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Facts
The appeals were filed by Maharashtra Housing and Area Development Authority (Assessee/Appellant) against orders of the National Faceless Appeal Centre (NFAC) concerning Assessment Years (AY) 2009-10 and 2017-18. The core dispute revolves around the denial of exemption under Section 11 of the Income Tax Act, 1961, due to the applicability of the proviso to Section 2(15) of the Act.
Held
The Tribunal noted that the assessee is an authority involved in the advancement of objects of general public utility. However, the issue of whether the assessee's activities fall under the proviso to Section 2(15) requires fresh adjudication, particularly concerning the cost of land provided by the government and the actual profit generated. The learned CIT(A)'s findings were not agreed with, and the matter was restored to the Assessing Officer.
Key Issues
The primary issue is the applicability of the proviso to Section 2(15) of the Income Tax Act, 1961, to the assessee, which affects its eligibility for exemption under Section 11. This hinges on whether the assessee's activities constitute trade, commerce, or business, and the determination of profit considering the cost of land.
Sections Cited
Section 11, Section 2(15), Section 143(3)
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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & SHRI SUNIL KUMAR SINGH, JM
A.Y. 2009-10, and for A.Y. 2017-18, is filed by Maharashtra Housing and Area Development Authority [Assessee/ Appellant] against Appellate orders of the National Faceless Appeal Centre, Delhi [the learned CIT (A)] dated 8thNovember 2023, and 17thOctober 2023, respectively.
2. For A.Y. 2009-10, fact shows that original appeal was filed by the assessee against the assessment order
The assessee is aggrieved and has raised 8 different grounds of appeal in , as under:-
“1. Appellant denied exemption under s.11 The learned CIT(A) erred on facts and circumstances of the case and in law in upholding the Assessment Order appealed against denying exemption under s.11 of the Act.
Relief claimed: The appellant be granted exemption under s.11 of the Act.
Invocation of Proviso to Sec. 2(15):
The learned CIT(A) erred on facts and in law in invoking Proviso to s.2(15) of the Act, without appreciating that the activities of the appellant are not in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business.
Relief claimed: The appellant be declared one to which Provisos to s.2(15) of the Act do not apply.
The learned CIT(A) erred on facts and in law in deciding that the Proviso to s.2(15) is applicable to the appellant because the profit margins are high and merely because the absolute number of surplus is high without bringing the fact on record that there is no profit making motive and that the surplus is non- commercial in nature.
Relief claimed: The appellant be declared one to which Provisos to s.2(15) of the Act do not apply.
Following are the Grounds of Appeal which were pleaded in the first round of appeal before the Ld. CIT(A) originating from the order passed by Ld. AO on 27th December 2011 U/s 143(3), but the led CIT(A) has erred in non-Adjudication of the grounds.
4. Addition based on notes to accounts towards Excess Capitalization of Interest- 8,55,43,351/-.
The ld. AO Erred on facts and in law by making an adding 28,55,43,351/- being interest credited in the books of accounts, which represents notional income as per para 4 of the Assessment Order passed on 27 December 2011, without giving any opportunity to the appellant to justify the appearance of the amounts in the notes to accounts and without appreciating that such amount had already formed part of book results and therefore forming part of surplus during the year amounting to double taxation thereof.
5. Addition based on notes to accounts towards Excess Capitalization of Administrative Expenditure- 25,78,27,457/ The led AO Erred on facts and in law by making an adding 2 5,78,27,457/- being Expenditure credited in the books of accounts, which represents notional income as per para 6.2 (e) of the Assessment Order passed on 27th December 2011, without giving any opportunity to the appellant to justify the appearance of the amounts in the notes to accounts and without appreciating that such amount had already formed part of book results and therefore forming part of surplus during the year amounting to double taxation thereof.
Relief claimed: Amount to the tune of 25,78,27,457/- towards Excess Capitalization of Administrative Expenses as per notes to accounts be allowed to be deducted for computation of Income of the Appellant.
Addition based on notes to accounts towards Initial Down Payment in aggregate of 260,82,12,734/- The ld. AO Erred on facts in making an addition of 57,99,74,366/- and ₹ 2,82,38,368/- aggregating to 60,82,12,734/ towards receipts on account of Initial Down Payment recovery under the Hire Purchase Scheme as per Para 6.2(c) of the assessment order Relief claimed: The addition of 60,82,12,734/- be directed to be deleted.
