Ahmedabad Urban Development Authority (AUDA), Ahmedabad V. The Asst. Commissioner of Income Tax (Exemptions), Circle-2, Ahmedabad

ITA 1736/AHD/2019

AI Insights

The case involves cross-appeals by the Ahmedabad Urban Development Authority (AUDA) and the ACIT (E) concerning the assessment year 2016-17. The primary legal contention revolved around the interpretation of Sections 11 and 12 of the Income Tax Act, particularly in relation to the activities of the AUDA and whether these activities fall under the exceptions provided by the first and second provisos to Section 2(15) of the Act. The Tribunal examined previous judgments, including a significant Supreme Court decision, which influenced the interpretation of these sections in the context of public utility and statutory authorities. The Tribunal's decision acknowledged the AUDA's role in public utility and development, distinguishing it from entities engaged in trade or commerce.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 131507 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: D
• Next Hearing Date: 17-07-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 19-11-2019
• Other Referred Cases: CIT vs Sri Plot Swetamber Murtipujak Jain Mandal, Gnyan Dham Vapi Charitable Trust Vs. DCIT (Exemptions), Maharshi Karve Stree Shikshan Samstha Karvenagar vs. ITO, Paradip Port Trust Vs. Additional Commissioner of Income-tax, Shri Ramtanu Cooperative Housing Society vs. ITO, Gujarat Maritime Board vs. ACIT, ACIT (E) vs. Ahmedabad Urban Development Authority
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Charitable institution; Capital receipt; Capital expenditure; Set aside
• Section: 32; 12; 11; 143(3); 250; 10(23C); 20

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “D” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member Ah medabad Urban Develop ment Authority, Sardar Vallab hbhai Sanku l, Ashram R oad, Us man pura, Ah me dab ad PAN: AAAL A0233B (Appellant) Vs ACIT(E), Circle-2, Ah med abad (Resp ondent) ACIT(E), Circle-2 , Ah medabad (Appellant) Vs Ah med abad Urban Develo p ment Au thority, Sardar Vallabhb hai Sankul, Ashram Ro ad, Us manpura, Ah med abad PAN: AAALA023 3B (Resp ondent) Asses see b y : Shri S. N. Sopa rkar, Sr. A. R. & Shri Parin Shah, A. R. Revenue by : Dr. Da rsi Suman Ratnam, CIT- D. R. ITA No. 1736/Ahd/2019 Assessment Year 2016-17 ITA No. 4/Ahd/2020 Assessment Year 2016-17 I.T.A No. 1736/Ahd/2019 & 4/Ahd/2020 A.Y. 2016-17 Page No. Ahmedabad Urban Development Authority vs. ACIT (E) & ACIT(E) vs. Ahmedabad Urban Development Authority 2 Date of hearing : 18-07 -2 023 Date of pronouncement : 26-07 -2 023 आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- These are cross appeals filed by the assessee and Department for assessment year 2016-17 against the order of the ld. Commissioner of Income Tax, CIT(A)-9, Ahmedabad, in proceeding u/s. 250 vide order dated 11/10/2019. 2. The assessee has taken the following grounds of appeal:- “1. Ld. CIT (A) erred in law and on facts directing AO to verify & compute the income of appellant as per guidelines narrated by him though holding the activities of assessee authority not covered by proviso to Sec. 2(15) of the Act following judgment of Hon'ble Gujarat High Court. 2. Ld. CIT (A) erred in law and on facts directing AO to treat grants received by the appellant which were not project specific or were given for generic purpose then to consider the same in the nature of voluntary donation to be included as the income of the appellant u/s 12 (1) of the Act. 3. Ld. CIT (A) erred in law and on facts holding the appellant as not entitled to claim (i) accumulation @ 15% u/s 11(l)(a) of the Act on specific grants (ii) claim capital expenditure out of these grants as application of income & (iii) claim depreciation on fixed assets created out of grants received for a specific purpose of for specific project as application of income. 4. Ld. CIT (A) erred in law and on facts directing AO to treat funds received as per provisions of GTPUD Act such as Development charges, Betterment charges, Impact fees, Amenities fees, Scrutiny fees, Zoning fees etc. as the income of appellant irrespective of their treatment as balance sheet item. 5. Ld. CIT (A) erred in law and on facts directing AO to treat receipts of premium on lease of plots of land and receipts from sale of land/ shops as income of the appellant irrespective of its treatment as balance sheet item. I.T.A No. 1736/Ahd/2019 & 4/Ahd/2020 A.Y. 2016-17 Page No. Ahmedabad Urban Development Authority vs. ACIT (E) & ACIT(E) vs. Ahmedabad Urban Development Authority 3 6. Ld. CIT (A) further erred in law and on facts holding the appellant as not entitled to claim from various funds received as per provisions of GTPUD Act (i) accumulation @ 15% u/s 11(l)(a) of the Act\(ii) claim capital expenditure as application of income (iii) claim depreciation on fixed assets created out of such funds. 7. Ld. CIT (A) erred in law and on facts holding appellant not entitled to claim (i) accumulation @ 15% u/s 1l(l)(a) of the Act (ii) claim capital expenditure as application of income (iii) claim depreciation on fixed assets created out of receipts of premium on plots of land and from sale of land/ shops. 8. Ld. CIT (A) erred in law and on facts directing AO to verify & apply rate of depreciation on the basis of normal commercial principles & not as per section 32 of the Act as is not applicable to exempt entity. 9. In view of the judgment of Hon'ble Gujarat High Court in appellant's case, Id. CIT (A) ought to have granted exemption in toto as claimed u/s 11/12 of the Act & ought to have directed AO to allow accumulation at 15% of gross receipts permissible as per law as claimed in the computation. 