DEPUTY COMMISSIONER OF INCOME TAX (E) CIRCLE- 1, BANGALORE vs. M/S BANGALORE DEVELOPEMNT AUTHORITY , BANGALORE

Per Jason P Boaz, Accountant Member

These are cross appeals by Revenue and the assessee, directed against the order of the CIT(A)-14, LTU, Bangalore, dated 28.02.2017 for Assessment Year 2012-13.

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 2 of 42 2. Briefly stated, the facts of the cases are as under:

2.1 The assessee, Bangalore Development Authority (BDA), a statutory body constituted under the State Government of Karnataka, filed its return of income for Assessment Year 2012-13 on 29.09.2012 declaring a loss of (-) Rs.357,92,21,808/-, after claiming exemption under section 11 of the Income Tax Act, 1961 (in short ‘the Act’). The return was processed under section 143(1) of the Act and the case was subsequently taken up for scrutiny for this Assessment Year. The assessment was concluded under section 143(3) of the Act vide order dated 31.03.2015, wherein the assessee’s income was determined at Rs.315,87,94,869/-. Aggrieved by the order of assessment for Assessment Year 2012-13 dated 31.03.2015, the assessee preferred an appeal before the CIT(A)-14, Bangalore, who disposed off the assessee’s appeal vide the impugned order dated 28.02.2017, allowing the assessee partial relief.

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 3 of 42 Revenue’s appeal in ITA No.1087/Bang/2017 4.1 In its appeal, Revenue has raised the following grounds: On Depreciation: Whether in the facts and circumstances of the case and in 1. law, the learned CIT(A) erred in allowing depreciation in respect of assets which have already been allowed as application of income in its entirety in earlier years. Whether in the facts and circumstances of the case and in 2. law, the learned CIT(A) is correct in allowing depreciation which amounts to double deduction when already full expenditure has been allowed in earlier years. Whether in the facts and circumstances of the case and in 3. law, the learned CIT(A) is correct in directing the A.0 to make necessary modification and allow the claim of depreciation to the extent of Rs.2.05 crores when the CIT(A) has not contradicted the stand taken by the A.O

On Credits under Prior Period Expenses: 1. Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) is justified in allowing the prior period expenses when the assessee is following mercantile system of accounting ? Without prejudice to ground (1), whether the Id. CIT(A) is 2. correct in accepting the claim of prior period expense when on facts, the claim is nothing but reversal of double entries passed. Whether in the facts and circumstances of the case and in 3. law, the CIT(A) is justified in accepting the claim of the assessee on reversal of the double entries of the income in current year (A.Y 2012-13) which ought to have been done in the A.Y 2011-12 and also when the assessee has all the measures to revise the return of income of A.Y 2011-12 when assessment was due for A.Y 2011-12.

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 4 of 42 Assesssee’s appeal in ITA No.1104/Bang/2017

4.2 In its appeal, the assessee has raised the following grounds: The order of the learned Commissioner of Income-tax 1. (Appeals) in so far as it is against the appellant is opposed to law, facts, equity and circumstances of the case. The appellant denies itself liable to be assessed to tax on 2. any amount over and above the declared loss of Rs.(- )357,92,21,808/- by it in the return of income on the facts and circumstances of the case. The additions made by the learned Assessing officer in the 3. assessment order and confirmed by the learned Commissioner of Income-tax (Appeals) mostly on the premise that the appellant is not having registration under section 12A of the Act and this Hon'ble Tribunal restored the registration under section 12A of the Act to the appellant and consequently the orders passed by the learned Assessing officer and the learned Commissioner of Income-tax (Appeals) are liable to be cancelled on the facts and circumstances of the case.

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 5 of 42 The learned Commissioner of Income Tax (Appeals) failed to d. appreciate that the order passed by the present assessing officer is void ab initio and without jurisdiction as once the exemption under section 12AA has been withdrawn by the Director of Income-tax (Exemptions) the file ought to have been transferred to the officer having jurisdiction and the assessing officer who has passed the order ceases to have jurisdiction and hence the impugned order is bad in law and liable to be cancelled.

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 6 of 42 Assessing Officer by invoking the proviso to section 2(15) of the Act on the facts and circumstances of the case. The learned Commissioner of Income-tax (Appeals) is not (d) justified in law in not holding that the learned Assessing Officer ought not to have considered the starting point of computation of total income at Rs. (-)591,94,33,000/- on the facts and circumstances of the case. The learned Commissioner of Income Tax (Appeals) is not (e) justified in law in denying the exemption as a charitable institution for the reason that appellant is carrying on business. The inference drawn for holding that the appellants are doing business are purely arbitrary and purely on suspicion and surmise devoid of factual foundation. The learned Commissioner of Income Tax (Appeals) ought not (f) to have denied exemptions for charitable purpose as the Appellant do not fall under second proviso to section 2(15) of the Act. The learned Commissioner of Income Tax (Appeals) ought to (g) have taken into account the speech of the Finance Minister which indicate the object and drift of the amendment in as much as that genuine Charitable Trusts are not hit by the proviso to section 2(15) of the Act. Without prejudice the authorities below ought to have granted (h) exemption in respect of the other limbs of charity by applying the principles of apportionment and ought to have granted proportionate relief in respect of the other limbs of charity being relief to the poor etc. on the facts and circumstance of the case. Without prejudice, the learned Commissioner of Income Tax (i) (Appeals) failed to appreciate that the appellant fall under first to fifth limb of the definition of charitable purpose on the facts and circumstances of the case.

