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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Satbeer Singh Godara & Shri Amarjit Singh
Assessee by : Sri.Sukhsagar Syal, Advocate Revenue by : Sri.Sanjit Kumar Das, CIT-DR Date of Pronouncement : 14.08.2024 Date of Hearing : 14.08.2024 O R D E R Per Bench : This assessee’s appeal for assessment year 2009-2010 arises against CIT, Thiruvananthapuram’s order No.C.No.412/J/R-21/2013-14 dated 18.03.2014, in proceedings u/s.263 of the Income-tax Act, 1961; in short “the Act” hereinafter.
Heard the parties at length. Case files perused.
2. It emerges at the outset with the able assistance coming from both the penalties that the identical sole substantive issue herein; be it in appeal for AY 1009-2010 or the Revenue’s case AY 2010-2011, preferred against the CIT’s sec.263 revision directions solely to invoke sec.2(15) 1st proviso and the CIT(A)’s lower appellate discussion holding the taxpayer to have carried out charitable activities, respectively. The dispute in nutshell before us is that the assessee claims itself to be a state government body/undertaking only whereas the department wishes to hold its activities as services / commercial in nature attracting sec.2(15) 1st proviso in the Act.
We are informed in this backdrop that the tribunal’s earlier learned co-ordinate bench had directed the Assessing Officer to carry out his afresh factual verification. The assessee preferred its Tax Appeal ITA 196/2015 and 71/2016 against the same before hon’ble jurisdictional high court in both these assessment years. Their lordships detailed discussion in the above lead case (AY 2010-11) remanded the same back to the tribunal, as under:-
“The fundamental issue which arises for decision in this appeal filed invoking Section 260A of the Income Tax Act is as to whether the appellant Kerala Industrial Infrastructure Development Corporation, duly constituted in terms of the provisions of the Kerala Industrial Infrastructure Development Act, 1993, hereinafter referred to as the 'KIID Act', is eligible for exemption under Section 11 read with Section 2(15) of the Income Tax Act or whether in terms of the first proviso to Section 2(15), they would become ineligible for such exemption. Thus, pithily put, the issue is as to whether its activity would be one which involves the carrying on 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 which would bring it within the trappings of that proviso.
The Assessing Authority decided against the assessee. As rightly noted by the First Appellate Authority, that decision of the Assessing Authority was obviously without analysing the facts as well as merits of the case, particularly in relation to the factors which were projected by the assessee. The First Appellate Authority deleted the disallowance made by the Assessing Authority. The Department carried the matter before the Income Tax Appellate Tribunal, which, in turn, made reference to the contentions of the parties and the arguments advanced by the respective learned counsel and referred to the judgments, particularly that rendered by the Orissa High Court in CIT v. M.P.Bajaj I(1993) 200 ITR 131] and thereby noticed that the question raised could be treated as one covered by the decision of the Co-ordinate Bench of the Income Tax Appellate Tribunal rendered in Greater Cochin Development Authority in & 793/ Coch/2013. By this time, the verdict 'in GCDA's case has found its approval through the judgment in and 210/2014 rendered by this Court on 19.12.2014. It is noticed that the Special Leave Petition filed by the GCDA before the Apex Court has been dismissed and thereafter, on an issue, which is totally different from what we are now addressing, this Court also dismissed an application for review of the judgment in GCDA's case.
3. Hearing the learned Senior Counsel for the assessee and the learned Senior Counsel for the department, we see that one of the prime issues that is germine for consideration is what is the quality of the holding of land by the appellant and as to how the said authority constituted under the KIID Act came into possession of land which was given by the Government partially and therefore, what would be the manner in which any income generated through that property could be dealt with for the purpose of Income Tax Act. It is also to be noted that the fundamental contention of the appellant is particularly on the issue relatable to the income generated by way of premium and attendant income from that property and utilisation of that parcel. The question whether the proviso to Section 2(15) would apply is something that has to be decided on the basis of the activity or activities during a particular year which would fall for consideration at the hands of the Assessing Authority.
We are of the firm view that the decision rendered by this Court in GDA's case cannot be treated as a wholesome precedent for reasons more than one. Firstly, we may notice that the GCDA's case was decided on the basis of the facts, materials and circumstances of that case. It is fundamental that in deciding an issue relating to the applicability of Section 2(15) to a particular assessee or transactions of an assessee, the decision making ought to be on the basis of the transactions and such quality of the activity which may bring the income either to the liability or exemption from the provisions of the Income Tax Act. Secondly and more particularly, we may note that the learned Senior Counsel for the appellant made reference to the decisions of the Apex Court in Shri Ramtanu Co-operative Housing Society Ltd. and another v. State of Maharashtra and others [AIR 1970 SC 1771] and M.D., J.S.I.D.C. & Ors.
