DCIT, EXEMPTIONS CIRCLE, HYDERABAD vs. HYDERABAD METROPOLITAN DEVELOPMENT AUTHORITY, SECUNDERABAD

ITA No.271/Hyd/2022 and ITA No.326/Hyd/2022

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 A.Y. Appellant / Assessee Respondent No 1 271/Hyd/2022 2018-19 Hyderabad Metropolitan DCIT Development Authority, (Exemptions), Ameerpet, Hyderabad. Circle – 1(1), Hyderabad. PAN : AAALH0058D 2 326/Hyd/2022 2018-19 DCIT (Exemptions), Hyderabad Circle – 1(1), Metropolitan Hyderabad. Development Authority, Ameerpet, Hyderabad. PAN : AAALH0058D

Appellant by : Ms. Sandhya Respondent by : Shri Jeevan Lal Lavidiya – CIT-DR Date of Hearing : 21.12.2022 Date of Pronouncement : 26.12.2022

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O R D E R PER LALIET KUMAR, J.M. The cross appeals filed by the assessee and Revenue are against the common order passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dt.31.05.2022 for the assessment year 2018-19.

“1) The order of the learned Commissioner of Income- Tax (Appeals) is erroneous both on facts and in law to the extent it is prejudicial to the appellant. 2) The learned Commissioner of Income-Tax (Appeals) erred in holding that the appellant is not entitled for exemption u/s 11 of the I.T.Act. The learned Commissioner of Income-Tax (Appeals) failed to see that the return of income and the Audit Report were filed well within time mentioned in Circular F.No.173/193/2019-ITA-1 dated 23.4.2019 and fulfilled all the conditions required for exemption u/s 11 of the I.T. Act. 3) The learned Commissioner of Income-Tax (Appeals) erred in not considering Ground No.3 raised before • him particularly when the above mentioned circular clarifies that the requirement for grant of exemption u/s 11 is filing of the return of income u/s 139 and not u/s 139(1) of the I.T.Act. The learned Commissioner of Income-Tax (Appeals) ought to have seen that the Return of income was filed on 2.11.2018 and is within the time allowed u/s 139 of the I.T. Act. 4) The learned Commissioner of Income-Tax (Appeals) did not properly consider grounds No.2 & 3 and erred in deciding the question of Sec.11 of the I.T. Act properly.

ITA No.271/Hyd/2022 and ITA No.326/Hyd/2022 5) The learned Commissioner of Income-Tax (Appeals) did not properly consider grounds No.4,6 and 11. The learned Commissioner of Income-Tax (Appeals) ought to have seen that the Assessing Officer considered the receipts as income without considering the expenditure incurred. The learned Commissioner of Income-Tax (Appeals) ought to have held that the receipt has to be reduced by the capital and revenue expenditure incurred for fulfilling the objects of the appellant besides allowing the excess of expenditure of the earlier years. The learned Commissioner of Income-Tax (Appeals) ought to have directed the Assessing Officer to allow capital and revenue expenditure and the excess of expenditure of the earlier year. 6) The learned Commissioner of Income-Tax (Appeals) erred in holding that 100% of the Development fee collected represents the income of the appellant. The learned Commissioner of Income-Tax (Appeals) ought to have seen that as per the Government order, only 15% of the Development Charges collected can be utilised by the assessee and the balance of the amount is to be utilised in accordance with the directions given by the Government. 7) The learned Commissioner of Income-Tax (Appeals) ought to have seen that 85% of the Development Charges collected does not represent the income of the appellant as the same was received on behalf of the Government and were to be utilised for the purpose mandated by the Government. 8) The learned Commissioner of Income-Tax (Appeals) erred in confirming the addition made of Rs.2,96,26,07,725/- without properly considering the fact that the said amount does not represent income of the assessee. 9) The learned Commissioner of Income-Tax (Appeals) erred in holding that out of the amount received under the head BPS and LRS, 30% of the amount has to be considered as income. The learned Commissioner of Income-Tax (Appeals) ought to have seen that no part of the amount relates to the assesse as 70% of the same was to be paid to the Local Authority and the balance of 30% has to be utilised for the purposes directed by the State Government. 10) The learned Commissioner of Income-Tax (Appeals) ought to have seen that no part of the amount of LRS and BPS represents the income of the assesse.

