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Facts
The assessee, Bangalore Development Authority (BDA), is a public utility body involved in urban development, infrastructure provision, and selling plots (some concessional). It claimed exemption under Sections 11 and 12 of the Income Tax Act, which the AO denied, treating its activities (like site auctioning) as business, thus falling under the proviso to Section 2(15). The Ld. CIT(A) allowed the exemption, relying on prior Supreme Court and Tribunal judgments.
Held
The Tribunal upheld the Ld. CIT(A)'s decision, confirming that BDA's activities are charitable in nature, not commercial, and thus it is eligible for exemption under Sections 11 and 12. The Tribunal affirmed that the proviso to Section 2(15) does not apply to the assessee and dismissed the revenue's appeals against the various disallowances made by the AO on the premise of the assessee's non-charitable status.
Key Issues
1. Whether the Bangalore Development Authority is eligible for exemption under Sections 11 and 12 of the Income Tax Act, 1961, or if its activities fall under the business/trade proviso to Section 2(15). 2. Whether various disallowances (prior period expenses, 'assets written off', electrical deposits, slum clearance cess, interest on late payment of service tax, rent recoverable) were correctly allowed/deleted by the CIT(A).
Sections Cited
11, 12, 2(15), 13(8), 10(20A), 12A, 11(1)(a), 43B, 37, 37(1), 260A
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Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SHRI LAXMI PRASAD SAHU & SHRI SOUNDARARAJAN K.
ORDER PER BENCH
These are all the appeals filed by the revenue against the separate orders of the NFAC, Delhi all dated 13/12/2023 in respect of the A.Ys. 2016-17 to 2018-19 and raised the following grounds:
“I. The order of Ld.CIT(A) is opposed to facts and circumstances of the case; II. The CIT(A) has erred in holding that the assessee is not covered by the proviso to section 2(15) r.w.s.13(8) of the to 242/Bang/2024 Income Tax Act, 1961 and is eligible to claim exemption u/s.11 of the Income Tax Act, 1961 when the activity of auctioning sites during the F.Y.2015-16 was an activity that entail business and the receipts from the said activity constituted more than 25% of the revenue thereby, bringing the assessee within the purview of proviso to section 2(15) of the Income Tax Act, 1961 and the assessee is not eligible for exemption u/s.11; III. The CIT(A) has erred in allowing the prior period expenses debited by the assessee to the Income & Expenditure account while the prior period expenses do not pertain to the application of funds during the current financial year i.e. 2015-16 and cannot be allowed as application of income for the A.Y.2016-17; IV. The CIT(A) has erred in allowing "assets written off" debited by the assessee to the Income & Expenditure account while "assets written off" do not qualify as application of funds during the current financial year i.e. 2015-16 and cannot be allowed as application of income for the A.Y.2016-17; V. The CIT(A) has erred in allowing payments towards electrical deposits and expenditure towards accommodation of various committees while the assessee is not eligible for exemption u/s.11 by virtue of proviso to section 2(15) r.w.s.13(8) of the Income Tax Act, 1961 for the A.Y.2016-17 and the Gross Receipts of the assessee have to be taxed C, 30% and no expenditure is allowable; VI. The CIT(A) has erred in allowing Slum Clearance Cess payable to the State Government as an allowable expenditure despite the fact that the amount in question had not been paid during the F.Y.2015-16 and cannot be considered as application of income for the A.Y.2016-17; VII. The CIT(A) has erred in remitting back the issue of disallowance of expenditure of Rs.11.38 crores to the AO with a direction to verify the relevant bills and allow the same after verification, while the assessee is not eligible for exemption u/s.11 by virtue of proviso to section 2(15) r.w.s.13(8) of the Income Tax Act, 1961 for the A.Y.2016- 17 and the Gross Receipts of the assessee have to be taxed @, 30% and no expenditure is allowable; VIII. The CIT(A) has erred in remitting back the issue of pension and leave salary contribution to the AO and allow the same after verification, while the assessee is not to 242/Bang/2024 eligible for exemption u/ s.11 by virtue of proviso to section 2(15) r.w.s.13(8) of the Income Tax Act, 1961 for the A.Y.2016-17 and the Gross Receipts of the assessee have to be taxed 30% and no expenditure is allowable; IX. The appellant craves leave to add, alter or amend all or any of the Grounds of Appeal before or at the time of the hearing of the appeal; X. The order of the Ld.CIT(A) may be set-aside and the order of the AO may be confirmed.”