Addition based on notes to accounts towards subsidies received of 2 3,75,43,000/- The led AO Erred on facts in making an addition of & 3,75,43,000/- towards receipts on account of Subsidies Received per Para 6.2(f) of the assessment order passed on 27 December 2011. without giving any opportunity to the appellant to justify the appearance of the amount in the notes to accounts Relief claimed: The addition of 23,75,43,000/- be directed to be deleted.
Addition based on notes to accounts towards non materialization of liability amounting to 26,69.945/- The ld. AO Erred on facts in making an addition of 2 6,69,945/- towards non materialization of liability per Para 6.2(h) of the assessment order passed on 27 December 2011, without giving any opportunity to the appellant to justify the appearance of the amount in the notes to accounts.
Relief claimed: The addition of ₹ 6,69,945/-be directed to be deleted.”
4. The appeal for A.Y. 2017-18, is against the appellate order, wherein the appeal filed by the assessee against
The assessee has raised eight grounds in this appeal as under:-
“1. Appellant denied exemption under s.11 The learned CIT(A) erred on facts and circumstances of the case and in law in upholding the Assessment Order appealed against denying exemption under s.11 of the Act.
Relief claimed: The appellant be granted exemption under s.11 of the Act.
Engaged in Business:
The learned CIT(A) erred on facts and in law in confirming the assessment order appealed against insofar as the assessment order holds that Proviso to s.2(15) of the Act applies to the appellant disentitling the appellant to the exemption under s.11 of the Act, without appreciating that the activities of the appellant are not in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business.
The learned CIT(A) erred on facts and in law in not following the orders of the Hon ITAT Mumbai in the appellants own case for A.Y 2010-11 to A.Y 2015-16 Relief claimed: The appellant be declared one to which Provisos to s.2(15) of the Act do not apply.
3. High Profit Margin The learned CIT(A) erred on facts and in law in deciding that the Proviso to s.2(15) is applicable to the appellant because the profit margins are high.
Relief claimed: The appellant be declared one to which Provisos to s.2(15) of the Act do not apply.
4. Erroneous Consideration of Surplus as per Income & Expenditure Account The learned CIT(A) erred on facts in considering 2725,40,63,674/- as amount of Surplus as against the actual amount of Surplus at 2718,55,04,382/- as per Income and Expenditure Account for computation of Income of the appellant and holding that the numbers were not before the AO, which is factually incorrect, the AO had with him the correct numbers.
Relief claimed: Surplus of 2718,55,04,382/- as per Income & Expenditure Account for FY 2016-17 should be considered for the purposes of computation of Income of the Appellant.
5. Disallowance of Works Expenditure as Application of income Relief claimed: The addition of 212,75,49,95,967 be directed to be allowed u/s 11(1)(a) as application of income.
Non-Consideration of Form 10 filed in accordance with the provisions, The learned CIT(A) erred on facts and in law in confirming the action of the led in not considering Form No.10 filed in accordance with s.11(2) of the Act read with Rule 17 of the IT.Rules, 1962 for accumulation of income.
Relief claimed: Application made in Form 10 duly submitted before the relevant due date be considered for the purposes of Accumulation.
Disallowance of claim of 21,22,44,93,995/- in computation on account of Expenditure not considered/Income wrongly considered in books of accounts The learned CIT(A) erred on facts and in law in confirming the action of the ld. AO in disallowing a claim of 21,22,44,93,995/- being claim in Relief claimed: The claim of 21,22,44,93,995/- be directed to be allowed.
7.1 The learned CIT(A) erred on facts and in law in confirming the action of the led AO of disallowance of 278,01,28,065/-, being interest credited in Income and Expenditure account as per appellants policy, which were notional income as opposed to real income, and therefore, further erred in not allowing its exclusion from the taxable income.
Relief claimed: The claim of ₹78,01,28,065/- be directed to be allowed.
7.2 The learned CTT(A) erred on facts and in law in confirming the action of the ld. AO of disallowance of 244,43,65,930, being Administrative Expenses credited in Income and Expenditure account as per appellants policy, which were notional income as opposed to real income, and therefore, further erred in not allowing its exclusion from the taxable income.
