advance any GPU object, such as development of housing, town planning, development of industrial areas, or regulation of any activity in the general public interest, supply of essential goods or services - such as water supply, sewage service, distributing medicines, of food grains (PDS entities), etc ;
ITA Nos.1722 to 1726/Hyd/2019 and ITA Nos.1877 to 1881/Hyd/2019
(b) While carrying on of such activities to achieve such objects (which are to be discerned from the objects and policy of the enactment; or in terms of the controlling instrument, such as memorandum of association etc ), the purpose for which such public GPU charity, is set-up - whether for furthering the development or a charitable object or for carrying on trade, business or commerce or service in relation to such trade, etc ; (c) Rendition of service or providing any article or goods, by such boards, authority, corporation, etc , on cost or nominal mark-up basis would ipso facto not be activities in the nature of business, trade or commerce or service in relation to such business, trade or commerce; (d) where the controlling instrument, particularly a statute imposes certain responsibilities or duties upon the concerned body, such as fixation of rates on pre-determined statutory basis, or based on formulae regulated by law, or rules having the force of law, setting apart amenities for the purposes of development, charging fixed rates towards supply of water, providing sewage services, providing food-grains, medicines, and/or retaining monies in deposits or government securities and drawing interest therefrom or charging lease rent, ground rent, etc , per se, recovery of such charges, fee, interest, etc cannot be characterized as "fee, cess or other consideration " for engaging in activities in the nature of trade, commerce, or business, or for providing service in relation in relation thereto; (e) Does the statute or controlling instrument set out the policy or scheme, for how the goods and services are to be distributed; in what proportion the surpluses, or profits, can be permissively garnered; are there are limits within which plots, rates or costs are to be worked out; whether the function in which the body is engaged in, is normally something a government or state is expected to engage in, having regard to provisions of the Constitution and the enacted laws, and the observations of this court in NDMC; whether in case surplus or gains accrue, the corporation, body or authority is permitted to distribute it, and if so, only to the government or state; the extent to which the state or its instrumentalities have control over the corporation or its bodies, and whether it is subject to directions by the concerned government, etc ; (f) As long as the concerned statutory body, corporation, authority, etc while actually furthering a GPU object, carries out activities that entail some trade, commerce or business, which generates profit (i e , amounts that are significantly higher than the cost), and the quantum of such receipts are within the prescribed limit (20% as mandated by the second proviso to Section 2(15)) - the concerned statutory or government organisations can be characterized as GPU charities It goes without saying that the other conditions imposed by the seventh proviso to Section 10(23C) and by Section 11 have to necessarily be fulfilled
ITA Nos.1722 to 1726/Hyd/2019 and ITA Nos.1877 to 1881/Hyd/2019
(v) As a consequence, it is necessary in each case, having regard to the first proviso and seventeenth proviso (the latter introduced in 2012, w r e f 01 04 2009) to Section 10(23C), that the authority considering granting exemption, takes into account the objects of the enactment or instrument concerned, its underlying policy, and the nature of the functions, and activities, of the entity claiming to be a GPU charity If in the course of its functioning it collects fees, or any consideration that merely cover its expenditure (including administrative and other costs plus a small proportion for provision) - such amounts are not consideration towards trade, commerce or business, or service in relation thereto However, amounts which are significantly higher than recovery of costs, have to be treated as receipts from trade, commerce or business It is for those amounts, that the quantitative limit in proviso (ii) to Section 2(15) applies, and for which separate books of account will have to be maintained under other provisions of the IT Act (ii) Statutory regulatory bodies/authorities 191 During the hearings, rival contentions were made in regard to the facial nature of the public utility character of regulatory bodies A sample special case was that of the Institute of Chartered Accountants of India (ICAI) In respect of some years, the revenue has preferred appeals and in respect of some others, the Institute has preferred appeals Reliance was placed upon the provisions of the ICAI Act and detailed submissions were made to emphasise that it plays a pivotal role in regulating the entire universe of vocation of Chartered Accountants - i.e , selecting candidates that can undergo the educational course, setting the syllabus for the Chartered Accountancy examination; holding classes, training sessions and imparting education; conducting exams, etc It was highlighted that the membership of the institute, i e , those who are enrolled as Chartered Accounts has grown significantly Whereas in the end of financial year 2005, the membership was 1 23 lakhs, it had increased to 1,86,440 on 31 03 2012 Likewise, there was an exponential growth in the students appearing in the examination - in 2005, it was 2,96,294, and on 31 03 2012, it had increased to 10,70,839 Apparently, the Institute conducts distance education courses and also conducts classroom instruction facilities These are integrated with the course curriculum Additionally, it was urged that no commercial motive was involved; coaching and revisional classes conducted are very nominally priced - ranging from t1500 to t2500 for one group, and from t4000 to t6000 for both groups, depending on cities where the classes are held.”