“I. The order of Ld.CIT(A) is opposed to facts and circumstances of the case; II. The CIT(A) has erred in holding that the assessee is not covered by the proviso to section 2(15) r.w.s.13(8) of the Income Tax Act, 1961 and is eligible to claim exemption u/s.11 of the Income Tax Act, 1961 when the activity of auctioning sites during the F.Y.2016-17 was an activity that entail business and the receipts from the said activity constituted more than 25% of the revenue thereby, bringing the assessee within the purview of proviso to section 2(15) of the Income Tax Act, 1961 and the assessee is not eligible for exemption u/s.11; III. The CIT(A) has erred in allowing the expenditure debited by the assessee to the Income & Expenditure account on account of refund of deposit receipts when the assessee is not eligible for exemption u/s.11 as it is covered by the proviso to section 2(15) of the Income Tax Act, 1961 and the Gross Receipts for the F.Y.2016-17 have to be taxed g 30% and no expenditure ought to be allowed; IV. The CIT(A) has erred in allowing the prior period expenses debited by the assessee to the Income & Expenditure account while the prior period expenses do not pertain to the application of funds during the current financial year i.e. 2016-17 and cannot be allowed as application of income for the A.Y.2017-18; V. The CIT(A) has erred in allowing Workers' Welfare Cess payable to the State Government as an allowable expenditure despite the fact that the amount in question had not been paid during the F.Y.2016-17 and cannot be considered as application of income for the A.Y.2017-18; to 242/Bang/2024 VI. The appellant craves leave to add, alter or amend all or any of the Grounds of Appeal before or at the time of the hearing of the appeal; VII. The order of the Ld.CIT(A) may be set-aside and the order of the AO may be confirmed.” “I. The order of Ld.CIT(A) is opposed to facts and circumstances of the case; II. The CIT(A) has erred in holding that the assessee is not covered by the proviso to section 2(15) r.w.s.13(8) of the Income Tax Act, 1961 and is eligible to claim exemption u/ s.11 of the Income Tax Act, 1961 when the activity of auctioning sites during the F.Y.2017-18 was an activity that entail business and the receipts from the said activity constituted more than 25% of the revenue thereby, bringing the assessee within the purview of proviso to section 2(15) of the Income Tax Act, 1961 and the assessee is not eligible for exemption u/ s.11; III. The CIT(A) has erred in allowing the prior period expenses debited by the assessee to the Income 8, Expenditure account while the prior period expenses do not pertain to the application of funds during the current financial year i.e. 2017-18 and cannot be allowed as application of income for the A.Y.2018-19; IV. The CIT(A) has erred in deleting the addition made on account of Rent Recoverable from BBMP on the ground that the AO had misconstrued the balance sheet item whereas the assessee itself in its Statement of Computation of Income submitted before the AO had declared Rental Income of Rs.10,47,03,300/- for the F.Y.2017-18 on accrual basis which ought to have been offered for tax as per clause (ii) of Explanation (1) to Section 11(1) of the Income Tax Act, 1961; V. The CIT(A) has erred in allowing Workers' Welfare Cess payable to the State Government as an allowable expenditure despite the fact that the amount in question had not been paid during the F.Y.2017-18 and cannot be considered as application of income for the A.Y.2018-19; VI. The CIT(A) has erred in allowing the interest on late payment of Service Tax on the ground that the payment is not of penal nature and hence does not come under the purview of section 37 of the Income Tax Act, 1961 while to 242/Bang/2024 the assessee is not eligible for exemption u/s.11 by virtue of proviso to section 2(15) r.w.s.13(8) of the Income Tax Act, 1961 for the A.Y.2018-19 and the Gross Receipts of the assessee have to be taxed Ca3 30% and no expenditure is allowable; VII. The appellant craves leave to add, alter or amend all or any of the Grounds of Appeal before or at the time of the hearing of the appeal; VIII. The order of the Ld.CIT(A) may be set-aside and the order of the AO may be confirmed.”
2. All these appeals are related to the same assessee and therefore we decided to take up all the appeals together and pass a common order for the sake of convenience.
3. In all the appeals, the common question involved are whether the assessee was eligible for deduction u/s. 11 of the Act by treating the activities carried out by the assessee as a charitable activity.