Relief claimed: The claim of 244,43,65,930/- be directed to be allowed
7. The only issue involved in this appeal is with respect to the applicability of proviso to Section 2(15) of the Act. The learned CIT (A) after considering the decision of the Hon'ble Supreme Court in case of Ahmadabad Urban Development Authority,2022-TIOL-88-SC-IT-LB, examined
According to him, if there is a nominal profit from the activities then only in the general public utility category the assessee can be allowed exemption. If the amount is charged significantly higher than the activity should be held as in the nature of trade, commerce or business. The learned CIT (A) held that any profit above 10% should be considered the activities in the nature of trade, commerce or business. Accordingly, he held that as the total receipt of the assessee is ₹483 crores from housing the assessee is hit by proviso to Section 2(15) and therefore, is not entitled to exemption as per decision of the Hon'ble Supreme Court. Accordingly, the assessee was denied the benefit of Proviso to Section 11 and 12 of the Act.
Similarly, for A.Y. 2017-18, assessee filed return of income on 29thOctober 2017, declaring total income at ₹ nil. The assessee claimed exemption under Section 11 of
The learned authorized representative submitted that first on merits in case of the assessee issue is decided by the coordinate bench wherein the aspect raised by the learned CIT – A has been considered at length. He further submits that even the decision of the honourable Supreme Court in case of Ahmedabad urban development authority (supra) is in favour of the assessee. He further submitted that at present there is
The learned departmental representative vehemently submitted that the honourable Supreme Court in case of CIT versus Hammer the bath urban development authority (2023) 4 Supreme Court cases 561 has clearly held that if the charitable trust which is carrying on the object of general public utility and is making profit then benefit of exemption under section 11 and 12 of the act cannot be availed by the assessee as it is hit by the proviso to section 2 (15) of the act. It was further stated that the decision of the coordinate bench in assessee's own case for earlier years does not have any relevance now in view of the decision of the honourable Supreme Court. Therefore, the order of the learned CIT – A deserves to be upheld.
"3. It is not in dispute that the issue has now been settled before the hon'ble Supreme Court in Civil Appeal No. 21762 of 2017 in the case of Asst. CIT (Exemptions) v. Ahmedabad Urban Development Authority [(2022) 449 ITR 1 (SC).] . The hon'ble Supreme Court in paras 185 to 190 has held as under (page 115 of 449 ITR.):
“As far as boards and corporations which are tasked with development of industrial areas, by statute, the judgments of this court, in Shri Ramtanu Co-operative Housing Society Ltd. v. State of Maharashtra [(1970) 3 SCC 323.] and Gujarat Industrial Development Corporation v. CIT [(1997) 227 ITR 414 (SC);
‘These features of transfer of land or borrowing of moneys or receipt of rents and profits will by themselves neither be the indicia nor the decisive attributes of the trading character of the corporation. Ordinarily, a corporation is established by shareholders with their capital. The shareholders have their directors for the regulation and management of the corporation. Such a corporation set up by the shareholders carries on business and is intended for making profits. When profits are earned by such a corporation they are distributed to shareholders by way of dividends or kept in reserve funds. In the present case, these attributes of a trading corporation are absent. The corporation is established by the Act for carrying out the purposes of the Act. The purposes of the Act are development of industries in the State. The corporation consists of nominees of the State
The corporation has to provide amenities and facilities in industrial estates and industrial areas. Amenities of road, electricity, sewerage and other facilities in industrial estates and industrial areas are within the programme of work of the corporation. The fund of the corporation consists of moneys received from the State Government, all fees, costs and charges received by the corporation, all moneys received by the corporation from the disposal of lands, buildings and other properties and all moneys received by the corporation by way of rents and profits or in any other manner. The
The underlying concept of a trading corporation is buying and selling. There is no aspect of buying or selling by the corporation in the present case. The corporation carries out the purposes of the Act, namely, development
In Shri Ramtanu Co-operative Housing Society [Shri Ramtanu Co-operative Housing Society Ltd. v. State of Maharashtra, (1970) 3 SCC 323.] no doubt, this court did not have to decide whether the Maharashtra Industrial
There is a two-fold distinction between the now deleted section 10(20A) and the newly added section 10(46) (with effect from June 1, 2011). Firstly, that the erstwhile section 10(20A) applied to a limited class of undertaking, i. e., the bodies, or corporations, constituted by or under any law confined to the planning and As was observed in the earlier part of this judgment—while considering whether for the period April 1, 2003 to May 31, 2011, statutory boards, corporations, etc., could have lawfully claimed to be GPU charities, this court has observed that the nature of such corporations is not to generate profit but to make available goods and other services for the benefit of public weal. If such corporations (falling within the description of section 10(46)) applied to the Central Government for exemption, the treatment of their receipts, should be no different than how such receipts can and should have been treated for the purposes of determining whether they are GPU charities, during the period when section 10(46) was not in existence. Furthermore, this court is of the opinion that having regard to the observations in CIT v. Gujarat Maritime Board [(2007) 295 ITR 561 (SC).] case, the denial of exemption under one category cannot debar such corporations from claiming income exempt status under another category. (b) Summary in relation to statutory authorities/corporations
(i) The fact that bodies which carry on statutory functions whose income was eligible to be considered for exemption under section 10(20A) ceased to enjoy that benefit after deletion of that provision with effect from April 1, 2003, does not ipso facto preclude their claim for consideration for benefit as GPU category charities, under section 11 read with section 2(15) of the Act.