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 7 of 42 8. Ground on the entire income not hit by the proviso to Section 2(15) of the Act: Without prejudice the authorities below failed to appreciate i. that the intention of the legislature is not to deny the entire income of the Appellant on the ground that some of the activities may attract the proviso to section 2(15) of the Act and consequently the denial of the exemption for the entire income is unsustainable in law on the facts and circumstance of the case. Without prejudice the learned Commissioner of Income-tax ii. (Appeals) is not justified in law in holding a sum of Rs.8111.39 (Rs. in lakhs) being interest income as covered by the proviso to section 2(15) of the Act. The learned Commissioner of Income-tax (Appeals) failed to appreciate any non-business income is not hit by the proviso to section 2(15) of the Act and consequently ought to have granted exemption available for a charitable trust in accordance with law under the scheme of the Income-tax Act on the facts and circumstances of the case. iii. Without prejudice the learned Commissioner of Income- tax (Appeals) is not justified in law in holding a sum of Rs.1533.2 (Rupees in lakhs) being rental income as covered by the proviso ti section 2(15) of the Act on the facts and circumstances of the case.

a) Without prejudice the learned Commissioner of Income-tax (Appeals) is not justified in law in holding a sum of Rs.2172.41 lakhs being income from property taxes, building licence fee, betterment tax and income from registration fee as business income and covered by the proviso to section 2(15) of the Act on the facts and circumstances of the case. b) The learned authorities below ought to have held that the amount of Rs.2172.41 lakhs is not even income under the scheme of the Income tax Act and thus ought

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 8 of 42 not to have assessed the same on the facts and circumstances of the case. 10. The learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that as per section 40 and 41 of the BDA Act the receipts and income gets diverted by over riding title in favour of the Government and hence the question of taxing any part of the same under the Income Tax Act does not arise in the hands of the appellant on the facts and circumstances of the case. 11. Grounds on change of accounting Policy: a) The learned Commissioner of Income-tax (Appeals) is not justified in law in not accepting the change of accounting policy of the appellant on the facts and circumstances of the case. b) The learned Commissioner of Income-tax (Appeals) is not justified in law in confirming the adjustment on account of change in accounting policy disallowed by the learned Assessing Officer a sum of Rs.631,99,06,000/- and without prejudice the learned Commissioner of Income-tax (Appeals) is not justified in law in not granting relief to the appellant to the extent of Rs.351,88,00,000/-which was claimed before the learned Assessing Officer during the course of assessment proceedings on the facts and circumstances of the case. The learned Commissioner of Income-tax (Appeals) c) is not justified in law in not allowing the claim of the appellant as revenue expenditure in view of adjustment on account of change in accounting policy which was approved by the State Government and accepted by the C 85 AG on the facts and circumstances of the case. The authorities below erred in adding entire sum d) of Rs. 631,99,06,000/- being the revenue expenditure claimed due to change in accounting policy and the learned Assessing Officer has erred in not considering the claim of Rs. 351,88,00,000/-

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 9 of 42 by the appellant as against Rs. 631,99,06,000/- on the basis of expenditure on infrastructure projects treated as capital expenditure during the financial years 2008-09 to 2010-11and due to change in accounting policy by the appellant and approved by the Govt. of Karnataka. The authorities below ought to have appreciated the fact that the appellant has changed the accounting policy during the FY 2011-12 with the permission of the authority. The Govt. of Karnataka vide letter dt. 02.04.2014 has considered these expenses as revenue in nature and the same has been approved by the Principal Accountant General of Karnataka vide letter dt. 02.09.2014 on the facts and circumstances of the case. The learned Commissioner of Income-tax (Appeals) is not 12. justified in law in confirming the disallowance of interest paid of Rs.42.71 lakhs to KUIDFC for the loan borrowed for the purpose of construction of two level grade separator being revenue expenditure on the facts and circumstances of the case. The learned Commissioner of Income-tax (Appeals) is not 13. justified in law in confirming the disallowance of interest paid of Rs.16.20 lakhs to KUIDFC for the loan borrowed for the purpose of construction of grade separator at Ananda Rao Circle project being revenue expenditure on the facts and circumstances of the case. The learned Commissioner of Income-tax (Appeals) is not 14. justified in law in confirming the disallowance of interest paid of Rs.407.10 lakhs to KUIDFC for the loan borrowed for the purpose of construction of grade separator at Hennur junction project being revenue expenditure on the facts and circumstances of the case. 15. The learned Commissioner of Income-tax (Appeals) is not justified in law in confirming the addition of Rs.228,61,00,000/- made by the learned Assessing officer in respect of construction of grade separators, PRR bridges and other renovation and remodeling works treating them

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 10 of 42 as capital expenditure on the facts and circumstances of the case. 16. The authorities below ought not to have disallowed expenses of Rs.228,61,00,000/- incurred by the appellant for the construction of Grade Separators, PRR bridges and other renovation and remodeling works treating the same as capital expenditure. The authorities below has failed to appreciate that such expenditures are not capital in nature and are purely revenue expenditures incurred by the appellant under orders from the Government of Karnataka as public utility. The authorities below ought to have appreciated the fact that the appellant has changed the accounting policy during the FY 2011-12 to treat all such expenditures incurred for development of infrastructure project as revenue expenditure with the permission of the authority, the Govt. of Karnataka vide letter dt. 02.04.2014 has approved to treat all such expenditure on infrastructure projects as revenue expenditure and the same has been accepted by the Principal Accountant General of Karnataka vide letter dt.02.09.2014 on the facts and circumstances of the case. The learned Commissioner of Income-tax (Appeals) is not 17. justified in law in confirming the addition of Rs.20,20,21,000/- made by the learned Assessing officer in respect of expenditure incurred towards BBMP works on the facts and circumstances of the case. Without prejudice the authorities below erred in treating a 18. sum of Rs.20,20,01,000/- incurred by the appellant for carrying out the works like construction of underpass, bridges, flyover and other related works in the BBMP areas under the directions from the Government of Karnataka as capital expenditure. a) The authorities below ought to have appreciated the detailed submission made explaining that there is no creation of any asset belonging to and for the benefit and ownership of the appellant thereby ought not to have considered all such revenue expenditure capital expenditure