10. Levy of interest u/s 234A/B/C & D of the Act is not justified.” 3. The Department has taken the following grounds of appeal:- “i. Whether, on the facts and in the circumstances of the case and in law, CIT(Appeals) is justified in not appreciating that the activities of the assessee are covered by the First and Second Proviso to section 2(15) of the Income-tax Act, 1961 and, thus, the assessee is not entitled to exemption under sections 11 and 12 of the Act in view of the provisions of the section 13(8) of the Act. ii Whether, on the facts and in the circumstances of the case and in law, CIT(Appeals) is correct to not uphold the Order of the AO in deleting the following additions made by the learned Assessing Officer: (a) Rs.44,88,87,000/- denying deemed application u/s. 11 (1) of the Act; (b) Rs.25,51,23,392/- denying accumulation under section 1 l(l)(a) of the Act. Iii Whether, on the facts an in the circumstances of the case and in law, it is correct on the part of the learned Commissioner (Appeals) in directing the Assessing Officer not to consider the receipts shown under capital receipts (general); capital receipts (drainage), capital receipts (EWS), capital receipts (water supply), capital receipts (township), capital receipts (vambay), funds I.T.A No. 1736/Ahd/2019 & 4/Ahd/2020 A.Y. 2016-17 Page No. Ahmedabad Urban Development Authority vs. ACIT (E) & ACIT(E) vs. Ahmedabad Urban Development Authority 4 received from Gujarat Municipal Finance Board, funds from Ministry of Urban Development and premium on lease/ sale of plots/ shops/ flats as revenue receipts.” We shall first take up the assessee’s appeal for assessment year 2016- 17. 4. Before us, the counsel for the assessee submitted that he shall not be pressing for ground nos. 1 to 5. Accordingly, ground nos. 1-5 of the assessee’s appeal are dismissed as not pressed. Ground No. 6 (i) (ld. CIT(A) erred in holding that the assessee is not entitled to accumulation @ 15% u/s. 11(1)(a) of the Act. 5. Before us, the counsel for the assessee submitted that this issue has been decided in favour of the assessee passed by ITAT in assessee’s own case for assessment year 2014-15 in ITA No. 2434 and 2378/Ahd/2017. The counsel for the assessee invited our attention to page no. 23-25 of the order of ITAT (paras 17 to 17.3). 6. Before adjudicating on the issue, it would be useful to reproduce the observations made by ld. CIT(A) in this regard: “(vii) If the appellant has applied more than the income during the year then the A.O. is directed to allow carry forward of deficit of that year to be set off against future income of the appellant (Reliance placed on the judgment of Hon'ble Gujarat High Court in the case of CIT vs Sri Plot Swetamber Murtipujak Jain Mandal 211 ITR 293). In that year, the AO shall not allow any accumulation u/s 11(1)(a) of the Act @ 15%. (For example: If appellant earns Rs. 100 and applies Rs. 110 then Rs. 10 would be allowed to be carried forward as deficit and there will be no accumulation u/s 11(1)(a).) In the immediate subsequent year, the I.T.A No. 1736/Ahd/2019 & 4/Ahd/2020 A.Y. 2016-17 Page No. Ahmedabad Urban Development Authority vs. ACIT (E) & ACIT(E) vs. Ahmedabad Urban Development Authority 5 AO will, firstly, give set off of the deficit carried forward from the earlier year. Then, AO shall reduce the amount applied during the year. If, after the adjustments of carried forward deficit and application of income, the appellant has any surplus of income over the expenditure then the appellant would be eligible to accumulate to the extent of 15% u/s 11(1)(a) from the income. (For example: if appellant earns Rs. 100 in immediate succeeding year and applies Rs. 80 then Rs. 90 i.e. Rs. 10 as earlier year's deficit and Rs. 80 being current year's application, would be allowed against income of Rs. 100. The remaining Rs.10 will be allowed to be accumulated u/s 11(1)(a).) And, if there happens to be still any excess income left over, then remaining amount shall be allowed by the A.O. to be accumulated u/s 11(2) of the Act and according to the stipulations mentioned therein i.e. filing of Form 10 and purpose for which accumulation u/s 11(2) has been made etc. In short, the AO will not allow accumulation of income either u/s 11(1)(a) @15% or u/s 11(2) of the Act along with carry forward of deficit. In nut shell, application of income shall precede accumulation.” 7. Further, it would be useful to reproduce the relevant extracts of the ruling of ITAT in assessee’s own case for assessment year 2014-15 on this specific issue: “16.1. Respectfully following the above judicial precedent, we hold that the assessee is entitled to claim the depreciation as ‘plant and machinery’ as the assessee in promoting public objects which are activities in the nature of trade, commerce or business but without commercial motive. Thus the ground no. 8 raised by the Assessee is hereby allowed. 17. Ground no. 9 namely the application of income shall precede accumulation by directing A.O. to allow accumulation u/s. 11(1)(a) of the Act, from income remaining after deducting amount applied for the objects of the assessee trust. 