The brief facts of the case are that the assessee is an authority created for the development of the Bangalore and came into existence from 1976. Their main purpose is to promote and secure the development of Bangalore Metropolitan area in addition to providing infrastructure facility as a general public utility. The assessee also developed various layouts and sold the said plots to the public as well as to the economically weaker sections of the society at the concessional rates. Therefore the assessee claimed that they are doing the charitable activities and not doing any trade or business to subject the assessee to tax under the provisions of the Income Tax Act. The assessee initially claimed deduction u/s. 10(20A) of the Act upto the A.Y. 2002-03 and after the deletion of the said provision, the assessee had opted for exemption u/s. 11 and 12 from the A.Y. 2004-05. The assessee also initially granted registration u/s. 12A which was later on cancelled pursuant to the amendment made to the definition of charitable purposes in which the first proviso was added w.e.f. 01/04/2009. The assessee also challenged the said cancellation and by approaching the Tribunal as well as to 242/Bang/2024 the Hon’ble High Court, the registration was restored. Even though for the earlier years, the AO had denied the exemption claimed u/s. 11 and 12 of the Act, the said orders were challenged by the assessee and the appellate authorities had decided the issue in favour of the assessee. In respect of the A.Ys. 2013-14 and 2014-15, similar dispute came up for consideration before this Tribunal in to 1971/Bang/2018 dated 04/06/2019, this Tribunal had decided the issue in favour of the assessee. Inspite of such proceedings, in favour of the assessee, the AO proceeded to make the assessment and denied the exemption claimed u/s. 11 and 12 of the Act because the assessee is not doing any charitable activities.
5. As against the said order of the AO, the assessee filed appeals before the Ld.CIT(A) and contended that the assessee eligible for deduction u/s. 11 and 12 of the Act and they are very much coming under the definition of charitable purpose defined in section 2(15) of the Act and the first proviso inserted would not be applicable to the assessee’s case. The Ld.CIT(A) had considered the issue in detail and also the principles laid down by the Hon’ble Supreme Court in the case of ACIT(E) vs. Ahmedabad Urban Development Authority in Civil Appeal No. 21762 of 2017 vide its order dated 19.10.2022 and allowed the claim made by the assessee that they are eligible for exemption u/s. 11 and 12 of the Act. Insofar as the other disallowances also, the Ld.CIT(A) had given a finding and deleted / remitted the issues to the AO for fresh consideration.
6. Aggrieved with the above order of the Ld.CIT(A), the revenue is in appeals before this Tribunal.
At the time of hearing, the Ld.AR submitted the paper books for all the assessment years and also filed a common compilation of the decisions relied upon and submitted that this issue is no longer resintegra since the Hon’ble Supreme Court as well as the Tribunal had decided the issue in favour of the assessee. The Ld.AR also took us through the orders passed by the Tribunal as well as the findings given by the Hon’ble Supreme Court to 242/Bang/2024 in the judgement of Ahmedabad Urban Development Authority and submitted that the AO had erred in passing the assessment order. The Ld.AR also relied on the decision of the Coordinate Bench of this Tribunal in the case of Magadi Planning Authority vs. ITO in 1352 & 1353/Bang/2024 dated 22/01/2025 and prayed to dismiss the appeals filed by the revenue insofar as the exemption claimed u/s. 11 and 12 of the Act.
The other issues raised by the department will be dealt with separately since the common issue involved in all the three appeals are initially decided.
The Ld.DR appearing for the revenue / appellant contended that the order of the AO is a detailed order and therefore the finding of the Ld.CIT(A) is not correct. The Ld.DR also relied on the various grounds raised in respect of the claim of exemption made u/s. 11 of the Act since the assessee is not doing any charitable activities as per section 2(15) r.w.s. 13(8) of the Act. The Ld.DR further submitted that the assessee is doing the business activities and therefore earned income out of the said business and therefore the provision 2(15) first proviso would apply to the assessee and therefore the benefit of exemption would not be available to the assessee.
10. Now let us consider the issue that whether the assessee is eligible for exemption u/s. 11 of the Act. This issue was already considered by the Coordinate Bench of this Tribunal in to 1971/Bang/2018 in assessee’s own case for the A.Ys. 2013-14 and 2014-15 in which the assessee’s own case for the A.Y. 2012-13 in dated 22/03/2019 was considered in which the Tribunal’s findings were extracted as below: “9. At the time of hearing of the appeal, it was agreed by both the parties that identical issue had come up for consideration in assessee's own case for asst. year 2012- 13 in ITA No.1104/Bang/2017 and this tribunal vide its order dated 22/3/2019 held that the assessee is entitled to the benefit of sec. 11 of the Act and that its activities to 242/Bang/2024 cannot be said to fall within the ambit of proviso to sec. 2(15) of the Act. The conclusions of the Tribunal can be summed up as follows:-
1.