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 11 of 42 which do not create any asset to the appeal, and which are not of enduring nature. b) The authorities below has further failed to appreciate that such expenses are being incurred by the appellant year after year on t directions of the State Government in pursuance of objects for which has been established under a special Act. c) The authorities below ought to have appreciated the fact that the appellant has changed the accounting policy during the FY 2011-1 to treat all such expenditures incurred for development infrastructure project as revenue expenditure with the permission o the authority. The Govt. of Karnataka vide letter dt. 02.04.2014 hat approved to treat all such expenditure on infrastructure projects as revenue expenditure and the same has been accepted by the Principal Accountant General of Karnataka vide letter dt.02.09.2014. d) The authorities below failed to appreciate that the Govt. of Karnataka in letter dt. 18.03.2011, has rejected the request of BDA for reimbursement of Rs. 623 crores spent for various ward works which ' are minor in nature in new BBMP areas executed as per Govt., direction vide letter dt. 30.08.2008. 19. The learned Commissioner of Income-tax (Appeals) is not justified in law in confirming the disallowance of Rs.29,97,42,000/- made by the learned Assessing Officer in respect of current year revenue expenditure for development of lakes on the facts and circumstances of the case. 20. The authorities below ought not to have disallowed expenses of Rs.29,97,42,000/- incurred by the appellant for development of lakes, construction of buildings and other structures including guest houses at Gandhi Bhavan, National Military Memorial at Bangalore including contribution of Rs. 15,12,62,510/- pertaining to deposit contribution towards construction of ROB-YPR-Tumkur South western railway under orders from the Government of Karnataka.

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 12 of 42 a) The authorities below failed to appreciate that such expenditures are not capital in nature and are purely revenue expenditures incurred by the appellant under orders from the Government of Karnataka as public utility and preservation of environment. b) The authorities below ought to have appreciated the fact that the appellant has changed the accounting policy during the FY 2011-12 to treat all such expenditures incurred for development of infrastructure project as revenue expenditure with the permission of the authority. c) The authorities below ought to have appreciated that the Govt. of Karnataka vide letter dt. 02.04.2014 has approved to treat all such expenditure on infrastructure projects as revenue expenditure and the same has been accepted by the Principal Accountant General of Karnataka vide letter dt.02.09.2014.

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 13 of 42 on fixed deposits pertaining to BDA Employees Superannuation fund on the facts and circumstances of the case.

The learned Commissioner of Income-tax (Appeals) is not 27. justified in law in confirming the disallowance made by the learned Assessing Officer a sum of Rs.2,36,86,000/- under section 43B of the Act in respect of workers welfare cess on the facts and circumstances of the case.

The authorities below erred in disallowing the sum of Rs. 28. 2,36,86,000/-being the expenditure claimed towards workers welfare cess payable to Workers Welfare Board and the AO ought to have noted that the Section 43B of the IT Act, 1961 is applicable only in case of assessee whose income comes under the purview of Section 28 of the IT Act, 1961. The AO has erred in disallowing the claim for liability applying the provisions

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 14 of 42 applicable to income assessable under the head profits and gains of business in case of appellant and the learned CIT (A) is erred in confirming the said disallowance on the facts and circumstances of the case.

The learned Commissioner of Income-tax (Appeals) is not justified 29. in law in confirming the disallowance made by the learned Assessing Officer a sum of Rs.33,47,000/- under section 43B of the Act in respect of unpaid service tax on the facts and circumstances of the case.

The authorities below were not justified in disallowing the balance 30. ascertained liability Rs. 33,47,000/- towards service tax payable by the authority and the AO ought to have noted that the Section 43B of the IT Act, 1961 is applicable only in case of assessee whose income comes under the purview of Section 28 of the IT Act, 1961. The AO has erred In disallowing the claim for liability applying the provisions applicable income assessable under the head profits and gains from business and the learned CIT (A) erred in confirming the said disallowance on the facts and circumstances of the case. 31. The learned CIT (A) erred in confirming the re-computation of depreciation by the learned Assessing Officer treating the revenue expenditure of Rs.278,78,43,000/- as capital expenditure and thereby allowing 10% of depreciation a sum of Rs.27,87,84,300/- on the facts and circumstances of the case. Without prejudice, the learned Commissioner of Income-tax 32. (Appeals) is not justified in law in confirming the depreciation allowed by the learned Assessing Officer treating as capital expenditure when the appellan: claimed as revenue expenditure on the facts and circumstances of the case. Without prejudice the authorities below ought to have 33. allowed the depreciation in respect of the opening balance

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 15 of 42 of assets as on 1.4.2011 a sum of Rs.510.92 Crores being treated it as capital expenditure without. appreciating the change of accounting policy on the facts and circumstances of the case. Without prejudice, the authorities below are not justified in 34. law in concluding the total taxable income under a single head and without arriving at the income from regular heads of income and statutory deductions under such respective heads of income on the facts and circumstances of the case. Without prejudice to the right to seek waiver with the Hon'ble Chief 35. Commissioner of Income Tax/ Director General of Income Tax under the provisions of the Act, the Appellant denies itself liable to be charged to interest under section 234B of the Act which under the facts and circumstances of the case deserves to be cancelled. The calculation of interest under section 234B is not in accordance with law as the rate, amount and method for calculating interest is not discernible from the order of assessment. The appellant prays leave to add, alter, modify or amend and delete 36. any of the above grounds of appeal. For the above and other grounds that may be urged at the time of 37. hearing of the appeal the appellant prays that the appeal may by allowed and relief may be granted as prayed for the advancement of substantial cause of justice.

5.0 Ground No.7 – Applicability of proviso to section 2(15) of the Act and related grounds

5.1 We will now proceed to deal with the case on hand, considering the facts and circumstances under which the order of assessment for this year came to be passed. Revenue, being of the view that the assessee’s activities which earn income are hit by the proviso to section 2(15) of the Act,

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 16 of 42 introduced w.e.f. 01.04.2009 by Finance Act, 2010, consequently denied the assessee the exemption claimed under section 11 of the Act and brought to tax the assessee’s income from Assessment Year 2009-10 onwards. The learned AR of the assessee submitted at the Bar that the assessee is in appeal before the Tribunal for all these Assessment Years for which exemption under section 11 of the Act has been denied and all the appeals are yet to be heard / disposed off. We have taken up the appeal for Assessment Year 2012-13, which is before us for hearing the disposal as the same is a stay granted matter and its disposal cannot be kept in abeyance indefinitely.