17.1. In this connection, Ld. Counsel drawn our attention to the decision of the Co-ordinate Bench in the case of Gnyan Dham Vapi Charitable Trust Vs. DCIT (Exemptions) in ITA No. 2208/Ahd/2018 dated 19-08-2020 observing as follows: “...8.1 Under s.11 of the Act, income derived from property held under trust wholly for charitable or relates purposes shall not be included in the I.T.A No. 1736/Ahd/2019 & 4/Ahd/2020 A.Y. 2016-17 Page No. Ahmedabad Urban Development Authority vs. ACIT (E) & ACIT(E) vs. Ahmedabad Urban Development Authority 6 total income subject to certain conditions. On a combined reading of Section 11(1)(a) and Section 11(2) of the Act, it emerges that the trust is allowed to accumulate 15% of its income without any time limit and balance 85% can be set apart for specified period to five years. In the instant case, the assessee in the assessment year in question as well as in some other assessment years have made spendings in excess of its receipts resulting in certain deficit. Owing to excess spending over receipts, a peculiar situation has arisen in the present case towards the manner of computation of quantum of deficit eligible to be carried forward for set off in subsequent assessment years having regard to statutory permission towards 15% accumulation under s.11(1)(a)/11(1)(b) of the Act without any time limit. 8.2 To delineate on the issue, it may be pertinent to note that in order to be eligible for claiming exemption, it is essential that the income of the trust is applied for charitable objects. A charitable trust or institution is required to apply at least 85% of income derived from trust property towards charitable purposes. If the income spent on charitable or religious purposes during the previous year falls short of 85% of the income derived during the year, such shortfall may be subjected to tax in certain circumstances. Hence, a statutory obligation has been cast on beneficiary trusts to utilize at least 85% of the income derived from the trust property unless accumulated or set apart for application in subsequent years subject to certain stipulated conditions. Section 11(1)(a) & (b) r.w.s. 11(2) of the Act however grants an entitlement to a charitable trust to retain or accumulate 15% of income derived from property held in trust without any time limit and is thus benevolent in nature. In this backdrop, it is noticed that the situation herein is quite opposite. The assessee in the instant case has, in fact, utilized its income for charitable purposes in excess of its receipts without any accumulations resulting in certain ‘deficits’. The CIT(A) has applied the governing principles of Section 11(1)(a) of the Act to a totally converse situation of excess spending rather than accumulation and has brought down the entitlement of deficits carry forward. 8.3 Ostensibly, the assessee has not availed the entitlement of accumulation of 15% of income in the instant case. Needless to say, the statutory postulations towards accumulation of 15% of income for indefinite period is an entitlement or a right of absolute nature vested upon the assessee but, however, cannot be regarded as an obligation envisaged in law. The law applicable to accumulation of income cannot be extended to application thereof. Where an assessee trust has made excess application of its income, the option or entitlement vested upon an assessee to accumulate 15% for indefinite period in our view cannot operate as an obligation enforceable against it in the absence of accumulation. The method of computation of deficit to be truncated artificially 15% based on an entitlement (opposed to an obligation) as suggested by first appellate authority is totally devoid of any logic. This would tantamount to application of concession conferred on assessee in a reverse manner and thus put the assessee in a worser position in the event of accelerated application of receipts for salutary purposes. The action directed by CIT(A) has the effect of deprivation of concession granted and is repugnant to the intended outcome. The Pune Bench of Tribunal in Maharshi Karve Stree Shikshan Samstha Karvenagar vs. ITO I.T.A No. 1736/Ahd/2019 & 4/Ahd/2020 A.Y. 2016-17 Page No. Ahmedabad Urban Development Authority vs. ACIT (E) & ACIT(E) vs. Ahmedabad Urban Development Authority 7 174 ITD 591 (Pune) has also essentially held that relaxations conferred under s. 11(1)(a)/(b) r.w. Section 11(2) of the Act to the extent of 15% of income would not nullify the entitlement of such absolute nature by way of reduction in quantum of deficit. We thus have no hesitations to quash the observations of the first appellate authority towards exclusion of 15% of income for the purposes of determination of quantum of deficit to be carried forward for set off in ensuing years in accordance with law.” 17.2. Ld. Senior Counsel further relied upon Pune Bench decision in the case of Maharshi Karve Stree Shikshan Samstha Karvenagar Vs. ITO wherein it has been held as follows: “IT: Exemption under section 11(1)(a) i.e... 15 per cent of income, is absolute exemption and application of section 11(2) does not extend to nullify said absolute exemption IT: Where in relevant assessment year application of income, is more than receipts of year, excess application of income i.e., expenditure in hands of assessee, can be carried forward to succeeding year” 17.3. Respectfully following the above ratio of the decisions of the Co-ordinate Benches of the Tribunals, we hereby set aside the order passed by the Ld. CIT(A) and held that when application of income is more than receipts of year, excess application of income i.e., expenditure in the hands of the assessee can be carried forward to succeeding Year. Thus the ground no. 9 raised by the assessee is hereby allowed.” 