(ii) Statutory Corporations, boards, authorities, commissions, etc., (by whatsoever names called) in the housing development, town planning, industrial development sectors are involved in the advancement of objects of general public utility, therefore are entitled to be considered as charities in the GPU categories.
(iii) Such statutory corporations, boards, trusts authorities, etc. may be involved in promoting public objects and also in the course of their pursuing their objects, involved or engaged in activities in the nature of trade, commerce or business. b) While carrying on of such activities to achieve such objects (which are to be discerned from the objects and policy of the enactment; or in terms of the controlling instrument, such as memorandum of association, etc.), the purpose for which such public GPU charity, is set-up—whether for furthering the development or a charitable object or for carrying on trade, business or e) Does the statute or controlling instrument set out the policy or scheme, for how the goods and services are to be distributed; in what proportion the surpluses, or profits, can be permissively garnered; are there limits within which plots, rates or costs are to be worked out; whether the function in which the body is engaged in, is normally something a Government or State is expected to engage in, having regard to provisions of the Constitution and the enacted laws, and the observations of this court in New Delhi Municipal Council v. State of Punjab [(1997) 7 SCC 339.] whether in case surplus or gains accrue, the corporation, body or authority is permitted to distribute it, and if so, only to the Government or State; the extent to which the State or its instrumentalities have control over the corporation or its bodies, and whether it is subject to directions by the concerned Government, etc.;
(v) As a consequence, it is necessary in each case, having regard to the first proviso and seventeenth proviso (the latter introduced in 2012, with retrospective effect from April 1, 2009) to section 10(23C), that the authority considering granting exemption, takes into account the objects of the enactment or instrument concerned, its underlying policy, and the nature of the functions, and activities, of the entity claiming to be a GPU charity. If in the course of its functioning it collects
Reading the aforesaid paras would indicate that it is now concluded that the respondent is an authority involved in the advancement of objects of general public utility, and therefore, is not precluded from claiming exemption. The appeal is, accordingly, dismissed."
This issue has also been considered by the coordinate bench in assessee's own case wherein it has been held that assessee is entitled to exemption under section 11 and 12 of the act.
It is also a fact that the learned CIT – A has considered the profitability aspect of the assessee without considering the cost of the land. Assessee is developing
17. In view of the above facts, we do not agree with the finding of the learned CIT – A that assessee is existing for such a huge profit as determined by the learned CIT – A. Therefore, in view of the decision of the honourable Supreme Court, honourable Gujarat High Court considering the decision of the honourable Supreme Court and also the decision of the coordinate bench in assessee's own case for earlier years, we restore the whole issue back to the file of the learned assessing officer to decide the issue afresh. We also categorically state that it is for the assessee to establish before the assessing officer that assessee is not an entity providing general public utility services which is hit by the proviso to section 2 (15) of the act.
This is also for the reason that neither the assessee, nor the revenue could substantiate whether the assessee is existing for profit or not.
In view of these facts, we restore both these appeals before the learned assessing officer for consideration afresh, all 8 grounds of the appeal are restored back and allowed to that extent.
Order pronounced in the open court on 05.08.2024.