Loading judgment…
Facts
The assessee-trust declared NIL income and claimed exemption under Section 11. The AO accepted the returned income under Section 143(3) read with Section 144B. The CIT invoked Section 263, holding that the assessment order was erroneous and prejudicial to revenue as capital receipts and expenditure were not examined regarding their charitable nature under Section 2(15) of the Act.
Held
The Tribunal held that the CIT's order under Section 263 was justified. The assessee's reliance on the Hon'ble Apex Court's decision in its own case was found to be misplaced as the judgment applied specifically to the years under consideration before the Apex Court, and for other years, the law declared was to be applied based on facts.
Key Issues
Whether the CIT was justified in invoking Section 263 for not examining the nature of capital receipts and expenditure in relation to charitable activities under Section 2(15) and whether the assessee's reliance on a previous Apex Court judgment was applicable to the current assessment year.
Sections Cited
263, 143(3), 144B, 11, 2(15), 10(23C), 13(8)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SMT.ANNAPURNA GUPTA & SHRI T.R. SENTHIL KUMAR
PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER
The above appeal has been filed by the assessee against order passed by the Ld.Commissioner of Income-Tax(Exemption), Ahmedabad [hereinafter referred to as “ld.CIT] dated 20.3.2024 by exercising jurisdiction under section 263 of the Income Tax Act, 1961 ("the Act" for short) vide which, the ld.Commissioner set aside the assessment order of the AO passed under section 143 read with section 144B of the Act relating to the assessment year 2018-19 and directing the AO to pass a fresh assessment order as per the directions contained in the 263 order.
The grounds raised by the assessee are as under:
1. 2 “1. On the facts and in circumstances of the case as well as law on the subject, the learned Pr. CIT has erred in passing the order u/s. 263, although the assessment order passed u/s. 143(3) r.w.s. 144B of the I. T. Act, 1961 was neither erroneous nor prejudicial to the interest of the revenue.
2. It is therefore prayed that above order passed by Pr. CIT u/s. 263 may please be quashed or set aside as your honour deems it proper.
3. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”
We have heard both the parties and gone through the orders of the authorities below, and also through various documents and case laws referred to before us from the paper book filed by the assessee during the course of hearing before us.
4. As is derived from the order of the ld.CIT, the assessee-trust i.e. Surat Urban Development Authority filed return for the impugned assessment year i.e. Asst.Year 2018-19 declaring NIL income after claiming exemption under section 11 of the Act. This return was subjected to scrutiny assessment under section 143(3) of the Act accepting the returned income at NIL. The ld.CIT noted from the case records that this assessment order passed was erroneous causing prejudice to the Revenue for the reason that capital receipts and capital expenditure incurred by the assessee-trust during the year were not examined by the AO, as to whether they related to the main activities of the trust i.e. development and sale/ leasing of housing projects and other projects and general development, and whether or not these activities fell under the provisions of section 2(15) of the Act i.e. objects of general public utility against the charges not being a charitable purpose. The para 2.1 to 2.2 of the ld.CIT’s order recording the above are as under:
“2.1 On further verification of the Balance Sheet, it is noticed that the amount received as General Receipt of Rs.4.86.82,18.370/- and amount of Rs.1,44,56,76,686/- as Project Receipts in the liabilities side. It is also noticed that the assessee had incurred capital expenditure of Rs.2,81,12,44,143/- as Housing Project, amount of Rs.68,58,11,316/- as other project and amount of Rs.2,40,21,56,821/- as General Development expenditure during the 1 year under consideration which is shown under the head Capital expenditure on Assets side < of the Balance sheet.
2.2 The nature of receipts on Capital Account shown as liabilities and the capital expenditure as discussed in para 2.1 above, have not been examined as to whether these relate to the main activities of the assessee i.e development and sale/leasing of Housing Projects/other Projects and general development against realizable charges and whether these activities do not fall under the provisions of section 2(15) of the Act, i.e other object of general public utility against charges not being a charitable purposes. 2.3 In light of the above, the assessment order dated 19.04.2021 passed by the Assessing officer u/s 143(3) r.w.s 144B of the Income tax Act, by accepting the return of income of Rs.Nil prima facie appeared to be erroneous and prejudicial to the interest of the revenue within the meaning of Section 263 of the Income tax Act, 1961.”
5. Accordingly jurisdiction under section 263 of the Act was assumed by the ld.Pr.CIT for revision of the assessment order passed and notice issued to the assessee in this regard.