8. Respectfully following the decision of ITAT in assessee’s own case for assessment year 2014-15, we concur with the views given by the ITAT and accordingly, ground no. 6(1) of assessee’s appeal is allowed as per observations made by ITAT in the preceding paragraphs. Ground No. 6 (ii) Ld. CIT(A) erred in holding that the assessee is not entitled to claim capital expenditure as application of income 9. With respect to the aforesaid ground of appeal, the counsel for the assessee fairly conceded that if certain receipts are treated as capital receipts I.T.A No. 1736/Ahd/2019 & 4/Ahd/2020 A.Y. 2016-17 Page No. Ahmedabad Urban Development Authority vs. ACIT (E) & ACIT(E) vs. Ahmedabad Urban Development Authority 8 and hence not forming part of the income of the assessee, then the assessee is also not eligible for claim of set off capital expenditure incurred by the assessee against such capital receipt. If however, certain receipts which have been treated by the assessee as income of the assessee irrespective of the fact that the assessee has treated the same as balance sheet item, then, the corresponding capital expenditure incurred against such receipt may also be allowed. 10. In our view, the counsel for the assessee fairly conceded that if any item of income has been accepted by the Department as capital in nature and hence not forming part of the taxable income of the assessee then the assessee is not eligible to claim corresponding expenditure incurred in relation thereto, against the same. However, if any item reflected as a capital receipt in the balance sheet is treated as having been earned on revenue account, then the assessee would be eligible to claim corresponding expenditure against the same as well in accordance with law. The Ld. A.O. may carry out the necessary verification and allow the claim of the assessee as per the above directions. 11. In the result, Ground No. 6(ii) of assessee’s appeal is allowed for statistical purposes. Ground No. 6 (iii) ld. CIT(A) erred in holding that the assessee is not entitled to claim depreciation on fixed asset created out of such funds I.T.A No. 1736/Ahd/2019 & 4/Ahd/2020 A.Y. 2016-17 Page No. Ahmedabad Urban Development Authority vs. ACIT (E) & ACIT(E) vs. Ahmedabad Urban Development Authority 9 12. Before us, at the outset, the counsel for the assessee fairly conceded that w.e.f. assessment year 2015-16, the law has undergone a change and accordingly depreciation would not be allowed on such assets purchased after 01-04-2015. However, the counsel for the assessee submitted that in the interest of justice, the matter may be set aside to the file of Assessing Officer to check the applicabilitiy of provisions of section 11(6) of the Act to the extent, the assessee has not claimed such depreciation on fixed assets created out of grant given for a specific purpose. 13. Accordingly, in the interest of justice, the matter is being set aside to the file of Assessing Officer to check the eligibility of applicability of section 11(6) of the Act to the assessee’s set of facts. 14. In the result, ground no. 6(iii) is set aside to the file of Assessing Officer with the aforesaid directions. Ground No. 7 15. Before us, the counsel for the assessee submitted that ground no. 7 is in sum and substance is identical to ground no. 6 of assessee’s appeal and accordingly the issues for consideration raised in ground no. 7 may be given identical treatment. 16. In view of the submission of the counsel for the assessee, our observations with respect to ground no. 6 would apply to ground no. 7 as well. I.T.A No. 1736/Ahd/2019 & 4/Ahd/2020 A.Y. 2016-17 Page No. Ahmedabad Urban Development Authority vs. ACIT (E) & ACIT(E) vs. Ahmedabad Urban Development Authority 10 17. Accordingly, ground no. 7 of assessee’s appeal is partly allowed for statistical purposes. Ground No. 8 (ld. CIT(A) erred in directing the Assessing Officer verify and apply rate of depreciation on the basis of normal commercial principles 18. Before us, the counsel for the assessee submitted that this issue is directly covered by the order of ITAT in assessee’s own case for assessment year 2014-15 in ITA No. 2434, 2378/Ahd/2017 19. In order to decide the issue, it would be useful to reproduce the relevant extracts of the ITAT ruling as below: “14. Regarding Ground No. 8, Ld. CIT(A) directed A.O. to verify and apply rate of depreciation on the basis of normal commercial principles and not as per section 32 of the I.T. Act. In this connection, Ld. Senior Counsel drawn our attention to the decision of the Cuttack Bench in the case of Paradip Port Trust Vs. Additional Commissioner of Income-tax reported in 20 taxmann.com 311 (Cuttack) wherein the Co-ordinate Bench of this Tribunal held that permanent way, wharves, roads and boundaries which were serving some special purpose of working of assessee-port were to be treated as ‘plant and machinery’ and depreciation on the same was to be allowed at rate of 15% on those fixed assets. Thus the Ld. CIT(A) is not correct in holding that the rates of depreciation as per Section 32 of the I.T. Act will not be applicable to the assessee case. 15. The Ld. D.R. appearing for the Revenue could not bring any contra decision, thereby supported the order passed by the Ld. CIT(A). 16. We have given our thoughtful consideration and perused the materials available on record. The Co-ordinate Bench of the Tribunal held that the fixed assets served some special purpose of the working of the assessee and thereby considered as ‘plant and machinery’ in the working process of the assessee. The Ld. CIT(A) has not justified in holding that the income of exempt person has to be calculated on the basis of normal commercial principles and by Rule of accountancy. I.T.A No. 1736/Ahd/2019 & 4/Ahd/2020 A.Y. 2016-17 Page No. Ahmedabad Urban Development Authority vs. ACIT (E) & ACIT(E) vs. Ahmedabad Urban Development Authority 11 16.1. Respectfully following the above judicial precedent, we hold that the assessee is entitled to claim the depreciation as ‘plant and machinery’ as the assessee in promoting public objects which are activities in the nature of trade, commerce or business but without commercial motive. Thus the ground no. 8 raised by the Assessee is hereby allowed.” 