In Paragraph 5.8.1, the Tribunal extracted the objects of the Assessee as per Section 14 of the BDA Act, 1976, which is as under: "14. Objects of Authority:--The objects of the authority shall be to promote and secure the development of the Bangalore Metropolitan Area and for that purpose the authority shall have the power to acquire, hold, manage and dispose of movable and immovable property, whether within or outside the area under its jurisdiction, to carry out building, engineering and other operations and generally to do all things necessary of expedient for the purpose of such development and for purposes incidental thereto." In Paragraph 5.8.2 the Tribunal came to the conclusion that there were five limbs to the definition of "Charitable Purpose" in Sec.2(15) of the Act, viz., (i) Relief of the poor, (ii) Education, (iii) Medical relief, (iv) Preservation of environment (including watersheds, forests and wildlife) and (v) Preservation of monuments or places or objects of artistic or historic interest). Though the five limbs are not specifically provided for in section 14 of the BDA Act, the objects enunciated involved preservation of environment, preservation of water bodies, preservation of forest areas, etc., appears to have merit; for it is a fact that planned urban development cannot take place or be done without due consideration being given to the preservation of the environment, water bodies like lakes, streams, etc., and forest areas. In coming to the above conclusion, the Tribunal found that from the financial statements of the assessee it was evident that it has expended an amount of Rs.2095.24 lakhs on planting of one crore seedlings in the green belt area for improvement of the environment. The Assessee has expended a sum of Rs.2997.42 lakhs towards development of lakes. The Tribunal therefore held that the Assessee carried out the activity of preservation of environment and water bodies and that the conclusion of the revenue authorities that these activities were done only to enhance the commercial value of the layout developed is untenable.
2. The Tribunal held that allotment of sites and flats to the economically weaker sections of society constitutes relief for the poor and that relief to the poor does not necessarily mean giving something free of cost to the poor. It also includes providing them things at a concessional rate. The Tribunal also embarked upon an enquiry as to whether the word "poor" can mean only those who are below the to 242/Bang/2024 official poverty line or does it include all those who are economically weaker, but not necessarily below the poverty line. The Tribunal concluded that it is not necessary that educational / medical assistance is to be given free only to those below the poverty line. It will suffice if education / medical assistance is provided at concessional rates. The Tribunal also held that the rules that govern the allotment of sites are so formed in order to facilitate the economically weaker sections of society to purchase these sites. In the case of construction of flats, it was clear from the very scheme and the name thereof, that these flats are meant only for the Economically Weaker Sections of society.
The Tribunal held that the complaint of the Revenue authorities that the assessee was not applying huge amount of profit generated from the activities towards any charitable activities such as relief of poor, education, medical relief and other objects of advancement of general public utility and such surplus is being invested in fixed deposits in order to earn interest income was also not correct in as much as the Assessee was constructing grade separators, PRR Bridges on Flyovers, carrying out renovation and remodeling works, Maintenance of BBMP facilities, Development of Lakes, etc. The Tribunal also held that object of the Assessee was planned urban development of Bangalore City and not with the purpose of profit making; i.e., the activity of formation of layouts and allotment of sites is only carried out with the primary and main object to ensure planned development of Bangalore City and not with the intention to make profits. In coming to the above conclusion, the Tribunal has referred to the decision of the Hon'ble Apex Court in the case of Barendra Ray and Others Vs. ITO (1981) 129 ITR 295 wherein it was held one has to see whether the predominant object of the activity is to make profit or whether the predominant object of the activity is to carry out charitable purposes and not profit making. The Tribunal also referred to the decision of the Hon'ble Apex Court in the case of Surat Art Silk Organisation Vs. CIT (121 ITR 1), wherein it was held that a charitable organization cannot be expected to balance its accounts in such a manner that the income for the year matches exactly with its expenditure. It is inevitable that in carrying on the activities, certain surplus may ensue. The earning of such surplus, in itself, would not mean that the organization existed for profit. The Hon'ble Apex Court went on to observe that every Association requires funds for expanding the range of its activities (for example; an Educational Institution may require additional infrastructure under which more class to 242/Bang/2024 rooms can be set up / created). If profits are generated to support and expand these activities, then it cannot, in the view of the Hon'ble Apex Court, be held that there is a profit motive involved to deny the exemption. From the above ratio of the decision of the Hon'ble Apex Court, it is clear that it is the basic motive behind the activity, which is important to be considered; whether it is one with profit motive or not. Merely because surplus is generated from a particular activity, it cannot be said that such activity is in the nature of trade, commerce or business. What needs to be seen is, what the intent and purpose of starting such activity is. The tribunal found that BDA's embarkation of the activity of setting up of residential layouts, including the activity of sale of sites and flats, is definitely not with a view to earn profit, but to ensure planned urban development and also to accomplish a social objective of providing an opportunity to economically weaker sections of society to be able to own a residence on their own. The tribunal also held that the process of auctioning of corner sites by the BDA was only to ensure that officials do not use their discretion to allot corner sites and was therefore an activity which will ensure no loss to the public exchequer.