5.2 The primary issue that requires to be adjudicated first is whether the proviso of section 2(15) of the Act is applicable to the facts and circumstances of the case on hand. The Assessing Officer (AO) passed the order of assessment for Assessment Year 2012-13 on the basic premise that that the assessee is hit by the proviso to section 2(15) of the Act. It is for this reason that the AO has denied the assessee the exemption it claimed under section 11 of the Act and proceeded to assess the entire income as “Income from Business”. The assessee has raised several alternate grounds (supra) contending that the AO has also not assessed the business income

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 17 of 42 as per the provisions of the Act and has denied the assessee several eligible deductions which the assessee was entitled to , even if it were to be assessed as a business entity. Be that as it may, we now proceed to examine the issues involved to decide whether the AO was correct in coming to the conclusion that the assessee indeed hit by the proviso to section 2(15) of the Act.

5.3.1 Section 2(15) of the Act has been amended by Finance Act, 2010 w.e.f. 01.04.2009 (i.e., w.e.f. Assessment Year 2009-10). In respect of the sixth limb; namely, advancement of any object of general public utility, a proviso has been inserted into the section, which reads as follows:-

“2(15) “Charitable purpose” includes relief of the poor, education, medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other object of general public utility: [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”]

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 18 of 42 5.3.2 Thus the proviso to section 2(15) (supra) clearly specified that if any charitable organization recognized under section 12A of the Act (i) were to carry out any activity in the nature of trade, commerce or business or (ii) were to carry on any activity of rendering service in relation to any trade, commerce or business.

for a cess or fee or any other consideration, then irrespective of the nature of use or application or retention of the income from such activity, such activity shall not constitute activity / activities of charitable purpose or nature, despite the fact that the same are carried out or performed for the advancement of any object of general public utility.

5.3.3 The AO, in para 5.4 of the order of assessment, reproduced the objects of the assessee viz., BDA as per section 14 of the Bangalore Development Authority Act, 1976, which reads as under: to promote and secure the development of the (j) 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 jurisdiction, (ii) to carry out building, engineering and other operations and generally to do all things necessary

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 19 of 42 and expedient for the purpose of such development and for activities purposes incidental thereto.

5.3.4 At para 5.5 of the impugned order of assessment for Assessment Year 2012-13, the AO has extracted the Powers / Functions of the ‘BDA’ as per sections 15 & 16 of the Bangalore Development Act, 1976 as under:- (i) To undertake works and incur expenditure for development of the Bangalore Metropolitan Area by drawing up detailed schemes. (ii) To undertake from time to time any works for the development of the Bangalore Metropolitan Area and incur expenditure thereof and also for framing and execution of development schemes with the previous approval of the government. (iii) The acquisition of the land which will be necessary for or affected by the execution of the schemes. (iv) Laying and relaying out all or any land including the construction and reconstruction of buildings and formation and alteration of streets. To provide drainage, water supply and electricity. (v) (vi) To provide sanitary arrangements required. (vii) To provide for the construction of houses. (viii) Power to acquire land by agreement. (ix) Power to lease, sell or transfer of the property. (x) Formation of new extensions or layouts or making new private streets. (xi) Allotment/ sale of sites and buildings by direct sales, lease cum sale method and through auction sales in respect of corner sites and commercial sites.

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 20 of 42 5.3.5 The AO has summarized the main objects, functions and activities of ‘BDA’ at para 6 of the impugned order of assessment at para 5.6 thereof as under: To procure the land and develop the same into layouts by (i) undertaking land development activities and convert the same into saleable plots/ sites/ flats/ houses. To undertake planning activities for group housing & layouts and (ii) preparation of development plan for Bangalore. The assessee is engaged in acquisition of land for development of (iii) layouts and construction of houses and sale of the same to the general public. The assessee is engaged in the development of infrastructure (iv) facilities such as construction of flyovers, ring roads, underpasses, grade separators etc. The assessee is engaged in construction of commercial (v) complexes.

5.3.6 At para 5.7 to 5.9 of the impugned order of assessment for Assessment Year 2012-13, the AO has concluded / rendered his finding as under: “5.7 As such, it is amply clear that the objects and activities of the assessee do not fall under first five limbs of definition of charitable purposes as envisaged u/s 2(15). This is precisely because of the reason that as per the objects of the assessee as envisaged under section 14 of BDA Act 1976, there is no reference to objects such as; relief of poor, education, medical relief, preservation of monuments or places of objects of artistic or historic interest and preservation of environment (including water sheds, forests and wildlife). Further, as per section 15 and 16 of BDA Act 1976, by virtue of which assessee derives powers/ functions in order to achieve the objects, there is no mention about any functions relating to five limbs

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 21 of 42 mentioned above. Also, it may be noted that the activities of the assessee do not include any direct activities in the nature of relief of poor, running educational institutions, hospitals etc. 5.8 At this juncture, it may be noted that the activity of allotment of sites and construction of houses for economically weaker sections doesn't come under the ambit of `relief of poor' inasmuch as such an activity is incidental to the main object of development of Bangalore Metropolitan Area and also on the ground that the assessee is not allotting sites to such sections of society free of cost and sale price fixed thereof is not affordable to the poor and needy. 5.9 As such, the main activities of the assessee are proper planning and development of Bangalore Metropolitan Area by way of acquisition of land and develop the same into layouts/ construction of houses and sale of the same to the general public and development of infrastructure facilities such as; flyovers, ring roads, grade separators etc. as a general public utilities. Accordingly, the activities of the assessee would fall under the residual limb i.e., the advancement of any other object of general public utility.”

