ACIT(EXEMPTION), CIRCLE-2, AHMEDABAD, AHMEDABAD vs. JAMNAGAR AREA DEVELOPMENT AUTHORITY, JAMNAGAR

5. Whether on the facts and circumstances of the case, Ld.CIT(A) is justified in deleting disallowance of Rs. 2,18,22,615/- made of account of disallowance of accumulation u/s. 11(1)(a) of the Act.

6. Whether on the facts and circumstances of the case, Ld.CIT(A) is justified in deleting the disallowance of Rs. 7,54,53,797/- made of account of disallowance of Capital Expenditure.

-1823/Ahd/2025 For A.Ys 2016-17 & 2018-19 3 3. At the outset, both the parties fairly submitted that the issue raised by the Revenue in both appeals stands covered by the order of the Tribunal in the assessee’s own case in for AY 2017-18 dated 20.05.2024. For the sake of ready reference, the operative portion of said order is reproduced as under: “…3. The brief facts of the case are that the assessee is a local authority constituted under the provisions of Gujarat Town Planning and Urban Development Act, 1976. The assessee undertakes activities like preparation of development plans for the development of area, preparation of town planning schemes, levy and collection of fees as prescribed by regulations for scrutiny of documents for permission for development, execute works in connection with supply of water, disposal of sewage and provision of other services and activities etc. The assessee is granted registration under Section 12A of the Act by the Commissioner of Income Tax, Jamnagar vide No. CIT.J/Tech/12A(a)/66/2003-04/3484 on 17.03.2005. The assessee filed its return of income for the year under appeal on 15.03.2018 declaring total income at Rs. NIL after claiming exemption under Section 11 of the Act. During the course of assessment proceedings, the assessee was asked to explain and show- cause as to why the activity of the appellant authority should not be treated as in the nature of trade, commerce or business and accordingly, the first and second provisos to Section 2(15) of the Act should not be applied. In response, to the show-cause notice dated 14.11.2019 the assessee filed submission and explained before the A.O. as under:- “The assessee institution came into existence on 02.02.1978/30.10.1978 under the provisions of the Gujarat Town Planning and Urban Development Act, 1976. The activities carried on by assessee authority is in the nature of advancement of any other objects of general public utility which fall within the definition of 'Charitable Activities' as defined u/s. 2(15) of the Act. The assessee authority has been accordingly granted registration u/s. 12A by the Commissioner of Income Tax, Jamnagar vide number CIT.J/Tech/12A(a)/66/2003-04/3484 on 17.03.2005 and therefore, the assessee authority is claiming exemption u/s. 11 of the Income Tax Act, 1961. The main purpose of forming the aforesaid Act was for setting up an authority for planning, coordinating and supervising for proper, orderly and rapid development of the areas in various region and of executing plans, projects and schemes for such development and to provide for the matters connected therewith, so that housing, community facilities, civil amenities and other infrastructural facilities are created. Having constituted to achieve the above objects, the authority performs in the area of urban renewal, environment and ecology directly or through its functional boards, and it does not only -1823/Ahd/2025 For A.Ys 2016-17 & 2018-19 4 planning the urban area with master development plan and zonal development plan but also sanction projects and schemes for development. In fact, the authority is a tool of the State government for coordinated and planned development in a particular region. The authority also carries out work relating to construction of roads, sewerage, parks, play grounds, provide plots for educational, health and cultural institution for over all development of the community. The revenue generated through these activities is also finally utilized for the benefit of the public. The core activities carried out by the authority include:  Preparation of development plans under the provisions of the Act for the development of area  Preparation and execution of town planning schemes under the provisions of the Act if so directed by the State Government  Carrying out surveys in the development area for the preparation of development plans or Town Planning Schemes  To levy and collect such fees for scrutiny of documents submitted to the appropriate authority for permission for development as may be prescribed by the Regulations.  To execute works in connection with supply of water, disposal of sewage and provision of other services and amenities  To levy and collect such fees for execution of works and for provision of other services and amenities as may be prescribed by regulation  To perform such other functions as are supplemental, incidental or consequential to the activities as mentioned hereinabove. It is further submitted the Hon'ble Gujarat High Court has held that the authorities like assessee are eligible to claim exemption u/s. 11 of the Act. Therefore, there will be no justification in denying the benefit of exemption u/s. 11 of the Act to the assessee authority in view of the submissions made hereinabove.”

4. However, the Assessing Officer denied exemptions claimed under Section 11 of the Act. The Assessing Officer was of the view that the objects of the assessee is to earn profits and accordingly, the assessee is not eligible for claim of benefit under Sections 11 & 12 of the Act.

5. In the assessment finalized vide order under Section 143(3) dated 18.12.2019, the Assessing Officer has determined total income of the assessee at Rs. 1,64,24,034/- after denying the benefit of exemption under Sections 11 & 12 of the Income Tax Act, 1961.

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“What then is the true meaning of the expressions "fee, cess or consideration"? The careful analysis of the amended proviso to section 2(15), reveal that the prohibition applies in a four-fold manner- (a) The bar to engaging in trade, commerce or business, (b) The bar to providing any service in relation to trade, commerce or business, (c) Wherein "for a fee, cess or any other consideration" is the controlling phrase for both (a) and (b) (which are collectively referred to as "prohibited activities" for brevity) (d) Irrespective of the application of the income derived from such 'prohibited activities'. [Para 142] ■ The impermissibility of any trade, or commercial activity or service, and income, from them, was intended to be conveyed through the prohibition, in the first part of the definition of GPU charities. The necessary implication which arises is that income (received as fee, cess, or any other consideration) derived from such 'prohibited activities' is necessarily motivated by profit. The ordinary meaning of fee or consideration would be synonymous with something of value, usually in monetary terms. However, the use of the expression "cess" facially lends a different colour to all the three expressions. [Para 143] ■ "Fee, cess and any other consideration" has to receive a purposive interpretation, in the present context. If fee or cess or such consideration is collected for the purpose of an activity, by a state department or entity, which is set-up by statute, its mandate to collect such amounts cannot be treated as consideration towards trade or business. Therefore, regulatory activity, necessitating fee or cess collection in terms of enacted law, or collection of amounts in furtherance of activities such as education, regulation of profession, etc., are per se not business or commercial in nature. Likewise, statutory boards and authorities, who are under mandate -1823/Ahd/2025 For A.Ys 2016-17 & 2018-19 6 to develop housing, industrial and other estates, including development of residential housing at reasonable or subsidized costs, which might entail charging higher amounts from some section of the beneficiaries, to cross- subsidize the main activity, cannot be characterized as engaging in business. The character of being 'state', and such corporations or bodies set-up under specific laws (whether by states or the centre) would, therefore, not mean that the amounts are 'fee' or 'cess' to provide some commercial or business service. In each case, at the same time, the mere nomenclature of the consideration being a "fee" or "cess", is not conclusive. If the fee or cess, or other consideration is to provide an essential service, in larger public interest, such as water cess or sewage cess or fee, such consideration, received by a statutory body, would not be considered "trade, commerce or business" or service in relation to those. Non-statutory bodies, on the other hand, which may mimic regulatory or development bodies - such as those which promote trade, for a section of business or industry, or are aimed at providing facilities or amenities to improve efficiencies, or platforms to a segment of business, for fee, whether charged by subscription, or specific fee, etc., may not be charitable; when they claim exemption, their cases would require further scrutiny. [Para 144] ”