ITA Nos.1722 to 1726/Hyd/2019 and ITA Nos.1877 to 1881/Hyd/2019
14.1 Further, the Hon’ble Supreme Court in Para 253 B had held as under :
“253 B Authorities, corporations, or bodies established by statute.. B.1 The amounts or any money whatsoever charged by a statutory corporation, board or any other body set up by the state government or central governments, for achieving what are essentially 'public functions/services' (such as housing, industrial development, supply of water, sewage management, supply of food grain, development and town planning, etc ) may resemble trade, commercial, or business activities However, since their objects are essential for advancement of public purposes/functions (and are accordingly restrained by way of statutory provisions), such receipts are prima facie to be excluded from the mischief of business or commercial receipts This is in line with the larger bench judgments of this court in Ramtanu Cooperative Housing Society and NDMC (supra). B.2 However, at the same time, in every case, the assessing authorities would have to apply their minds and scrutinize the records, 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 as a result, would have to comply with the quantified limit (as amended from time to time) in the proviso to Section 2(15) of the IT Act. B.3 In clause (b) of Section 10(46) of the IT Act, "commercial" has the same meaning as "trade, commerce, business" in Section 2(15) of the IT Act Therefore, sums charged by such notified body, authority, Board, Trust or Commission (by whatever name called) will require similar consideration - i e , whether it is at cost with a nominal mark-up or significantly higher, to determine if it falls within the mischief of "commercial activity" However, in the case of such notified bodies, there is no quantified limit in Section 10(46) Therefore, the Central Government would have to decide on a case-by-case basis whether and to what extent, exemption can be awarded to bodies that are notified under Section 10(46). B.4 For the period 01 04 2003 to 01 04 2011, a statutory corporation could claim the benefit of Section 2(15) having regard to the judgment of this Court in the Gujarat Maritime Board case (supra) Likewise, the denial of benefit under Section 10(46) after 01 04 2011 does not preclude a statutory corporation, board, or whatever such body may be called, from claiming that
ITA Nos.1722 to 1726/Hyd/2019 and ITA Nos.1877 to 1881/Hyd/2019
it is set up for a charitable purpose and seeking exemption under Section 10(23C) or other provisions of the Act.”
Further, the Hon’ble Supreme Court in the clarification issued vide order dt.03.11.2022 in Paras 4 and 5 has held as under :
“4. A plain reading of the conclusions recorded in Para 253(A), (B), (C), (D) and (E) would disclose that this court consciously recorded its findings, with the intent of finally deciding the issues, for various organizations- in relation to the assessment years in question, - whereas in Para 253 (F), the court remitted the matter for examination and orders by the assessing officer. Similarly, the conclusion in Para 253 G, was conclusive with respect to the claim of private trusts; the appeals were dismissed. These conclusions are accurately reflected in the final, operative directions in Para 254. In Para 254 (i) to (iv), the conclusions recorded are against the revenue. However, in Para 254 (v), (vi), (vii) and (vii), the conclusions, are in favour of the revenue. 5. The reference to application of the law declared by this court's judgment, therefore, has to be understood in the context, which is that they apply for the assessment years in question, which were before this court and were decided; wherever the appeals were decided against the revenue, they are to be treated as final. However, the reference to future application has to be understood in this context, which is that for the assessment years which this court was not called upon to decide, the concerned authorities will apply the law declared in the judgment, having regard to the facts of each such assessment year. In view of this discussion, no further clarification is necessary or called for.”