5.3.7 On the activity of allotment of sites and houses, the AO in para 6.20 of the order of assessment has drawn the following inferences:

(i) The assessee is mainly engaged in development of sites and houses and sale of the same to general public at large by way of collecting consideration and in respect of corner sites and flats, sale transactions are done through auction sale wherein highest bidder will only get the eligibility to own the sites or flats.

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 22 of 42

(ii) The assessee is generating huge amount of profits year after year from sale of sites and flats indicating that the assessee is carrying out the activities as a business venture rather than charitable organization.

(iii) The assessee is not applying the huge amount of profits generated from the activities towards any charitable activities such as relief of poor, education, medical relief and other objects of advancement of the general public utility and such surplus is being invested in fixed deposits in order to earn interest income.

(iv) The activities of the assessee and the generation of profits on account of the same are akin to the activities carried on by real estate companies, property developers, infrastructure firms etc., and therefore, the activities of the assessee are squarely fall under the ambit of activities which are in the nature of trade, commerce or business. Accordingly, the activities of the assessee are hit by the first proviso below section 2(15).

5.4 On appeal, the CIT(A) has considered the impugned order of assessment and at para 5.34 of her order dated 28.02.2017 for Assessment

Year 2012-13 has rendered the following finding: “5.34 The manner of conduct of its activities with systematic commercial overtones gives enough indication that it is not merely an activity with business principles but a purely commercial activity akin to business. There is no "charity" involved either in its objective or in its functioning. Such activities fall within the second limb of the proviso to Sec.2(15)”

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 23 of 42 5.5.1 What is now before us for consideration and adjudication is whether the AO and the CIT(A) have rightly come to the conclusion that the activities of this assessee, which are carried out for a cess or fee or other consideration, constitute activities which are in the nature of trade, commerce or business or services in relation to any trade, commerce or business. It is critically important to note the fact that two conditions need to be satisfied, if any activity is to be considered as an activity falling under the proviso to section 2(15) of the Act, namely (1) The activities are carried out for a fee or cess or other consideration, and (2) The activity is in the nature of trade, commerce or business and if the activity is in the nature of rendering service, then such service rendered is in relation to any trade or commerce or business.

Therefore, it is not enough that the activity is carried out or the service is rendered for a fee or cess or other consideration; the activity must also be an activity which is in the nature of trade, commerce or business and if such activity is in the nature of service rendered, then such service must have been so rendered in relation to any trade or commerce or business.

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 24 of 42 5.5.2 It now needs to be seen as to whether the activities of the assessee which are rendered for a fee or cess or other consideration are in the nature of trade or commerce or business. The AO’s view; which has also been upheld / affirmed by the CIT(A); that the main activity of the assessee is the sale of sites which constitutes purely business activity, with no charitable purpose, and is carried out solely with the intention / object of making profits. In this context, the authorities below have likened the assessee to any real estate developer and is to be seen as no different from them. As can be observed from a perusal of the details in the tables at paras 6.10, 6.12 and 6.13 of the order of assessment, the assessee’s income stream is mainly generated from sale of sites sold in the layouts formed by the assessee. It can also be seen that the assessee has rental income, which cannot be seen strictly as commercial in nature as there are many charitable organisations which derive income from property by way of rentals and which income is exempt under section 11 of the Act. Similar is the case of interest income. The assessee also has income by way of tax / cess collection, which the learned AR contends is not an activity in the nature of trade, commerce or business.

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 25 of 42 5.6.1 It is now relevant to examine the issue of sale of sites in the case on hand, to decide if the same is an activity which is in the nature of trade, commerce or business. The revenues generated by the sale of sites is large and therefore it cannot be treated as charitable in nature, merely because it is carried out by a city development authority; which in the case on hand is the ‘BDA’, created by an enactment of the State Government of Karnataka. State Government enterprises are known to be created for profit making purposes and have accordingly admitted income to tax. Therefore, being a statutory body or a state owned enterprise, by itself, does not exempt it from the rigors of income tax. On the other hand, the quantum of income generated, being large, by itself, also would not mean that the entity is an organization created for the purpose of making profits.

5.6.2 The submissions of the assessee in support of its contention that sale of sites ought not to be treated as an activity which is in the nature of trade, commerce or business, are extracted hereunder: “n) The treatment of sale of sites by public auction (Rule 3 of the Bangalore Development Authority (Disposal of Corner Sites and Commercial sites) Rules, 1984) is not in the nature of trade commerce or business. The activity is pursuant to a statue and the rules framed under the same. The same cannot be given in contravention of the rules framed and this aspect cannot form pan of any remote connection with business.

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 26 of 42 Allotment of sites in the normal course is governed by Sections o) of the BDA (Allotment of Sites), Rules, 1984. Accordingly, BDA has to allot a certain percentage of sites to persons belonging to different categories of society including Economically Weaker Sections (EWS) of the society, etc. at far below the normal allotment rates. Allotment of sites is done on a no profit no loss basis. Auctioning of sites is done after they are fully developed over a period of 10-15 years after the layout is formed which requires their upkeep, security and maintenance, proportionate administrative expenses, etc. Realizations from auctioning of sites are also meant/ applied for developmental works including creation of infrastructure works in Bangalore Metropolitan Area as per directions of the Government etc. The substance of the object of the Bangalore Development Authority is the functionality of the State and by no stretch of imagination the activities can be treated as coming within the ambit of business. It is not out of context to mention here that the Honourable Union Finance Minister, while moving the amendment to Section 2(15) of the Income Tax Act in his 2008 Union Budget made a categorical assurance to the House that genuine charitable organizations will not be affected. He further stated that the amendment is meant to those organizations/entities carrying on business activities under the mask of charity. The various activities are of public good and are essential to the p) citizens of the city of Bangalore and the mode of raising some finances is the sale of certain auction sites and this cannot by any stretch of imagination suggest that the appellants are into carrying on of business or the like nature. It is also of relevance to take note of the fact that the assessing officer was not correct in equating this statutory authority like BDA with that of a builder. The service rendered by BDA to several homeless persons and the number of persons who have been allotted sites by BDA are countless. The various layouts that have been formed in places like Jayangar, J.P.Nagar, Rajajinagar, R.T.Nagar etc are to name a few have helped several poor persons to acquire property. No developer does statutory function of collecting taxes and approval of plans in any layout formed by them. Their plans may also not be in accordance with the provisions of Town Planning Act. The comparison is absolutely erroneous. Without

