DCIT(EXEMPTIONS), CIRCLE-2, AHMEDABAD, AHMEDABAD vs. SURAT URBAN DEVELOPMENT AUTHORITY, SURAT

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “D” BENCH Before: Shri T.R. Senthil Kumar, Judicial Member And Shri Makarand Vasant Mahadeokar, Accountant Member ITA Nos: 226 & 227/Ahd/2024 Asst Years: 2016-17 & 2017-18

DCIT (Exemptions) Surat Urban Development Circle-2, Authority, Ahmedabad Vs 1, Suda Bhavan, Near Collector Office, Nanpura, Surat, Gujarat-395001 PAN: AAALS0197G (Appellant) (Respondent) Assessee Represented: Shri Rasesh Shah, A.R. Revenue Represented : Dr. Darsi Suman Ratnam, CIT-DR Date of hearing : 25-06-2024 Date of pronouncement : 14-08-2024 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-

These two appeals are filed by the Assessee as against appellate order dated 28.02.2023 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Years 2016-17 & 2017-18. Since common issue is involved in both the appeals the same are disposed of by this common order.

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2.1 The brief facts of the case is that the Assessee is an Autonomous Body which is established under 22 of the Gujarat Town Planning and Urban Development Act, 1976 (XXVII of 1976) and Rules made thereunder carrying Planned Development of areas as defined and designed by the Government of Gujarat and also infrastructural activities relating thereto such as construction of Roads, Bridges, Drainage system, Water connection and in the activities of Urban Development and Town Planning for the benefit of public at large. The Assessee is registered u/s. 12AA of the Act vide order dated 14-02-2007 by Commissioner of Income Tax-II, Surat.

assessee remained unchanged as that of the Assessment Year 2009-10, wherein the activities carried out of “advancement of other general public utility” in the nature of trade, commerce, business and therefore the provisions of Section 2(15) read with proviso 1 & 2 were held to be applicable with the facts of the assessee’s case. Therefore the A.O. denied exemption u/s. 11 & 12 of the Act and assessed the total income of the assessee as Rs.154,78,45,826/- and demanded tax of Rs.67,85,54,440/-.

“… 253. In view of the foregoing discussion and analysis, the following conclusions are recorded regarding the interpretation of the changed definition of "charitable purpose" (w.e.f. 01.04.2009), as well as the later amendments, and other related provisions of the IT Act. General test under Section 2(15) A.1. It is clarified that an assessee advancing general public utility cannot engage itself in any trade, commerce or business, or provide service in relation thereto for any consideration ("cess, or fee, or any other consideration").

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A.2. However, in the course of achieving the object of general public utility, the concerned trust, society, or other such organization, can carry on trade, commerce or business or provide services in relation thereto for consideration, provided that (1) the activities of trade, commerce or business are connected ("actual carrying our..."inserted w.e.f. 01.04.2016) to the achievement of its objects of GPU: and (1) the receipt from such business or commercial activity or service in relation thereto, does not exceed the quantified limit, as amended over the years (Rs. 10 lakhs w.e.f. 01.04.2009; then Rs. 25 lakhs w.e.f. 01.04.2012; and now 20% of total receipts of the previous year, w.e.f. 01.04.2016); A.3. Generally, the charging of any amount towards consideration for such an activity (advancing general public utility), which is on cost-basis or nominally above cost, cannot be considered to be "trade, commerce, or business" or any services in relation thereto. It is only when the charges are markedly or significantly above the cost incurred by the assessee in question, that they would fall within the mischief of "cess, or fee, or any other consideration" towards "trade, commerce or business". In this regard, the Court has clarified through illustrations what kind of services or goods provided on cost or nominal basis would normally be excluded from the mischief of trade, commerce, or business, in the body of the judgment A.4. Section 11(4A) must be interpreted harmoniously with Section 2(15), with which there is no conflict. Carrying out activity in the nature of trade, commerce or business, or service in relation to such activities, should be conducted in the course of achieving the GPU object, and the income, profit or surplus or gains must, therefore, be incidental. The requirement in Section 11(4A) of maintaining separate books of account is also in line with the necessity of demonstrating that the quantitative limit prescribed in the proviso to Section 2015), has not been breached. Similarly, the insertion of Section 13(5), seventeenth proviso to Section 10(23C) and third proviso to Section 143(3) (all w.r.e.f. 01.04.2009), reaffirm this interpretation and bring uniformity across the statutory provisions B. Authorities, corporations, or bodies established by statute B.I. 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