20. Respectfully following the aforesaid decision passed by ITAT in assessee’s own case for A.Y. 2014-15, we hold that assessee is entitled to claim depreciation as plant and machinery since the assessee is promoting public objects which are activities in the nature of trade, commerce or business but without a commercial motive 21. In the result, ground no. 8 of the assessee’s appeal is allowed. Ground No. 9 22. Before us, the counsel for the assessee submitted that ground no. 9 of assessee’s appeal is identical to ground no. 6(i) in the preceding paragraphs. 23. Accordingly, our observations with respect to ground no. 6(i) also would also apply to ground no. 9 of assessee’s appeal. 24. Ground Nos. 9 & 10 to the assessee’s appeal are consequential in nature and do not require any specific adjudication. 25. In the result, the appeal of the assessee is partly allowed for statistical purposes. I.T.A No. 1736/Ahd/2019 & 4/Ahd/2020 A.Y. 2016-17 Page No. Ahmedabad Urban Development Authority vs. ACIT (E) & ACIT(E) vs. Ahmedabad Urban Development Authority 12 ITA No. 4/Ahd/2020 filed by the Revenue for A.Y. 2016-17 Ground No. 1 (CIT(A) erred in not appreciating that assessee is not entitled to exemption u/s 11 and 12 of the Act since it is covered by first and second proviso to section 2(15) of the Act. 26. At the outset, the counsel for the assessee submitted that this issue has been settled by the Hon’ble Supreme Court in assessee’s own case ACIT (E) vs. Ahmedabad Urban Development Authority 449 ITR 1 (SC). Accordingly, it was submitted that in view of the decision of Hon’ble Supreme Court in assessee’s own case on this issue, ground no. 1 of the department’s appeal may be decided accordingly. 27. We observe that the Hon’ble Supreme Court in assessee’s own case ACIT(E) Vs. Ahmedabad Urban Development Authority and Others 449 ITR 1 (SC) has settled the issue by dismissing the Revenue’s appeal vide Para 254(ii) of the judgment as follows: “....254. In accordance with the foregoing discussion, and summary of conclusions the numerous appeals are disposed of as follows: (i) The revenue's appeals against the Improvement Trust, Moga, the Hoshiarpur Improvement Trust, Bathinda Improvement Trust, Fazilka Improvement Trust Sangrur Improvement Trust Patiala Improvement Trust Jalandhar Improvement Trust Kapurthala Improvement Trust, Pathankot Improvement Trust Improvement Trust, Hansi, and the Special Leave Petitions filed against the Gujarat Maritime Board and Karnataka Water Supply and Drainage Board are rejected. (ii) The revenue's appeals against Ahmedabad Urban Development Authority, the Gujarat Housing Board, the Gandhinagar Urban Development Authority, Rajkot Urban Development Authority, Surat Urban Development Development Authority, Jamnagar Area Development Authority, and the Gujarat Industrial Development Corporation are I.T.A No. 1736/Ahd/2019 & 4/Ahd/2020 A.Y. 2016-17 Page No. Ahmedabad Urban Development Authority vs. ACIT (E) & ACIT(E) vs. Ahmedabad Urban Development Authority 13 rejected. Likewise, the revenue's appeals against Agra Development Trust, UP Awas Evam Vikas Parishad, Raebarel, Development Authority, Rajasthan Housing Board, Mangalore Urban Development Authority; Mathura Vrindavan Development Authority, Meerut Development Authority, Belgaum Development Authority". Moradabad Urban Development Authority, Yamuna Expressway Industrial Development Authority, Greater Noida Industrial Development Authority, New Okhla Industrial Development Authority and Karnataka Industrial Areas Development Board are rejected.” 28. The relevant operative portion of the Hon’ble Supreme Court judgment are as follows: “.....D. What kinds of income or receipts may not be characterized as derived from trade, commerce, business or in relation to such activities, for a consideration (i) Statutory corporations, authorities or bodies 176. It would be essential now to deal with certain kinds of receipts which GPU charities, typically statutory housing boards, regulatory authorities and corporations may be entitled to, if mandated to collect or receive. During the course of hearing, learned counsels highlighted that statutory boards, and corporations have to recover the cost of providing essential goods and services in public interest, and also fund large scale development and maintain public property. These would entail recovering charges or fees, interest and also receiving interest for holding deposits. It was further pointed out that in some cases, income in the form of rents– having regard to the nature of the schemes which the concerned board, trust or corporation may be mandated or permitted to carry on, has to be received. For instance, in some situations, for certain kinds of properties, the boards may be permitted only to lease out their assets and receive rents. 