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 27 of 42 further prejudice the computation of income by not adopting the matching principles is further erroneous in law. It is submitted that the amendment to Section 2(15) was carried q) out to tax entities wearing the mask of charity but in fact carrying on commercial activities. In the course of budget speech for 2009, Hon'ble Finance Minister observed "……………..”. The memorandum explaining the provisions of Finance Bill is to a similar effect. While replying in to a debate on the Finance Bill, the Finance Minister assured that genuine charitable institutions would not be brought within the ambit of Section 2(15). r) It is relevant to point out that the statement made by the mover of the Finance bill can be used for demonstrating the objects of the amendment. (Reliance is placed on the decision of the apex court in the case of K.P.Vargheese 131 ITR Page _597. It is also well settled law that circulars issued by the Board are binding on the revenue and for this proposition there is no need to multiply authorities as right from the case of Naveneet Lal Jhavaeri upto the recent decision of Kurien Abraham, 303 ITR 284 the view of the courts is that the circulars of the Board are binding on the revenue. s) The definition of "Charitable purpose" under the erstwhile law also referred to four limbs of charitable activities. Under the residuary limb of the definition, there was a qualifying condition. The object of general public utility to be regarded as charitable in nature was not to involve the carrying on of any activity for profit. In other words, profit making was a condition to deny exemption to the relevant organization………..”

5.6.3 In the course of hearings, the learned AR for the assessee submitted that the primary objective of ‘BDA’ was to ensure that the city of Bangalore is developed in an organized manner so as to make it planned and the development people friendly. In 1976, when BDA was constituted, Bangalore, at that

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 28 of 42 point in time, was a much smaller city than what it is now. The city planners, in their wisdom, decided that the best way for the city to expand without congesting the central areas was by formation of new residential areas on the outskirts of the then existing city. Accordingly, BDA set about forming residential layouts by acquiring lands, which were basically lying unused from several landowners, consolidating these lands and formed planned residential layouts thereon. The pricing of the sites was made in a manner so as to ensure that the sites are made available to the common man / economically weaker sections of society at affordable and reasonable rates in order to incentivize the purchase of the sites. The basis intent and purpose of organizing these self – contained development of residential layouts / sites was not profit making, but to ensure growth by de-congesting the city of Bangalore. It is for this reason that ‘BDA’ has always been developing layouts in those areas that are sparsely populated. The developments made by ‘BDA’ are large in size, so as to ensure that the residential layout is self-contained in all aspects; being virtual mini townships. It is ‘BDA’ that has been responsible for creating residential areas which are today considered prime localities namely Jayanagar, J. P. Nagar, Banashankari, Indira Nagar, etc. All these areas formed part of some village when the ‘BDA’ embarked on development in these areas. In fact, every area / locality, which has been developed by ‘BDA’ used to be sparsely populated at the time the development work was initiated / taken up and were areas where no private entrepreneur would risk his money by venturing into real estate business. It was only after development by BDA of these localities / areas that these areas have become popular and private real estate businessman have since become active in these areas. It was submitted that once ‘BDA’ has developed a particular locality

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 29 of 42 or area, they do not carry out another development in the same area, unlike private entrepreneurs, who will not cease to do business as long as there exists a market and scope for real estate development in the said area.

5.6.4 It is further submitted that there are restrictions to whom ‘BDA’ can allot sites to. For example; an important restriction is that the applicant for a site should not be an owner of any other residential site or house property at the time of submitting the application. This critical / important restriction itself demonstrates that ‘BDA’ is allotting sites to those who do not have a residential site or house. No private real estate developer would impose such restrictions on himself / itself. The restrictions imposed in the process of allotment of sites ensures the very important social objective of the State which is “Housing for All”.

5.6.5 One important issue that has prompted the AO to hold that the activity of sale of corner sites is commercial in nature is the sale of corner sites by the ‘BDA’ through the process of auction. In this regard, the learned AR submits that this is done as a policy and rule in order to ensure transparency in allotment of corner sites. It is a well known and accepted fact that corner sites have better value than other sites and are generally sought after. This rule was brought in to ensure that officials who are in-charge of allotment of sites, do not have any discretion in allotment of corner sites and hence the process of auction. The process of auctioning of corner sites in fact supports the stand that ‘BDA’ is an organization which does not have profit making as its objective and at the same time to ensure that the public exchequer is not deprived of its due revenues.

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 30 of 42 5.6.6 The learned AR drew our attention to the following covenants in the Bangalore Development Authority Act, 1976 (to be read as ‘the Act’ wherever the reference to Bangalore Development Act, 1976) which are regulatory and some of which are restrictive in nature:-

(i) The entire control and management of BDA comes under the direct control of the Urban Development Department, Government of Karnataka. (ii) The objects of the ‘BDA’ are mentioned in section 14 of ‘the BDA Act’. (iii) The preamble of ‘the BDA Act’ is also very clear as to the main purpose, which is to provide for the establishment of a Development Authority for the development of the City of Bangalore and its adjoining areas and for matters connected therewith. (iv) The power to levy Betterment Tax is in accordance with the provisions of Section 20 of ‘the BDA Act’. (v) In terms of Section 28A of the BDA Act, the BDA has a duty to maintain streets. (vi) The power to levy tax on land and buildings like a State, is accorded as per Section 28B of the ‘BDA Act’. (vii) In terms of Section 39 of the ‘BDA Act’, the loans taken / funds borrowed are guaranteed by the State Government. (viii) In terms of Section 40 of the ‘BDA Act’, all receipts as specified in the section have to be credited to a fund called the Bangalore Development Fund and the application of the amount in the fund is governed by Section 41 of the ‘BDA Act’. (ix) The Annual Estimate of Income & Expenditure has to be approved by the State Government as per Section 44 of the ‘BDA Act’.