ITA No.271/Hyd/2022 and ITA No.326/Hyd/2022 11) The learned Commissioner of Income-Tax (Appeals) erred in confirming the action of the Assessing Officer in not allowing the excess expenditure incurred in the earlier years as utilisation for the year under consideration. The learned Commissioner of Income-Tax (Appeals) ought to have seen that the amendment brought in by the Finance Act 2021 is applicable with effect from the assessment year 2022-23 and cannot be considered for the assessment year under consideration i.e. AY 2018-19. The learned Commissioner of Income-Tax (Appeals) ought to have considered the fact that various judicial fora held that excess of expenditure incurred in the earlier years can be given set off towards unutilised balance of the year under consideration. 12. The learned Commissioner of Income-Tax (Appeals) erred in holding that excess of expenditure of earlier years cannot be given set off for the year under consideration which is against the judicial precedents. 13). The learned Commissioner of Income-Tax (Appeals) erred in confirming the addition of Rs.2,05,78,27,779/- representing Development deferment charges of Rs.3,68,89,350/-; Environment Impact fee of Rs.11,73,15,885/-; Fire Service Infrastructure Development charges of Rs.2,68,02,507/- and NALA charges of Rs.187,68,19,961/-. The learned Commissioner of Income-Tax (Appeals) ought to have seen that the said amounts were collected on behalf of the Government and the said receipt does not relate to the assesse. 14) The learned Commissioner of Income-Tax (Appeals) erred in confirming the action of the Assessing Office in taxing 100% of the receipt without allowing any deduction from the receipt.” 3. The grounds raised by the Revenue reads as under :

“1) The order of the learned Commissioner of Income- Tax (Appeals) is erroneous both on facts and in law. 2) CIT(A) ought to have considered the fact that one hand upholding the approach of the Assessing Officer that 100% receipts (developmental charges) to be considered in the hands of the society / trust on the other hand allowing the expenditure (not for acquiring development charges) for the 4

ITA No.271/Hyd/2022 and ITA No.326/Hyd/2022 purpose as directed by the government from time to time from out of the development charges so collected ? 3) CIT(A) ignored the fact that there is no such scope in the objects of the trust / authority to follow the directions of the government in spending the income thereby by following the directions of the government from time to time the trust / authority in spending the amount(s) is not in accordance with its objects. 4) CIT(A) erred in not considering the fact that the receipt of Rs.545,15,27,213/- under layout regulation scheme is a part and partial of the assessee authority besides the fact that the assessee is in receipt of the same. 5) CIT(A) ought not to have considered the fact that simply by depositing in the escrow account maintained by it as per the directions of the government, the role of the assessee is over and assessee is no way concerned about the way how the same is expended. 6) CIT(A) erred in not considering the fact that the receipt of development charges of Rs.3,68,89,356/-, Fire Service Infrastructure Development Fee of Rs.2,68,02,577/-, Environment Impact Fee of Rs.11,73,15,885/- and NALA Fee of Rs.187,68,19,961/- is a part and parcel of the assessee authority besides the fact that the assessee is in receipt of the same. 8) CIT(A) erred in not considering the fact that there is no such provision / scope in the bye-laws of the assessee to facilitate the policies of the government; whether they are chartable or not because all the facts and directions of the government are at the description of the government but not as per the provisions of IT Act.”

ITA No.271/Hyd/2022 and ITA No.326/Hyd/2022 revised on 31.03.2019. The return was processed u/s 143(1) of the Act. Subsequently, the case was selected for scrutiny and accordingly, notice u/s 143(2) of the Act dt.23.09.2019 was issued and served on the assessee, requiring the assessee to file details of the income declared in the return of income filed. Assessee filed its response to notice issued u/s 142(1) of the Act. Assessee had claimed exemption of its income u/s 11 of the Act shown as gross income of Rs.136,05,59,089/- and claimed application of Rs.661,38,14,451/- towards charitable purpose. Thereafter, on based on the reply filed by the assessee, Assessing Officer had completed the assessment by making an addition of Rs.348,54,20,854/- being 85% of the development charges of Rs.410,04,95,122/-.