177. The answers to these, in the opinion of this court, are that the definition ipso facto does not spell out whether certain kinds of income can be excluded. However, the reference to specific provisions enabling or mandating collection of certain rates, tariffs or costs would have to be examined. Generically, going by statutory models in enactments (under which corporations boards or trust or authority by whatsoever name, are set up), the mere fact that these bodies have to charge amounts towards supplying goods or articles, or rendering services i.e., for fees for providing typical essential services like providing water, distribution of food grains, distribution of medicines, maintenance of roads, parks etc., ought not to be characterized as “commercial receipts”. The rationale for such exclusion would be that if such rates, fees, tariffs, etc., determined by statutes and collected for essential services, are included in the overall income as receipts as part of trade, commerce or business, the quantitative limit of I.T.A No. 1736/Ahd/2019 & 4/Ahd/2020 A.Y. 2016-17 Page No. Ahmedabad Urban Development Authority vs. ACIT (E) & ACIT(E) vs. Ahmedabad Urban Development Authority 14 20% imposed by second proviso to Section 2(15) would be attracted thereby negating the essential general public utility object and thus driving up the costs to be borne by the ultimate user or consumer which is the general public. By way of illustration, if a corporation supplies essential food grains at cost, or a marginal mark up, another supplies essential medicines, and a third, water, the characterization of these, as activities in the nature of business, would be self-defeating, because the overall receipts in some given cases may exceed the quantitative limit resulting in taxation and the consequent higher consideration charged from the user or consumer. ..................... 185. As far as boards and corporations which are tasked with development of industrial areas, by statute, the judgments of this court, in Shri Ramtanu Cooperative Housing Society (supra) and Gujarat Industrial Development Corporation (supra) have declared that these bodies are involved in ‘development’ and are not essentially engaged in trading. In Shri Ramtanu Cooperative Housing Society (supra) this court, by a five judge bench, held that the Maharashtra Industrial Development Corporation is not a trading concern, and observed as follows: “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 Government, State Electricity Board and the Housing Board. The functions and powers of the Corporation indicate that the Corporation is acting as a wing of the State Government in establishing industrial estates and developing industrial areas, acquiring property for those purposes, constructing buildings, allotting buildings, factory sheds to industrialists or industrial undertakings. It is obvious that the Corporation will receive moneys for disposal of land, buildings and other properties and also that the Corporation would receive rents and profits in appropriate cases. Receipts of these moneys arise not out of any business or trade but out of sole purpose of establishment, growth and development of industries. 17. The Corporation has to provide amenities and facilities in industrial estates and industrial areas. Amenities of road, I.T.A No. 1736/Ahd/2019 & 4/Ahd/2020 A.Y. 2016-17 Page No. Ahmedabad Urban Development Authority vs. ACIT (E) & ACIT(E) vs. Ahmedabad Urban Development Authority 15 electricity, sewerage and other facilities in industrial estates and industrial areas are within the programme of work of the Corporation. The found 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 Corporation shall have the authority to spend such sums out of the general funds of the Corporation or from reserve and other funds. The Corporation is to make provision for reserve and other specially denominated funds as the State Government may direct. The Corporation accepts deposits from persons, authorities or institutions to whom allotment or sale of land, buildings, or sheds is made or is likely to be made in furtherance of the object of the Act. A budget is prepared showing the estimated receipts and expenditure. The accounts of the Corporation are audited by an auditor appointed by the State Government. These provisions in regard to the finance of the Corporation indicate the real role of the Corporation viz. the agency of the Government in carrying out the purpose and object of the Act which is the development of industries. If in the ultimate analysis there is excess of income over expenditure that will not establish the trading character of the Corporation. There are various departments of the Government which may have excess of income over expenditure. ************** ******** ********* 20. 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 of industries in this State. The construction of buildings, the establishment of industries by letting buildings on hire or sale, the acquisition and transfer of land in relation to establishment of industrial estate or development of industrial areas and of setting up of industries cannot be said to be dealing in land or buildings for the obvious reason that the State is carrying out the objects of the Act with the Corporation as an agent in setting up industries in the State. The Act aims at building an industrial town and the Corporation carries out the objects of the Act. The hard core of a trading Corporation is its commercial character. Commerce connotes transactions of purchase and sale of commodities, dealing in goods. The forms of business transactions may be varied but the real character is buying and selling. The true character of the Corporation in the present case is to act as an architectural agent of the development and growth of industrial towns by establishing and developing industrial estates and industrial areas. We are of opinion that the