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 31 of 42 (x) In terms of Section 53 of the ‘BDA Act’, the BDA has the powers to direct agencies of the Government like Water Supply and Sewage Board, Electricity Board, etc. (xi) The fines, etc., collected have to be credited to the Bangalore Development Fund as mandated by Section 55 of the ‘BDA Act’. (xii) As per Section 65 of the BDA Act, the state government has the power to issue directions to the BDA and it is the duty of BDA to comply with such directions. (xiii) As per the mandate of Section 69 of the BDA Act, the power to make rules vests only with the State Government. (xiv) As per Section 74 of the BDA Act, the power to remove any difficulty vests with the State Government. (xv) In terms of section 75 of the BDA Act on dissolution, all the assets and liabilities of ‘BDA’ vests with the State Government.

5.6.7 Thus, according to the learned AR, in view of the rules and regulations under which the allotment of sites and flats take place and in view of the restrictive clauses contained in the Bangalore Development Authority Act, 1976, the main details of which have been laid out above, BDA discharges virtually the function of the State and every rupee in the said Bangalore Development Fund is to be applied only on the general or specific orders of the state government. It is contended that the said clauses are reasons enough for concluding that ‘BDA’ is neither established with the intention of making profit nor are its activities embarked upon with a view to make profit and therefore the assessee cannot be equated with a private real estate developer, as has been erroneously and superfluously done by the AO and CIT(A).

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 32 of 42 5.7 The learned DR for Revenue placed strong reliance on the findings rendered by the authorities below in the impugned orders on this issue. It was reiterated that the assessee’s activities which earn income are squarely hit by the proviso to section 2(15) of the Act introduced w.e.f. 01.04.2009 by Finance Act, 2010 and therefore the assessee ‘BDA’ is clearly not eligible for being allowed exemption under section 11 of the Act.

5.8.1 We have considered the rival contentions / submissions put forth and perused the material on record placed before us; including the judicial pronouncements cited. At the outset, we have perused section 14 of the BDA Act, 1976, which specifies the objects of ‘BDA’ and the same is extracted hereunder:

“14. Objects of Authority:—The objects of the authority shall be to omote 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.”

5.8.2 A plain reading of the aforesaid objects would show that prima facie, the same does not contain the first five limbs of section 2(15) of the Act namely, Relief of the poor, Education, Medical relief, Preservation of environment (including watersheds, forests and wildlife) and Preservation of monuments or places or objects of artistic or historic interest). However, the claim of the assessee that even though these five limbs are not

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 33 of 42 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.

5.8.3 At para 5.9 of the impugned order, the CIT(A) states that she is unable to accept the argument of the assessee that the activities undertaken by it related to the development of parks, lakes and greenery come under the first four limbs of the definition as per section 2(15) of the Act and not the fifth limb. She was of the view that the development of lakes, parks and greenery have been undertaken only as part of layout development and could be considered for enhancing the commercial value of the layouts developed by the assessee. We observe from the financial statements of the assessee for the impugned Assessment Year, 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. Further, it is also seen that the assessee has expended a sum of Rs.2997.42 lakhs towards development of lakes. In the light of the above facts on record, the contentions of the AO and CIT(A) that the assessee has not carried out any of the activities specified / contained in the first five limbs of section 2(15) of the Act is not correct. The assessee has definitely carried out the

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 34 of 42 activity of preservation of environment and water bodies. In our view, the conclusion of the CIT(A) that the developments on these fronts are done only to enhance the commercial value of the layout developed is untenable in the light of the facts of the case on hand.

5.9.1 The question of whether allotment of sites and flats to the economically weaker sections of society constitutes relief for the poor is perhaps a debatable issue. Relief for 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 question that arises for consideration is which of those sections of society can be said to be ‘poor’ as per section 2(15) of the Act. Whether the word poor can mean only those who are below the official poverty line or does it include all those who are economically weaker, but not necessarily below the poverty line.

5.9.2 In this context, if one were to observe the activities of Educational and Medical institutions, which in the eyes of law, are considered as charitable institutions, 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. In fact, the Hon’ble Apex Court has laid down where different slabs of fee structure is approved for different categories / segments of students who are admitted. In fact, recently the Government of India too has declared reservation in government jobs in the country to all sections of the citizenry who are economically backward; i.e., to those whose family’s annual income is less than 8 lakhs; which is a concession to people who are considered economically backward but not

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 35 of 42 necessarily below the poverty line. In other words, it is not mandatory that ‘poor’ confines itself to those sections below the poverty line and that ‘Relief’ means providing something free of cost. In this background, it could be said 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 is clear from the very scheme and the name thereof, that these flats are meant only for the Economically Weaker Sections of society.

5.9.3 We also observe that the finding of the AO in para 6.20(iii) of the order of assessment, and which is impliedly endorsed by the CIT(A) in the impugned appellate order, i.e., that (iii) “The assessee is not applying the 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” is also not correct in as much as it is evident from the financial statements of this year that the assessee has spent an amount of Rs.278,78,43,000/- (disallowed by the AO – para 15.20 of Assessment Order and reflected int eh computation of total income) on activities that fall under the head ‘Advancement of General Public Utility’ like construction of grade separators, PRR Bridges on Flyovers, renovation and remodeling works, Maintenance of BBMP facilities, Development of Lakes, etc. Be that as it may, if one were to peruse the object for which the assessee, viz., BDA was constituted, it is clear that the intent and purpose is for 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

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 36 of 42 and main object to ensure planned development of Bangalore City and not with the intention to make profits.