In response to the same, the assessee filed submissions contending that the issue of capital receipts/expenditure incurred by the assessee during the year was duly examined during the assessment proceedings, pointing out specific queries raised by the AO in this regard and the response of the assessee giving details of all capital receipts and expenditure. The reply of the assessee in this regard is reproduced at para-3.1 of the order. The assessee further contended that the Hon’ble Apex Court in the case of ACIT Vs. AUDA in Civil Appeal No.21762 of 2017 had already decided the issue on merits in favour of the assessee and following the same, all additions in the case of the assessee for Asst.Year 2016-17 and 2017-18 had been deleted. Copies of the orders were placed before the ld.Commissioner. The assessee further submitted that the assessee’s case before the Hon’ble Apex Court had been heard and judgments passed in favour of the assessee, pointing out that at page no.147, para-2 and 3 of its order, the Hon’ble Apex Court had held all the Revenue’s appeal in the case of the assessee/SUDA to be rejected. The assessee pointed out that the facts of the present case were identical to that dealt with the Hon’ble Apex Court.
4 6. The ld.PCIT, however, noted that the decision of the Hon’ble Apex Court in the case of the assessee relied upon by the ld.counsel for the assessee was ill-conceived. He pointed out that the Hon’ble Apex Court in para 190(iii) of the order held that even statutory corporation, board, trust-authorities etc. may be involved in promoting the public objects and at the same time, in the course of their pursuing their objects, be involved or engaged in activities in the nature of trade, commerce or business. The ld.Commissioner referred to para 190(iv)(f) of the order of the apex court which noted that as long as these authorities, while actually furthering a GPU object, carried out activities which generated profits and the quantum of such receipts were within the limit prescribed by law, by the second proviso to section 2(15) of the Act, such authorities can be characterized as undertaking GPU charities. Thereafter, the ld.PCIT pointed out that while the Apex Court had rejected the SLP filed by the Department in the case of AUDA(supra), the Department had filed MA against the said order of the Hon’ble Apex Court seeking clarification and requesting that the Revenue be allowed to re-do the assessment in accordance with the judgments, for the past and examine the eligibility for the future. The ld.CIT pointed out that the Hon’ble Apex Court categorically stated that its order dismissing the SLP filed by the Revenue pertained to the years before it only. That for the assessment years which were not before the Apex Court, the concerned authorities will apply the law declared in the judgment, having regarded to the facts of each such year. The relevant portion of the ld.CIT’s order bringing out the above to the notice to the ld.counsel of the assessee is at para 3.6 page no.8 to 12 as under:
“3.6 The reliance placed by the assessee upon the decision of Hon'ble Supreme Court in the case of ACIT(E) vs AUDA was found to be ill-conceived therefore by notice dated 02.06.2023 attention of the assessee was drawn towards the observations of Hon'ble Supreme Court in the above referred decision in various Paras of the said order as under:
"2. From perusal of submissions made by you, it is observed that you have relied on the judgment of the Hon'ble Supreme Court of India in the case of Assistant Commissioner of Income Tax, Exemptions v. Ahmedabad Urban Development Authority [2022] 143 taxmann.com 278. In this regard, your kind attention is invited to the observations of the Hon'ble Apex Court in Para Nos. 133 to 136, wherein the Hon'ble Apex Court has discussed the position with respect to what kind of activities GPU charities could legitimately undertake was in a state of flux till 2015 and for the sake of convenience the same is reproduced hereunder.
"133. The position, therefore, with respect to what kind activities GPU charities could legitimately undertake, was in a state of flux till 2015. However, the amendments cumulatively point to prohibitions that were constant:
(1) the prohibition applicable to such charities involved in carrying on activities "in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration "
(2) "irrespective of the nature of use or application, or retention, of the income from such activity" (i.e. activity in the nature of trade, commerce or business for a cess, fee or Other consideration).
By retrospective amendment, in Section 2(15), after the proviso, a second proviso was inserted with effect from 01.04.2009:
“Provided further that the fist proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year”
With the introduction of the second proviso, the resulting situation was that the first provision (of exclusion of income through an activity as referred to) was inapplicable if the aggregate value of the receipts of such activity did not exceed Rs. 10,00,000/- and later by Finance Act, 2012 – this was enhanced to fts.25,00,OOOA.