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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 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 01.04.2003 to 01.04.2011, 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 01 04 2011 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. ”

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officer and holding that the activities of the assessee were not covered by the proviso to section 2(15) r.w.s.13(8) of the Act and it was eligible for the benefits of section 11 and 12 of the Act (mentioned as section 10(23C) of in the order of CIT(A)] ignoring the guidelines laid down by Hon'ble Supreme Court of India regarding significantly high mark-up in the case of ACIT vs Ahmedabad Urban Development Authority dated 19.10.2022 reported in [2022] 143 taxmann.com 278 (SC) ACIT(E) -Vs- AUDA dated 03.11.2022 in MA no.1849 of 2022 ? ”

‘General Public Utility’ for charitable purpose and therefore the assessee corporation shall be entitled to exemption u/s. 11 of the Act. It is further clarified by the Hon’ble Supreme Court in the very same case of ACIT vs. AUDA reported in [2022] 144 taxmann.com 78 (SC) wherein it has been clearly held that the Revenues Appeals are dismissed as far as statutory Corporations/Boards observing as follows: “….3. It was urged on behalf of the revenue, that the clarification it seeks is necessary, because in Para 253H and in Para 254, it has been precluded from examining the facts and assessing the concerned assessment years, in relation to the assesses in these appeals. It was urged that the conclusions recorded in the judgment and those in the said two paragraphs, preclude it from dealing with the assessments of parties before this court and furthermore, the dismissal of the revenue's appeals will preclude an examination of the merits for these assesses in future, as well. 4. A plain reading of the conclusions recorded in Para 253(A), (B), (C), (D) and (E) would disclose that this court consciously recorded its findings, with the intent of finally deciding the issues, for various organizations- i.e. in relation to the assessment years in question, whereas in Para 253 (F), the court remitted the matter for examination and orders by the assessing officer. Similarly, the conclusion in Para 253 G was conclusive with respect to the claim of private trusts, the appeals were dismissed. These conclusions are accurately reflected in the final, operative directions in Para 254. In Para 254 (i) to (iv), the conclusions recorded are against the revenue. However, in Para 254 (v), (vi), (vii) and (vii), the conclusions, are in favour of the revenue. 5. The reference to application of the law declared by this court's judgment, therefore, has to be understood in the context, which is that they apply for the assessment years in question, which were before this court and were decided; wherever the appeals were decided against the revenue, they are to be treated as final. However, the reference to future application has to be understood in I.T.A Nos. 226 & 227/Ahd/2024 A.Ys. 2016-17 & 2017-18 Page No 8 DCIT Vs. Surat Urvan Development Authority

this context, which is that for the assessment years which this court was not called upon to decide, the concerned authorities will apply the law declared in the judgment, having regard to the facts of each such assessment year. In view of this discussion, no further clarification is necessary or called for.” 9. Thus it is seen from the above judgment of the Hon’ble Supreme Court in the Miscellaneous Application, clarified that for the assessment years in question, which were before this court and were decided; wherever the appeals were decided against the Revenue, they are to be treated as final. However for the future assessments, Hon’ble Supreme Court has clarified that the reference to future application has to be understood in this context, which is that for the assessment years which this court was not called upon to decide, the concerned authorities will apply the law declared in the judgment, having regard to the facts of each such assessment year. Since Revenue’s appeals [in the case of AUDA, SUDA, etc] are dismissed by the Hon’ble Supreme Court for the earlier asst. years, they are to be treated as Final. However for the present Asst. Years 2016-17 & 2017-18, we set aside the issue file of Assessing Officer to consider the same in accordance with law as enumerated by the Hon’ble Supreme Court.

Order pronounced in the open court on 14 -08-2024 (MAKARAND VASANT MAHADEOKAR) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBERJUDICIAL MEMBER Ahmedabad : Dated 14/08/2024

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आदेश क" ""त"ल"प अ"े"षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,

उप/सहायक पंजीकार आयकर अपील"य अ"धकरण, अहमदाबाद