5.9.4 The Hon’ble Apex Court in the case of Barendra Ray and Others Vs. ITO (1981) 129 ITR 295 has held that the word “business” implies commercial transactions with a view of making profits and gains therefrom. Therefore, carrying on business connotes some substantial, systematic and organized activity with the object of making gain and profit thereon, with the inevitable control and direction vis-à-vis such activity of business. Profit motive is surely the essence of trade, commerce or business and therefore in situations and circumstances in which services are rendered without a profit motive, such rendering of service will not have anything in common with trade or commerce or business. If one were to test the proviso to section 2(15) of the Act against the background of a recognized charitable organization, then 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.

5.9.5 The Hon’ble Apex Court in the case of Surat Art Silk Organisation Vs. CIT (121 ITR 1), has 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

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 37 of 42 Institution may require additional infrastructure under which more class 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. In the case on hand, the 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.

5.10.1 We find that the view of the AO in (iv) of para 6.20 of the order of assessment and which is impliedly endorsed by the CIT(A) in the impugned order; i.e., that (iv) “The activities of the assessee and the generation of profits on account of the same are akin to the activities carried on by real estate companies, property developers, infrastructure firms, etc., and therefore, the activities of the assessee squarely fall under the ambit of activities which are in the nature of trade, commerce and business. Accordingly the activities of the assessee are hit by the first proviso to section 2(15)”; is in our opinion rather superfluous in nature. No doubt, it is a fact that one will see a lot of similarities in the activity of the assessee vis-à-vis that of a real estate developer. However, the issue

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 38 of 42 to be considered is, not whether the activity of the assessee is similar to that of the private real estate developer or not, but whether the underlying purpose of the activity is the same as that of the private real estate developer, i.e., making and maximization of profit. In the case of this assessee; viz., BDA, the underlying motive / objective is not making and maximizing of profits, but planned development of Bangalore City. It is important in this context to note the fact that 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. In other words, the Income Tax Department considered the assessee, ‘BDA’ to be covered by the provisions of section 2(15) of the Act.

5.10.2 It is after the introduction of the proviso to section 2(15) of the Act that 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 ITA No.12/Bang/2012 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

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 39 of 42 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 embarked upon solely with the view to earn profit or not; which the AO and CIT(A) have not done.

5.10.3 In support of the assessee’s contentions, the learned AR of the assessee has placed reliance on the following judicial pronouncements:

(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 (Dlehi – Trib.) (iv) CIT Vs. Lucknow Development Authority (2013) 38 taxmann.com 246 (Allahabad) (v) CIT Vs. Jodhpur Development Authority (2017) 79 Taxmann 361 (Raj.).

5.10.4 We find that the aforesaid judicial pronouncements relied upon by the assessee are those of other urban development authorities, in whose cases also the AO has taken the view that the activities of city development are hit by the proviso to section 2(15) of the Act. Referring to the above cited cases, we find that in the case of Ahmedabad Development Authority (2017) 396 ITR 323,

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 40 of 42 the Hon’ble Gujarat High Court has upheld the appeal of the assessee, by overruling therein the decision of the Ahmedabad Tribunal in that case. In the case of Lucknow Development Authority (2018) 39 taxmann.com 246, the Hon’ble Allahabad High Court has upheld the decision of the Lucknow Bench of ITAT which was in favour of the assessee. We find that in the above judicial pronouncements cited by the assessee, the facts are identical to that of the assessee in the case on hand; that the AOs in these cases have taken a view that the activity is in the nature of trade, commerce or business and hit by the proviso to section 2(15) of the Act and the assessees have got relief at the higher appellate forums, viz., the Hon’ble High Courts and / or Tribunals.

5.10.5 In support of the view / contention that the activities of the assessee are squarely hit by the proviso to section 2(15) of the Act and is consequently not eligible and to be claimed exemption under section 11 of the Act, the AO has placed reliance on the following judicial pronouncements:-

(i) Jammu Development Authority Vs. UoI in ITA No.164/2012, 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).

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 41 of 42 The above cited cases relied upon by the AO find mention in the impugned order of assessment and the AO has briefly discussed these judicial pronouncements therein. We find from the discussions therein that in all these citations, the issue involved was the cancellation of registration under section 12A of the Act and not assessments made on the basis that the activities in those cases are hit by the proviso to section 2(15) of the Act. In our view, these judicial pronouncements cannot be applied to the assessee in the case on hand for the reason that the assessee’s Registration under section 12A of the Act which was cancelled by the CIT(Exemption), has since been restored by a Co-ordinate Bench of this Tribunal, by following the decision of the Hon’ble Karnataka High Court in the case of Director of Income Tax (Exemption) Vs. Karnataka Industrial Area Development Board (ITA No.261/2013 dated 07.11.2014). In that legal view of the matter, the judicial pronouncements relied upon by the AO would not come to the rescue of Revenue in the case on hand. Further, in view of the decision of the Hon’ble Apex Court in the case of CIT Vs. Vegetable Products (88 ITR 192) (SC), it is judicially correct to follow the decisions of Hon’ble High Courts of Gujarat and Allahabad which support the case of the assessee (supra), when the same are in favour of the assessee; despite there being decisions contrary by other High Courts; when there is no decision of the jurisdictional High Court against the assessee. In view of the factual and legal matrix of the case, as discussed above, we hold that the activities of the assessee, i.e., Bangalore Development Authority are not hit by the proviso to section 2(15) of the Act. Having held so, we direct the AO to allow the assessee the benefits of section 11 of the Act while giving effect to this order. Consequently, grounds raised by the assessee on this issue are allowed.

ITA No. 1104/Bang/2017 ITA No. 1087/Bang/2017 Page 42 of 42 6. In view of the finding rendered by us above on the applicability of the proviso to section 2(15) of the Act in the case on hand, all other grounds / issues raised by assessee in this appeal and by Revenue in its cross appeal in ITA No.1087/Bang/2017 become academic in nature and do not call for adjudication at this juncture.

Pronounced in the open court on 22nd March, 2019.

Sd/- Sd/- (LALIET KUMAR) (JASON P. BOAZ) Judicial Member Accountant Member Bangalore. Dated: 22nd March, 2019. /NS/* Copy to: 1. Appellants 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order

Assistant Registrar, ITAT, Bangalore.