The next important change took place through the Finance Act. 2015, which w.e.f. 01.04.2016 substituted the two provisos to Section 2(15) with the following proviso:
"Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless-
(i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year,
The limited relief, given by the second proviso, to GPU charities (for the period 2009-2015) was that in case such GPU category charities did carry on activities undertaken in the course of actual earning out of their GPU objects that were in the nature of trade, commerce or business, or rendered any service in relation to trade, business, etc., and collected fee, cess, or other consideration, such income could still be exempt, if it did not exceed Rs. 10,00,000/- (and later,Rs.25,00,000/-). By the amendment of 2015, the second proviso was deleted and two conditions were introduced, with respect to permissibility of carrying on trade, Commerce, etc:
(i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) (ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty percent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year. "
Further, in Para 190(iii) of the above referred decision of this Hon'ble Court it has been held that "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." Therefore, it is evident that even such statutory corporations, boards etc, can be engaged in activities in the nature of trade, commerce or business. Further, in Para 190(iii) & (i v)(c) &(f) of the above referred decision of this Hon'ble Court, it has been held that:
190(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
190(iv)(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;
190(iv)(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, (subsequent to amendment and as its stands as per (ii) Proviso to Section 2(15) the limit is of Rs.20% total receipt is now prescribed). “
2.1 It is further brought to your kind notice that the Hon'ble Apex Court vide above referred case of Ahmedabad Urban Development Authorities and Other has rejected SLP filed by the Department, as detailed therein and in this respect attention is also invited to the fact that Department had filed Miscellaneous Application No. 1849 of 2022 in Civil Appeal No. 21762 of 2017 seeking clarifications and requested that the Revenue to re do the assessments in accordance with the above judgments for the past and examine the eligibility on a yearly basis for the future. The Hon'ble Apex Court vide its order dated 03.11.2022 has disposed off the said MA and held as under.
"3. It was urged on behalf of the revenue, that the clarification it seeks is necessary, because in Para 253 H and in Para 254, it has been precluded from examining the fact sand assessing the concerned assessment years, in relation to the assesses in these appeals. It was urged that the conclusions recorded in the judgment and those in the said two paragraphs, preclude it from dealing with the assessments of parties before this court and, furthermore, the dismissal of the revenue's appeals will preclude an examination of the merits for these assesses in future, as well.
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 C, 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.
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 up onto decide, the concerned authorities will apply the law declared in the judgment, having regard to the facts of each of each such assessment year. In view of this discussion, no further clarification is necessary or called for. ”
2.2 In light of the above, you are requested to furnish your submission regarding the applicability of the observations made by the Hon'ble Apex 8 Court, as discussed above in the case of Assistant Commissioner of Income Tax, Exemptions v. Ahmedabad Urban Development Authority [2022] 143 taxmann.com 278, and also the above - referred decision of the Hon'ble Apex Court dated 3.11.2022, disposing off the MA filed by the department. Further kindly explain as to why in view of above referred observation/decision of the Hon'ble Apex Court, the impugned assessment order u/s 143(3) rws 144B of the Income-tax Act, dated 19.04.2021 passed by the Assessing Officer, which is under consideration, should not be revised u/s 263 of the Act.
3. In this connection, you are requested to submit the details/ clarifications alongwith all relevant documents in support of your claim(s) for the assessment year under consideration as above, on or before 15/06/2023.”