4. The Tribunal took note of the fact that the concerned Income Tax authorities have recognized the assessee as a public charitable organization by grant of registration under section 12A of the Act since 26.03.2003 and that the assessee's objects clause, i.e., section 14 of the BDA Act has not undergone any change or modification since its enactment; which is what must have prompted the Income Tax Department to take the view that it was charitable in nature. The tribunal took note of the fact that after the introduction of the proviso to section 2(15) of the Act the Income Tax Department took a view that the activity of 'BDA' was in the nature of trade, commerce or business and cancelled the registration, granted under section 12A of the Act, vide order dated 08.11.2011. The assessee's registration under section 12A of the Act however stood restored by a decision of the Co-ordinate Bench of this Tribunal vide order in dated 10.04.2015. In this prevailing factual matrix, there is no change in the objects and the only issue which apparently prompts Revenue to take the view it has taken, i.e., that the activity of the assessee is hit by the proviso to section 2(15) of the Act; is the fact that the activity of the assessee has resulted in huge surplus or profits. In our view, the fact of surplus or shortfall is not to be reckoned as the test for applicability of the proviso to section 2(15) of the Act; but rather, whether the activity is to 242/Bang/2024 embarked upon solely with the view to earn profit or not; which the AO and CIT(A) have not done.
The Tribunal took note of the fact that in the case of similar urban development authorities in India, such as the Assessee, the revenue took a similar stand that those urban development authorities cannot be regarded as existing for "Charitable Purpose" after introduction of the proviso to Sec.2(15) of the Act and such approach has been held to be incorrect by the various judicial forums in the following cases: (i) Ahmedabad Urban Development Authority Vs. ACIT (Exemptions) (2017) 396 ITR 323 (Guj.); (ii) Jaipur Development Authority Vs. CIT (2014) 52 taxmann.com 25 (Jaipur - Trib.) (iii) Haridwar Development Authority Vs. CIT (2015) 57 taxmann.com 6 (Delhi - Trib.) (iv) CIT Vs. Lucknow Development Authority (2013) 38 taxmann.com 246 (Allahabad) (v) CIT Vs. Jodhpur Development Authority (2017) 79 Taxmann 361 (Raj.).
The Tribunal also held that the AO's reliance on the following decisions in support of his conclusion that the Assessee does not exist for "Charitable Purpose" was not correct because the issue involved in those cases were with regard to cancellation of registration u/s.12A of the Act. The cases referred to by the AO in this regard were as follows: (i) Jammu Development Authority Vs. UOI in CMA/2/2012 (J & K High Court); (ii) Punjab Urban Planning and Development Authority (103 TTJ 98) (ITAT - Chandigarh); (iii) Indore Development Authority - ITA No.366/Ind/2008 (ITAT - Indore). (iv) Improvement Trust Vs. CIT, Bhatirda (41 Taxmann.com 403) (ITAT - Amritsar).
In view of the aforesaid decision of the Tribunal, we are of the view that the assessee's activities have to be regarded as charitable in nature. The facts and circumstances under which the Tribunal decided the aforesaid issue and the basis of the conclusions in AY 12- 13 and the AY 13-14 & 14-15, which are the AYs in the present appeals, are identical. The conclusions of the Tribunal in AY 12-13 would therefore be equally applicable to AY 13-14 & 14-15 also. The assessee would be entitled to the benefits of sec. 11 of the Act for AY 13-14 & 14-15. We hold accordingly and allow ground No.5 in both the Assessment years. In view of the findings rendered as above, the other grounds/issues raised by the Assessee in these appeals and the grounds raised by the revenue in its to 242/Bang/2024 appeal become academic in nature as these conclusions flow only on the basis that the Assessee does not exist for "Charitable Purpose", which conclusion has been held by us to be incorrect. The AO will therefore compute total income on the basis that the Assessee is entitled to the benefits of Sec.11 of the Act and if done so there would be no income which can be brought to tax.”