& 287/Coch/2014. Kerala Industrial Infrastructure Development Corpn. v. M/s. Hari Om Enterprises & Anr. [AIR 2009 SC 218], which, for reasons best known to the learned counsel who assisted the Bench while considering the GCDA's case, were not brought to the notice of this Court at that point of time. We say this quite cautiously because in those two decisions certain principles have been delineated by the Apex Court in relation to the statutory institutions which are more or less that constituted under the Income Tax Act. The learned Senior Counsel for the Revenue is justified in pointing out that Their Lordships of the Hon'ble Supreme Court were not considering a piece of taxation law. We notice, but we may also indicate that the very fact that those judgments were not rendered in relation to taxation law is not by itself suffice to deprive due value as a judicial precedent as part of the law laid down by the Apex Court under Article 141 of the Constitution of India. We think that these are all issues which have to be addressed by the last fact finding authority which is an authority in terms of the statute, to decide all issues of law and fact. Therefore, to give a quietus to the issue, particularly in relation to a statutory institution of the nature of Kerala Industrial Infrastructure Development Corporation constituted under the KIID Act, we vacate the impugned order of the Tribunal and remand the case to the Tribunal for re-consideration also pointing out that the Tribunal is duty bound within the sphere of its appellate jurisdiction to decide the case on the basis of the entire facts and law relating to each case, more particularly of that type that has arisen in hand. It is clarified that all issues as between the Revenue and the assessee are left open. Following this order of remand, the assessee will mark appearance before the Tribunal, Kochi Bench on 16.01.2017.”
It is in this backdrop that both the instant appeals have now come up for adjudication in the instant second round.
4. Mr.Syal invites our attention to case law ACIT v. Ahmedabad Urban Development Authority (2022) 449 ITR 1 (SC) settling the instant legal question of applicability of sec.2(15) first proviso as follows:-
“B.1. The amounts or any money whatsoever charged by a statutory corporation, board or any other body set up by the state government or central governments, for achieving what are essentially 'public functions/services' (such as housing, industrial development, supply of water, sewage management, supply of food grain, development and town planning, etc.) may resemble trade, commercial, or business activities. However, since their objects are essential for advancement of public purposes/functions (and are accordingly restrained by way of statutory provisions), such receipts are prima facie to be excluded from the mischief of business or commercial receipts. This is in line with the larger bench & 287/Coch/2014. Kerala Industrial Infrastructure Development Corpn. judgments of this court in Ramtanu Cooperative Housing Society and NDMC (supra). B.2. However, at the same time, in every case, the assessing authorities would have to apply their minds and scrutinize the records, to determine if, and to what extent, the consideration or amounts charged are significantly higher than the cost and a nominal mark-up. If such is the case, then the receipts would indicate that the activities are in fact in the nature of "trade, commerce or business" and as a result, would have to comply with the quantified limit (as amended from time to time) in the proviso to section 2(15) of the IT Act. B.3. In clause (b) of section 10(46) of the IT Act, "commercial" has the same meaning as "trade, commerce, business" in section 2(15) of the IT Act. Therefore, sums charged by such notified body, authority, Board, Trust or Commission (by whatever name called) will require similar consideration - i.e., whether it is at cost with a nominal mark-up or significantly higher, to determine if it falls within the mischief of "commercial activity". However, in the case of such notified bodies, there is no quantified limit in section 10(46). Therefore, the Central Government would have to decide on a case-by-case basis whether and to what extent, exemption can be awarded to bodies that are notified under section 10(46). B.4. For the period 1-4-2003 to 1-4-2011, a statutory corporation could claim the benefit of section 2(15) having regard to the judgment of this Court in the Gujarat Maritime Board case (supra). Likewise, the denial of benefit under section 10(46) after 1-4-20 it does not preclude a statutory corporation, board, or whatever such body may be called, from claiming that it is set up for a charitable purpose and seeking exemption under section 10(23C) or other provisions of the Act.”
The assessee’s counsel reiterates that the assessment years before us are 2009-2010 and 2010-2011 i.e. between the time period from 01.04.2003 to 01.04.2011 and as per CIT v. Gujarat Maritime Board (2007) 295 ITR 561 (SC), it is entitled for the impugned relief as follows:- “12. One of the objections raised on behalf of the Department was that Gujarat Maritime Board is not entitled to the benefit of section 11 of the 1961 Act as the said Board was not a trust under Public Trust Act and, therefore, it was not entitled to claim registration under section 12A of the 1961 Act. The Department's case was that the Maritime Board was a statutory authority. It was not a trust. Its business was not held under a trust. Its property was not held under trust. Therefore, the Board was not entitled to be registered as a & 287/Coch/2014. Kerala Industrial Infrastructure Development Corpn. Charitable Institution. It was the case of the Department that the Board was performing statutory functions. Development of minor ports in the State of Gujarat cannot be termed as the work undertaking for charitable purposes and in the circumstances the Commissioner rejected the Board's application under section 12A of the 1961 Act in the light of the above case of the Department, we are required to consider the expression 'any other object of general public utility' in section 2(15) of the 1961 Act.