Corporation is not a trading one.” I.T.A No. 1736/Ahd/2019 & 4/Ahd/2020 A.Y. 2016-17 Page No. Ahmedabad Urban Development Authority vs. ACIT (E) & ACIT(E) vs. Ahmedabad Urban Development Authority 16 186. In Shri Ramtanu Cooperative Housing Society (supra) no doubt, this court did not have to decide whether the Maharashtra Industrial Development Corporation was entitled to tax exemption. However, it examined the provisions of the Act, and the ratio, that such industrial development corporations are not engaged in trading, is binding. Like in that case, here too, the concerned state Acts (Gujarat Industrial Development Act, 1962 and the Karnataka Industrial Areas Development Act, 1966) tasked the boards with planning and development of industrial areas. Their personnel are appointed under the enactments and are deemed to be public servants. The state government is empowered to acquire land, in exercise of eminent domain power, for their purposes; their audits are by the Accountant General of the concerned state, or auditors appointed by the state. They are authorized by law, to levy rates and charges, for the services they provide, on pre-determined basis. In the light of these provisions, clearly, these boards and authorities perform objects of general public utility; and they are not driven by profit motive. 187. There is a two-fold distinction between the now-deleted Section 10(20A) and the newly added Section 10(46) (w.e.f. 01.06.2011). 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 development of housing infrastructure. However, the newly added Section 10(46) is wider in comparison and the activities of any body or authority or board constituted by or under any central or State Act with “the object of regulating or administering any activity for the benefit of the general public”, has broader import. In a sense, the newly added Section 10(46), resembles a GPU category charity classified under Section 2(15). The second distinction is that Section 10(20A) did not bar any board, or corporations, etc. from indulging in commercial activities. However, sub-clause (b) of Section 10(46) imposes such a bar, and the concerned body cannot claim tax exemption if it engages in commercial activity. 188. The manner in which GPU charities has been dealt with under the definition clause, i.e., Section 2(15), indicates that even though trading or commercial activity or service in relation to trade, commerce or business appears to be barred – nevertheless the ban is lifted somewhat by the proviso which enables such activities to be carried out if they are intrinsically part of the activity of achieving the object of general public utility. Furthermore, in the case of GPU charities there is a quantified limit of the overall receipts, which is permissible from such commercial activity. In the case of local authorities and corporations covered by Section 10(46) no such activities are seemingly permitted. I.T.A No. 1736/Ahd/2019 & 4/Ahd/2020 A.Y. 2016-17 Page No. Ahmedabad Urban Development Authority vs. ACIT (E) & ACIT(E) vs. Ahmedabad Urban Development Authority 17 189. As was observed in the earlier part of this judgment – while considering whether for the period 01.0.2003 - 31.05.2011, 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 Gujarat Maritime Board case (supra), 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 190. In light of the above discussion, this court is of the opinion that: (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 w.e.f. 01.04.2003, 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. (iv) The determinative tests to consider when determining whether such statutory bodies, boards, authorities, corporations, autonomous or self governing government sponsored bodies, are GPU category charities: (a) Does the state or central law, or the memorandum of association, constitution, etc. advance any GPU object, such as development of housing, town planning, development of industrial areas, or regulation of any activity in the general public interest, supply of I.T.A No. 1736/Ahd/2019 & 4/Ahd/2020 A.Y. 2016-17 Page No. Ahmedabad Urban Development Authority vs. ACIT (E) & ACIT(E) vs. Ahmedabad Urban Development Authority 18 essential goods or services - such as water supply, sewage service, distributing medicines, of food grains (PDS entities), etc.; (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 commerce or service in relation to such trade, etc.; (c) Rendition of service or providing any article or goods, by such boards, authority, corporation, etc., on cost or nominal mark-up basis would ipso facto not be activities in the nature of business, trade or commerce or service in relation to such business, trade or commerce; (d)where the controlling instrument, particularly a statute imposes certain responsibilities or duties upon the concerned body, such as fixation of rates on pre-determined statutory basis, or based on formulae regulated by law, or rules having the force of law, setting apart amenities for the purposes of development, charging fixed rates towards supply of water, providing sewage services, providing food-grains, medicines, and/or retaining monies in deposits or government securities and drawing interest therefrom or charging lease rent, ground rent, etc., per se, recovery of such charges, fee, interest, etc. cannot be characterized as “fee, cess or other consideration” for engaging in activities in the nature of trade, commerce, or business, or for providing service in relation in relation thereto; (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 are 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 