Similarly, in a recent order by the Coordinate Bench of this Tribunal in 1352 & 1353/Bang/2024 dated 22/01/2025 in case of Magadi Planning Authority had also held that the assessee’s activities are undeniably charitable and the provisions of the Act support its exemption claim and set aside the order of the AO as well as the Ld.CIT(A). The Coordinate Bench also relied on the earlier order of the Coordinate Bench of this Tribunal in dated 22/03/2019 and came to the following conclusions. “13.3 Despite admitting the factual similarity, the AO chose to dismiss the assessee's reliance on the ITAT's decision in the BDA case, citing the pendency of an appeal under Section 260A before the Hon'ble High Court of Karnataka. This Tribunal, however, emphasizes the principle of judicial discipline and consistency, which requires that identical cases be treated in a uniform manner. The AO's attempt to disregard the binding precedent set by the ITAT in the BDA case solely due to an unresolved appeal is unwarranted and contrary to established legal norms. Until and unless the Hon'ble High Court reverses the ITAT's findings, the ruling remains binding in cases with identical facts. 13.4 We further observe that the assessee operates under stringent Government regulation. All its receipts and expenditures are deposited into the Magadi Planning Authority Fund, and the budget is subject to approval by the State Government. The assessee's accounts are audited annually by Government agencies, and any surplus or assets, upon dissolution, revert to the State Government. These factors unequivocally demonstrate the non-commercial character of the assessee's activities. We, accordingly, concur with the assessee's argument that the imposition of income tax on its operations would contradict statutory mandate and undermine its role as a state instrumentality serving public welfare.
to 242/Bang/2024 13.5 The AO's invocation of Section 13(8) of the Act, citing that the assessee's fee-earning activities constitute trade or business, lacks sufficient merit. The activities cited by the AO--such as layout plan approvals, betterment fees, and lake conservation fees--are intrinsic to the assessee's statutory responsibilities and do not exhibit the characteristics of a profit-driven enterprise. These fees are charged to ensure accountability and fund public welfare initiatives, not to generate profit. As such, the AO's interpretation of the assessee's activities as trade or commerce is inconsistent with the intent and purpose of Sections 11 and 12 of the Act. 13.6 The learned CIT(A) further erred in concurring with the AO without adequately addressing the assessee's submissions, including its reliance on the BDA case. The appellate authority failed to provide a reasoned explanation for dismissing the precedent, despite the AO's admission of factual similarity. 13.7 Given the admitted identical nature of the facts and the binding judicial precedent set by the Bangalore ITAT in the BDA case, we hold that the denial of exemptions under Sections 11 and 12 of the Act is unjustified. The assessee's activities are undeniably charitable, and the provisions of the Act support its exemption claim. The addition made by the AO and upheld by the learned CIT(A) is, therefore, quashed. 13.8 It is equally important to note that the Hon'ble Supreme Court in the case of ACIT Vs. Ahmedabad Urban Development Authority reported in 143 taxmann.com 278 involving identical facts and circumstances, has decided the issue on hand favouring assessee by holding as under: A.3. Generally, the charging of any amount towards consideration for such an activity (advancing general public utility), which is on cost-basis or nominally above cost, cannot be considered to be "trade, commerce, or business" or any services in relation thereto. It is only when the charges are markedly or significantly above the cost incurred by the assessee in question, that they would fall within the mischief of "cess, or fee, or any other consideration" towards "trade, commerce or business". In this regard, the Court has clarified through illustrations what kind of services or goods provided on cost or nominal basis would normally be excluded from the mischief of trade, commerce, or business, in the body of the judgment. to 242/Bang/2024 13.9 In conclusion, we allow the appeal of the assessee. The findings of the lower authorities are reversed, and the assessee is entitled to exemptions under Sections 11 and 12 of the Act, 1961. Hence the ground of appeal raised by the assessee is hereby allowed.”
The Ld.CIT(A) had considered the issue in the light of the judgments rendered by the Hon’ble Supreme Court as well as the Hon’ble Gujarat High Court and also the orders of this Tribunal in the assessee’s own case in respect of the A.Ys. 2012-13, 2013-14 and 2014-15 had given the following findings: to 242/Bang/2024 to 242/Bang/2024
Apart from the above said order of the assessee’s own case, the Coordinate Bench of this Tribunal also had decided the issue in favour of the assessee by following the orders of the assessee’s own case. There is no different facts available during the current assessment years in order to take a different view. We, therefore, held that the assessee is entitled for exemption u/s. 11 and 12 of the Act since their activities falls u/s. 2(15) of the Act and not hit by the first proviso which was inserted from 01/04/2009.