At the outset, we may point out that section 10(20) and section 11 of the 1961 Act operate in totally different spheres. Even if the Board has ceased to be a 'Local Authority, it is not precluded from claiming exemption under section 11(1) of the 1961 Act, therefore, we have to read section 11(1) in the light of the definition of the words "charitable purposes" as defined under section 2(15) of the 1961 Act.
We have perused number of decisions of this Court which have interpreted the words, in section 2(15), namely, 'any other object of generally public utility. From the said decisions it emerges that the said expression is of the widest connotation. The word 'general' in the said expression means pertaining to a whole class. Therefore, advancement of any object of benefit to the public or a section of the public as distinguished from benefit to an individual or a group of individuals would be a charitable purpose- CIT v. Ahmedabad Rana Caste Association (1983] 140 JTR L (SC). The said expression would prima facie include all objects which promote the welfare of the general public. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be served. If the primary purpose and the predominant object are to promote the welfare of the general public the purpose would be charitable purpose. When an object is to promote or protect the interest of a particular trade or industry that object becomes an object of public utility. but not so, if it seeks to promote the interest of those who conduct the said trade or industry-CIT v. Andhra Chamber of Commerce (1965)55 ITR 722(SC). If the primary or predominant object of an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the dominant purpose, would not prevent the institution from being a valid charity—Addl. CIT v. Surat Art Silk Cloth Mfrs. Association (1980) 121 ITR 1(SC).
The present case in our view is squarely covered by the judgment of this Court in the case of CIT v. Andhra Pradesh State Road Transport Corpn. [1986] 159 ITR 1 in which it has been held that since the Corporation was established for the purpose of providing efficient transport system, having no & 287/Coch/2014. Kerala Industrial Infrastructure Development Corpn. profit motive though it earns income in the process, it is not liable to income-tax.
Applying the ratio of the said judgment in the case of Andhra Pradesh State Road Transport Corpn. (supra), we find that, in the present case, Gujarat Maritime Board is established for the predominant purpose of development of minor ports within the State of Gujarat, the management and control of the Board is essentially with the State Government and there is no profit motive, as indicated by the provisions of sections 73, 74 and 75 of the 1981 Act. The income earned by the Board is deployed for the development of minor ports in India. In the circumstances, in our view the judgment of this Court in Andhra Pradesh State Road Transport Corpn.'s case (supra) squarely applies to the facts of the present case.
Before concluding we may mention that under the scheme of section 11(1) of the 1961 Act, the source of income must be held under trust or under other legal obligation. Applying the said test it is clear, that Gujarat Maritime Board is under legal obligation to apply the income which arises directly and substantially from the business held under trust for the development of minor port in the State of Gujarat. Therefore, they are entitled to be registered as 'Charitable Trust' under section 12A of the 1961 Act.
For the aforestated reasons, we see no infirmity in the impugned judgments of the High Court and Tribunal and consequently Civil Appeal stand dismissed with no order as to costs.”
Learned Counsel accordingly submits that in case of a statutory corporation or an authority established under the state law, for the period from 01.04.2003 to 01.04.2011, it is still governed by the principle of application wherein it has to demonstrate that the receipts collected in carrying out the normal activities are duly applied in carrying out the charitable objects concerned.
Learned CIT-DR on the other hand submits that the question as to whether the assessee having applied its income for the purpose of carrying out the statutory charitable objects & 287/Coch/2014. Kerala Industrial Infrastructure Development Corpn. under the State Act, requires afresh factual verification by the Assessing Officer in above terms. Faced with this situation, assessee sought to rebut that even in the latter assessment years; and more particularly in assessment year 2021-22, the Assessing Officer has himself accepted it’s very exemption claim. It is in these peculiar facts we deem it appropriate to restore its instant appeals & Assessing Officer for his limited exercise / factual verification in foregoing terms as per law subject to the rider that the taxpayer itself shall plead and prove its case within three effective opportunities only; at its own risk and responsibility, in consequential proceedings. Ordered accordingly.
To sum up, this Revenue’s appeal 2010-2011 is partly allowed for statistical purposes. Coming to the assessee’s appeal arising against the CIT’s 263 revision order (supra). We make it clear before parting that we have upheld his order in principle. Ordered accordingly. A copy of these common order be placed in the respective case files.
Order pronounced in the open court on this 14th Day of August, 2024.