NDMC; 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.; (f) As long as the concerned statutory body, corporation, authority, etc. while actually furthering a GPU object, carries out activities that entail some trade, commerce or business, which generates profit I.T.A No. 1736/Ahd/2019 & 4/Ahd/2020 A.Y. 2016-17 Page No. Ahmedabad Urban Development Authority vs. ACIT (E) & ACIT(E) vs. Ahmedabad Urban Development Authority 19 (i.e., amounts that are significantly higher than the cost), and the quantum of such receipts are within the prescribed limit (20% as mandated by the second proviso to Section 2(15)) – the concerned statutory or government organisations can be characterized as GPU charities. It goes without saying that the other conditions imposed by the seventh proviso to Section 10(23C) and by Section 11 have to necessarily be fulfilled. (v) As a consequence, it is necessary in each case, having regard to the first proviso and seventeenth proviso (the latter introduced in 2012, w.r.e.f 01.04.2009) 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 fees, or any consideration that merely cover its expenditure (including administrative and other costs plus a small proportion for provision) - such amounts are not consideration towards trade, commerce or business, or service in relation thereto. However, amounts which are significantly higher than recovery of costs, have to be treated as receipts from trade, commerce or business. It is for those amounts, that the quantitative limit in proviso (ii) to Section 2(15) applies, and for which separate books of account will have to be maintained under other provisions of the IT Act. IV. Summation of conclusions 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"). 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.ef. 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. I.T.A No. 1736/Ahd/2019 & 4/Ahd/2020 A.Y. 2016-17 Page No. Ahmedabad Urban Development Authority vs. ACIT (E) & ACIT(E) vs. Ahmedabad Urban Development Authority 20 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(230) 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 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 I.T.A No. 1736/Ahd/2019 & 4/Ahd/2020 A.Y. 2016-17 Page No. Ahmedabad Urban Development Authority vs. ACIT (E) & ACIT(E) vs. Ahmedabad Urban Development Authority 21 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. 29. In view of the observations of the Hon’ble Supreme Court in assessee’s own case on this issue as reproduced above, ground no. 1 of the Department’s appeal is dismissed. Ground No. ii (ld. CIT(A) erred in denying deemed application u/s. 11(1) of the Act and denying accumulation u/s. 11(1)(a) of the Act. 30. Before us, the counsel for the assessee submitted that ground no. ii(a) and ground no. ii(b) is consequential to ground no. (i). Accordingly, since the Hon’ble Supreme Court has decided the issue with respect to ground no. 1 in favour of the assessee, ground no. ii(a) and ii(b) may be decided accordingly. I.T.A No. 1736/Ahd/2019 & 4/Ahd/2020 A.Y. 2016-17 Page No. Ahmedabad Urban Development Authority vs. ACIT (E) & ACIT(E) vs. Ahmedabad Urban Development Authority 22 31. We observe that since issue with respect to claim of exemption has been adjudicated in favour of the assessee by the Hon’ble Supreme Court, ground no. (ii) of the Department’s appeal is dismissed accordingly. 32. In the result, the ground no. (ii) of the Department’s appeal is dismissed. Ground No. iii (ld. CIT(A) erred in directing the Assessing Officer not to consider certain receipts as revenue receipts 33. Before us, it was argued that the Hon’ble Gujarat High Court in the case of CIT vs. Gujarat Safai Kamdar Vikas Nigam in ITA 1934 of 2009 held that grant received by Government of Gujarat for implementation of certain Government Schemes to uplift the living condition of manual scavengers and other Safai Kamdars involved in similar activities would qualify as capital receipts, even though the exact words may not have been used that funds made available are directed to form corpus of the assessee corporation and funds were to be used for such performance of such functions only. In deciding whether the income would qualify as capital or revenue receipt, the entire purport of the claim has to be gathered. Accordingly, the Gujarat High Court held that aforesaid amount received by the assessee should be treated as capital receipt of the assessee. Further, the counsel for the assessee submitted before us that in all fairness if the aforesaid receipts are treated a capital receipts, the corresponding expenditure should also be disallowed in the assessee’s hands being capital in nature. I.T.A No. 1736/Ahd/2019 & 4/Ahd/2020 A.Y. 2016-17 Page No. Ahmedabad Urban Development Authority vs. ACIT (E) & ACIT(E) vs. Ahmedabad Urban Development Authority 23 34. In view of the above discussion, we are of the considered view that ld. CIT(A) has not erred in holding the aforesaid amounts to be capital receipts. However, corresponding expenses if any claimed against the aforesaid receipt shall also be disallowed. 35. In the result, ground no. (iii) of the Department’s appeal is dismissed. 36. In the result, the appeal filed by the Department is dismissed. 37. In the combined result, the appeal filed by assessee is partly allowed for statistical purposes and the appeal filed by the Revenue is dismissed. Order pronounced in the open court on 26-07-2023 Sd/- Sd/- (WASEEM AHMED) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 26/07/2023 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