Therefore, the ground no. 2 raised by the revenue in all the three appeals are dismissed.
Insofar as ground no. 3 raised in the A.Ys. 2016-17 and 2018-19 and ground no. 4 raised in A.Y. 2017-18, the Ld.CIT(A) had given the following finding in respect of the prior period expenses which was disallowed by the AO. to 242/Bang/2024 to 242/Bang/2024 to 242/Bang/2024
The revenue had raised the ground generally and not brought out any new facts in order to attack the order of the Ld.CIT(A) as incorrect. The Ld.CIT(A) had examined the issue in detail and gave a clear finding that the issue was already covered in the assessee’s own case and also the Hyderabad Tribunal in & 2218/Hyd/2017dated 31/07/2018. The revenue had not pointed out any other circumstances or orders of the higher judicial forums to overcome the findings of the Ld.CIT(A). In such circumstances, the order of the Ld.CIT(A) insofar as the said ground of prior period expenses is in order and requires no interference. Hence the grounds to 242/Bang/2024 raised in ground no. 3 for the A.Ys. 2016-17 and 2018-19 and ground no. 4 raised for the A.Y. 2017-18 are dismissed.
Insofar as the ground no. 4 raised by the assessee in the A.Y. 2016- 17, the revenue had contended that the assets written off do not qualify as application of funds. The Ld.CIT(A) in paragraph 4.4.1 to 4.4.3 had discussed the issue and held that the addition need not be made since the appellant has been held eligible to claim exemption u/s. 11 of the Act and proviso to section 2(15) of the Act not applicable to its activities, then the capital expenses shall also be treated as application of income. The revenue had not pointed out any new facts contrary to the findings given by the Ld.CIT(A) and further the finding of the Ld.CIT(A) is also a correct one and we, therefore, dismiss this ground raised by the revenue in the A.Y. 2016- 17.
Insofar as the ground no. 5 raised by the revenue about the allowance of payments towards the electrical deposits and expenditure towards accommodation of various committees, the Ld.CIT(A) had given the following finding while allowing the said ground: to 242/Bang/2024
In coming to the said conclusion, the Ld.CIT(A) had also relied on the Chandigarh Tribunal order reported in (2013) 37 taxmann.com 299 in the case of Chaman Vatika Educational Society. Further, in the grounds raised by the revenue, the revenue had relied on the position that the assessee is not eligible for exemption u/s. 11 by virtue of proviso to section 2(15) r.w.s. 13(8) of the Act. In our order , we have already held that the assessee is entitled for exemption u/s. 11 of the Act. In such circumstances, unless and until the said finding is reversed, the ground raised by the revenue will not hold good. Even otherwise, the Ld.CIT(A) had considered the case on merits and the revenue had not placed any materials to take a different view. We, therefore, dismiss this ground raised by the revenue.
Insofar as the ground no. 6 raised by the revenue in the A.Y. 2016-17, the revenue had contested that the Ld.CIT(A) would not have allowed the slum clearance cess payable to the State Government as an allowable expenditure. The said amount was paid during the A.Y. 2016-17 and therefore the same could not be considered as application of income. We to 242/Bang/2024 have perused the finding given by the Ld.CIT(A) in this regard which reads as follows:
The Ld.CIT(A) had given a clear finding that the assessee is not involved in trade or commercials and claimed its income as exempt u/s. 11 of the Act and therefore held that when the assessee is eligible for exemption u/s. 11 of the Act, the disallowance made u/s. 43B would not arise. As already stated, the revenue had not placed any materials before us to take a different view and also in view of the fact that, the assessee is entitled for exemption u/s. 11 of the Act. The question of disallowance would not arise in this year also.
We, therefore, uphold the order of the Ld.CIT(A) and dismiss the ground raised by the revenue.