The assessee, in response, merely reiterated what it had earlier submitted to the ld.CIT and also that it relied on the decision of the Hon’ble Apex Court in its own case. The ld.Commissioner, noting therefore that the assessee had nothing to say as to the fact brought to its notice, that the Hon’ble Apex Court in its own case had interpreted the provisions of law as applicable to trust and held that though they carried out activities in the nature of general public utility, but they can also be involved in carrying out of such activities in a commercial manner, and if the quantum of the commercial activities exceeds the limit specified in the proviso to sub-section (15) of section 2 of the Act, the trust cannot claim to be carrying out charitable activities. The ld.Pr.CIT noted that the assessee had nothing to say to the fact pointed to it that in the MA filed by the Revenue to the Hon’ble Apex Court, against its order dismissing he Revenue’s appeal in the case of AUDA, it had categorically stated that its order applied only to the assessment year before it; that the department is free to apply the law as propounded by the Hon’ble Apex Court to other years, which were not decided by it. While taking note of the same, the ld.CIT held that the AO in the present case, having not examined the activities carried out by the assessee-trust in the light of the law laid down by the Hon’ble Apex Court in the case of AUDA (supra) and in the case of the assessee itself, and the assessment order was erroneous causing prejudice to the interest of the Revenue. The relevant finding of the ld.Commissioner at para 5.3 of its order is as under:
5.3 Therefore, the order of Assessing Officer is erroneous and prejudicial to the interest of revenue because:
(i) The ratio laid down by Hon’ble Supreme Court in ACIT(E) vs AUDA & Ors as discussed above is squarely applicable in the case of the assessee which has not been taken into cognizance by the Assessing officer. The decision of Hon’ble Supreme Court in the case of ACIT(E) vs AUDA & Ors as discussed above was not before the AO at the time of finalisation of assessment order but is clarificatory in nature and retrospectively applicable. As such the issue was already in dispute since the department had not accepted orders of Hon’ble High Court and had filed SLPs before the Hon’ble Supreme Court which was pending as on the date of finalisation of assessment order. The AO having concluded that the Assessee was operating with profit motive was covered proviso to Section 2(15) of the Act yet having accepted the returned income without invoking provisions of Section 13(8) of the Act renders the assessment order erroneous and prejudicial to the interest of the revenue. The decision of Hon’ble apex court applies retrospectively as per decision of Hon’ble Supreme Court of India in the case of Saurashtra Kutch Stock Exchange Ltd [2008] 173 Taxmann 322 (SC). In para 42 of its order Hon’ble Supreme Court of India has reiterated that –
“42. In our judgment, it is also well-settled that a judicial decision acts retrospectively. According to Blackstonian theory, it is not the function of the Court to pronounce a 'new rule' but to maintain and expound the 'old one'. In other words, Judges do not make law, they only discover or find the correct law.
The law has always been the same. If a subsequent decision alters the earlier one, it (the later decision) does not make new law. It only discovers the correct principle of law which has to be applied retrospectively. To put it differently, even where an earlier decision of the Court operated for quite sometime, the decision rendered later on would have retrospective effect clarifying the legal position which was earlier not correctly understood.”
Since the decision of Supreme Court of India was not available with Assessing Officer at the time of passing of order, it is imperative that the same is examined in the context of decision rendered now as huge profits have been earned by the assessee on various activities. It is worthwhile to note that the assessee has accumulated Suda Fund of Rs.138,54,18,372/- over the years by its profit making activities or otherwise. Therefore, the activities of assessee need to be examined in the view of decision of Hon’ble Supreme Court of India in assessee’s own case.
(ii) Also the Assessing Officer has not made detailed examination of income and expenditure side of Income and Expenditure account regarding the computation offered by the assessee and admissibility of various expenditures.”
Before us, the ld.counsel for the assessee merely reiterated the contentions made by the ld.CIT. The ld.counsel for the assessee was unable to controvert the finding of the ld.CIT as noted above by us, that the decision of the Hon’ble Apex Court in the case of AUDA and in the case of the assessee also dismissing the Revenue’s appeal, applied only to the years, that is, respective assessment years before it. That the Hon’ble Apex Court in the said decision had categorically interpreted the provision of law applicable to the assessee-trust stating that though their activities qualify as GPU, but it can also be carried out in commercial manner, and if so it needs to be examined whether their commercial activities are within the limit specified under the second proviso to section 2(15) of the Act so as to qualify as charitable activities. That this law laid down by the Hon’ble Apex Court needs to be examined in each year, as the decision of the Hon’ble Apex Court dismissing the Revenue’s SLP was only applicable to the year before the Hon’ble Apex Court.
We do not find any infirmity therefore in the order of the Ld.CIT that the assessment order passed by the AO in the present case was erroneous causing prejudice to the Revenue for not having examined the activities carried out by the assessee being charitable in terms of the definition of the same in section 2(15) of the Act read with second proviso thereto as interpreted by the Hon’ble apex court in the case of the assessee itself. The Ld.Counsel for the assessee was unable to demonstrate the said fact from the records. His reliance on the decision of the Hon’ble Apex Court in the case of the assessee itself has also been rightly pointed out by the Ld.CIT to be ill conceived 11 since the Hon’ble Apex Court ruling in favour of the assessee was categorically stated to be applicable for the impugned year before the Hon’ble apex court and for the other years the interpretation of the court of section 2(15) r.w 2nd proviso thereto was to be applied.
In view of the same, we see no reason to interfere in the order of the ld.CIT. Accordingly we do not find any merit in the appeal filed by the assessee.
All the grounds raised by the assessee are accordingly dismissed.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the Court on 4th April, 2025 at Ahmedabad.