ITA No.271/Hyd/2022 and ITA No.326/Hyd/2022 where the return of income for the assessment year 2018-19 was filed by 31.3.2019. In this regard, he relied on the decision of Telangana Working Journalist Welfare Fund, Hyderabad Vs. ITO (Exemptions), Ward – 3, Hyderabad, wherein the co-ordinate Bench of the Tribunal considering the said Circular of CBDT directed the Assessing officer to allow exemption u/s 1 l of the I.T.Act.

“The appellant is a Urban Development Authority entrusted with the development of urban areas falling within the GHMC limits of Hyderabad and Secunderabad and surrounding areas. For the assessment year 2018- 19, the return of income could not be uploaded on 31.12.2018 due to technical reasons and the same was uploaded on 2. l .2019. As there was a delay of two days in filing the return of income, the Assessing officer rejected the exemption claimed u/ s 11 of the I.T.Act. The disallowance of the claim is confirmed by the learned CIT (Appeals). In this regard, the appellant humbly submits that the CBDT vide Circular No. 173/ 193 2019-ITA- 1 dated 21.11.2022 directed to allow exemption u/ s 11 even in cases where the return of income for the assessment year 2018-19 was filed by 31.3.2019. The Hon’b1e ITAT, Hyderabad vide order in ITA no.343/ Hyd/ 2022 dated 21.11.2022 in the case of Telangana Working Journalist Welfare Fund, Hyderabad considering the said Circular of CBDT directed the Assessing officer to allow exemption u/s 11 of the I.T.Act. The Delhi Bench of the Hon’ble ITAT in the case of Conference of Religious India vide order in ITA no.216/DEL/ 2022 dated 13.10. 2022 directed that exemption u/s 11 is allowable.

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In view of the above, the appellant prays the Hon'b1e ITAT to kindly set aside the matter to the file of the Assessing officer with a direction to grant exemption u/s 11 of the I.T. Act for the impugned assessment year.”

“8. Since the above instruction dated 23.04.2019 and subsequent circular No.2/2020 vide F.No.97/%%/2018-ITA-I dated 03.01.2020 were not considered by the ld.CIT(A)/NFAC, although, these are instructions / circulars issued by the Board and are binding on the revenue authorities, therefore, considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of ld.CIT(A) / NFAC with the direction to adjudicate the issue afresh in the light of the circulars / instructions issued by the CBDT clarifying the time allowed for filing of return of income subsequent to the insertion of clause (ba) in sub-section (1) of section 12A of the Act. Needless to say, the ld.CIT(A) / NFAC shall give due opportunity of being heard to the assessee and decide the issue as per fact and law. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.” 8

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“14. 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.

ITA No.271/Hyd/2022 and ITA No.326/Hyd/2022 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 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 10

ITA No.271/Hyd/2022 and ITA No.326/Hyd/2022 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 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 11

ITA No.271/Hyd/2022 and ITA No.326/Hyd/2022 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 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: 12

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"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. 17. 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 13

ITA No.271/Hyd/2022 and ITA No.326/Hyd/2022 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." 186. 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. 14

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(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 ; (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; 16

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(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 (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 17

ITA No.271/Hyd/2022 and ITA No.326/Hyd/2022 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, ie, 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.”

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 18

ITA No.271/Hyd/2022 and ITA No.326/Hyd/2022 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 it is set up for a charitable purpose and seeking exemption under Section 10(23C) or other provisions of the Act.”

ITA No.271/Hyd/2022 and ITA No.326/Hyd/2022 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.”

ITA No.271/Hyd/2022 and ITA No.326/Hyd/2022

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

ITA No.271/Hyd/2022 and ITA No.326/Hyd/2022

Copy to: S.No Addresses 1 Hyderabad Metropolitan Development Authority, 4 th Floor, Swarna Jayanthi Complex, Ameerpet, Hyderabad – 500 029. 2 DCIT (Exemptions), Circle – 1(1), Hyderabad. 3 CIT (Appeal) – 3, National Faceless Appeal Centre (NFAC) Delhi. 4 DR, ITAT Hyderabad Benches 5 Guard File

By Order