Insofar as the ground no. 7 raised by the revenue for the A.Y. 2016- 17, the revenue had objected the remitting of the issue of disallowance of expenditure for verification and allow the same if the same is eligible for deduction, after verification. The revenue also raised the plea that since the assessee is not eligible for exemption u/s. 11, the order passed by the Ld.CIT(A) by remitting the said issue requires to be reconsidered and subjected to tax at 30%. to 242/Bang/2024 24. The Ld.CIT(A) had remitted the issue since the assessee had not provided the corroborative documents toward the expenses of the sum. Therefore, we do not find that the order of the Ld.CIT(A) directing the assessing authority to verify the documents and thereafter if the documents are correct, allow the expenses is not correct. Further, the revenue had raised this ground on the basis that the assessee is not entitled to claim exemption u/s. 11 of the Act whereas this Tribunal as well as in the earlier order of this Tribunal, we have held that the assessee is entitled for exemption u/s. 11 of the Act. In such circumstances, we are of the view that this ground is also not a valid ground and therefore the ground no. 7 raised by the revenue is also dismissed.
Insofar as the ground no. 8 raised by the revenue that the estimation of the issue of pension and leave salary contribution to the AO is not correct when the assessee is not eligible for exemption u/s. 11 of the Act.
The Ld.CIT(A) had given the following finding in respect of the said ground raised
by the revenue. to 242/Bang/2024
27. Therefore the above said finding given by the Ld.CIT(A) is a reasonable one. Further, we have already held that the assessee is entitled for exemption u/s. 11 of the Act and therefore this ground raised by the revenue on the premise that the assessee is not eligible for exemption u/s. 11 of the Act does not hold good. We, therefore, dismiss this ground raised by the revenue.
In respect of ground no. 3 raised by the revenue in the A.Y. 2017-18, the revenue had found fault with the allowing the claim of expenditure debited by the assessee in their income and expenditure account on account of refund of deposit receipts when the assessee is not entitled for exemption u/s. 11 of the Act.
The Ld.CIT(A) had considered the issue and gave the following finding: to 242/Bang/2024 30. This finding of the Ld.CIT(A) is objected by the revenue on the ground that the assessee is not entitled for exemption u/s. 11 of the Act. As discussed earlier we have held that the assessee is entitled for exemption u/s. 11 of the Act and therefore this ground raised by the revenue is also not maintainable and therefore the same is also dismissed.
The revenue had raised ground no. 5 in both the A.Ys. i.e. 2017-18 and 2018-19 that the order of the Ld.CIT(A) in allowing the workers welfare cess payable to the State Government despite the fact that the amount in question had not been paid during the financial year 2016-17 and therefore the same could not be considered as application of income for the A.Y. 2017- 18. The Ld.CIT(A) had dealt with this issue and gave the following finding:
Further, the Ld.CIT(A) while dealing with this issue in respect of the A.Y. 2018-19, had also observed as follows: to 242/Bang/2024
From the above said findings given by the Ld.CIT(A), we found that the order of the Ld.CIT(A) is correct since no disallowance could be made u/s. 43B of the Act when the entire income is eligible for exemption u/s. 11 of the Act. There are no other valid evidences available with the department to take a different view. Further, we have held that the assessee is entitled for exemption u/s. 11 of the Act and therefore the question of disallowance u/s. 43B would also does not arise. In such circumstances, we dismiss these grounds also raised in the A.Ys. 2017-18 and 2018-19.
The revenue raised ground no. 4 in the A.Y. 2018-19 against the deletion of the additions made on account of rent recoverable from BBMP.
The Ld.CIT(A) had discussed the issue in its order in para nos. 6.5.1 to 6.5.3 and gave the following finding. to 242/Bang/2024
In view of the above said finding given by the Ld.CIT(A) and also in view of the fact that the assessee is entitled for exemption u/s. 11 of the Act, we do not find any reason to interfere in the order of the Ld.CIT(A). Therefore, ground no. 4 raised by the assessee in the A.Y. 2018-19 is also dismissed. to 242/Bang/2024 37. Insofar as the ground no. 6 raised by the revenue in A.Y. 2018-19, against the allowing interest paid on the late payment of service tax, the revenue contended that it is penal in nature and therefore it is disallowable u/s. 37 of the Act.
The Ld.CIT(A) had considered the issue and gave the following finding.
The revenue also raised this ground on the premise that the assessee is not entitled for exemption u/s. 11 of the Act. In our order, we have already decided the issue and held that the assessee is entitled for exemption u/s. 11 of the Act. Therefore, on the ground that the interest on the late payment of service tax would be an allowable expenditure u/s. 37 of the Act and also on the ground that the assessee is eligible for exemption u/s. 11 of the Act, we do not find any infirmity in the order of the Ld.CIT(A) and hence this ground raised
by the revenue is also dismissed. to 242/Bang/2024 40. In the result, all the three appeals filed by the revenue are dismissed. Order pronounced in the open court on 30th May, 2025.