In view of the above, we are of the opinion that whether various activities undertaken by the assessee for development charges, layout registration scheme, building penalization scheme are allowable activities or not. Further, whether the aggregate receipts from the activities / activity of the assessee which fall within the general public utility clause exceeded the threshold
ITA Nos.1722 to 1726/Hyd/2019 and ITA Nos.1877 to 1881/Hyd/2019
limit provided under Section 2(15) of the Act or not are required to be examined in the light of the law laid down by the Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority (supra). As a sequitur to the above, we remit the matter back to the file of Assessing Officer with a direction to examine the activities of the assessee, denovo and decide the issue in accordance with the law, referred hereinabove, after affording sufficient opportunities of hearing to the assessee. Needless to say, that the assessee may file any documents / evidence in support of its contentions. We may like to point out that the decision relied by the ld.AR in the case of Andhra Pradesh Capital Region Development Authority (Formerly VGTM Urban Development Authority), Vijayawada Vs. ACIT, Vijayawada dt. 30.09.2022, is no more binding and applicable to the facts of the case as the same was rendered prior to pronouncement by the Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority (supra), therefore, while passing the order by the Assessing Officer, he shall only decide the issue on the basis of the judgment of the Hon’ble Supreme Court. Thus, this appeal is allowed for statistical purposes.
In the result, the appeal of assessee in ITA No.1722/Hyd/2019 is allowed for statistical purposes.
ITA Nos.1722 to 1726/Hyd/2019 and ITA Nos.1877 to 1881/Hyd/2019
As far as the other four appeals of assessee are concerned, in view of the submission of both the parties that the issues raised in A.Y. 2009-10 is identical to the other assessment years, we for the reasons stated hereinabove while deciding the appeal in ITA 1722/Hyd/2019 and for similar reasons, allow the four appeals of the assessee.
In the result, all the appeals filed by the assessee are allowed for statistical purposes.
Now we will take the appeals of Revenue.
20.1 While dealing with the appeals of assessee, we have remitted the matter back to the file of Assessing Officer. The Department has also sought for remit back the matter. The ld.AR for the assessee has no objection for remitting back the matter to the file of Assessing Officer. In view of the request of both the parties and in view of the decision of hon’ble Supreme Court in the case of ACIT (EXEMPTIONS) vs. AHMEDABAD URBAN DEVELOPMENT AUTHORITY (449 ITR 0001 (SC), and ACIT (Exemptions) Vs. Ahmedabad Urban Development Authority dt.03.11.2022 reported in (2022) 144 taxmannl.com 78 (SC) (supra), we remit back the appeals of Revenue to the file of the Assessing Officer with the similar directions. Thus, the appeals of Revenue are also allowed for statistical purposes.
ITA Nos.1722 to 1726/Hyd/2019 and ITA Nos.1877 to 1881/Hyd/2019
In the result, all the appeals filed by the Revenue are allowed for statistical purposes.
To sum up, all the appeals filed by the assessee and Revenue are allowed for statistical purposes. A copy of this common order is placed in respective case files.
Order pronounced in the Open Court on 26th December, 2022.
Sd/- Sd/- (RAMA KANTA PANDA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, dated 26th December, 2022. TYNM/sps
Copy to: S.No Addresses 1 Kakatiya Urban Development Authority, No.6-1-240, KUDA Complex, Beside Ashoka Hotel, Hanamkonda, Warangal – 506001. 2 Asst. Commissioner of Income Tax, (Exemptions), Hyderabad Circle, Hyderabad. 3 CIT (Appeals) – 9, Hyderabad. 4 CIT (Exemptions), Hyderabad. 5 DR, ITAT Hyderabad Benches 6 Guard File By Order