The Dy. CIT(Exemptions), Circle-2, Ahmedabad V. Rajkot Urban Development Authority, Rajkot

ITA 2389/AHD/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1020 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-12-2019
• Assessment Year: 2009-2010
• Appeal Filed On: 01-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A KHAN
• Keywords: Business income; Depreciation; Search and seizure; Charitable institution; Audit objection; Source of fund; Deemed to accrue or arise in india; Question of law; Cost of acquisition; Initiation of penalty proceedings; Capital receipt; Benefit of exemption; Capital expenditure
• Section: 143(3); 12A; 72; 13; 32; 12; 28; 11

Judgement Text

, B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SMT. MADHUMITA ROY, JUDICIAL MEMBER ./ I.T.A. NOS. 2389 TO 2394/AHD/2017 ( ASSESSMENT YEARS : 2009-10 TO 2014-15) DY. COMMISSIONER OF INCOME-TAX (EXEMPTIONS) CIRCLE-2, AHMEDABAD 2 ND FLOOR, NATURE VIEW BUILDING, OPP: H. K. HOUSE, ASHRAM ROAD, AHMEDABAD.380009 / VS. RAJKOT URBAN DEVELOPMENT AUTHORITY CHIMANLAL PATEL VIKAS BHAVAN, JAMNAGAR ROAD, RAJKOT ./ ./ PAN/GIR NO. : AAALR0044H ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI M. S. A. KHAN, SR.D.R. / RESPONDENT BY : NONE DATE OF HEARING 11/12/2019 !'# / DATE OF PRONOUNCEMENT 18/12/2019 / O R D E R PER BENCH: THE CAPTIONED APPEALS DIRECTED AT THE INSTANCE OF A SSESSEE ARISE FROM THE RESPECTIVE ORDERS OF THE COMMISSIONER OF I NCOME TAX (APPEALS) (CIT(A)) AGAINST DIFFERENT ASSESSMENT YEARS AS TA BULATED BELOW: ITA NOS. NAME OF ASSESSEE AY CIT(A)S ORDER DATED AOS ORDER DATED AOS ORDER UNDER SECTION 2389/AHD/17 RAJKOT URBAN DEVELOPMENT AUTHORITY 2009-10 07.08.17 17.03.15 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (IN ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 2 - SHORT THE ACT) 2390/AHD/17 -DO- 2010-11 -DO- 28.03.16 143(3) R.W.S. 263 OF THE ACT 2391/AHD/17 -DO- 2011-12 -DO- 18.03.14 143(3) OF THE ACT 2392/AHD/17 -DO- 2012-13 -DO- 27.12.16 143(3) R.W.S. 147 OF THE ACT 2393/AHD/17 -DO- 2013-14 -DO- 28.03.16 143(3) OF THE ACT 2394/AHD/17 -DO- 2014-15 -DO- 27.12.16 143(3) OF THE ACT 2. AS CLAIMED ON BEHALF OF THE REVENUE, THE FACTS A RE SIMILAR AND COMMON ISSUES ARE INVOLVED IN ALL ASSESSMENT YEARS AND THEREFORE ALL SIX APPEALS WERE HEARD TOGETHER AND DISPOSED OF BY COMM ON ORDER. 3. WE SHALL TAKE REVENUES APPEAL IN ITA NO. 2389/A HD/2017 CONCERNING AY 2009-10 AS A LEAD CASE FOR ADJUDICATI ON. ITA NO. 2389/AHD/2017 - AY- 2009-10 4. THE SUBSTANTIVE GROUNDS OF APPEAL RAISED BY ASSE SSEE READ AS UNDER: 1. THE LD. CITCA) HAS ERRED IN THE LAW AND ON FACT S IN CONSIDERING THE ACTIVITY OF THE ASSESSEE AS ENGAGED IN THE DEVE LOPMENT OF URBAN AREA OF RAJKOT WHICH IS IN THE NATURE OF ADVA NCEMENT OF GENERAL PUBLIC UTILITY NOT HIT BY THE NEWLY INTRODU CED FIRST AND SECOND PROVISO TO SEC.2(15) OF THE ACT. 2. THE LD CIT(A) HAS ERRED IN THE LAW AND ON FACTS IN ALLOWING THE BENEFIT OF EXEMPTIONS U/S.11 WITHOUT CONSIDERING TH E FACT THAT THE ASSESSEE IS INVOLVED IN WIDESPREAD COMMERCIAL ACTIV ITIES IN NATURE OF BUSINESS AND THE ACTIVITY OF THE ASSESSEE IS COVERED UNDER FIRST AND SECOND PROVISO TO SEC.2(15) OF THE ACT. 3. THE LD. CIT(A) HAS ERRED IN THE LAW AND ON FACTS IN DELETING THE ADDITION OF RS.2,63,896/- BY NOT APPRECIATING THAT THE ADDITION TO FIXED ASSETS HAS ALREADY BEEN ALLOWED IN EARLIER YEARS AS APPLICATION OF INCOME WHICH AMOUNTS TO DOUBLE DEDUC TION. 4. THE LD CIT(A) HAS ERRED IN THE LAW AND ON FACTS IN DELETING THE ADDITION OF RS 1,51,81,991/- CONSIDERING THAT A CAP ITAL EXPENDITURE BY A PERSON NEED NOT BE A CAPITAL RECEI PT OF THE PERSON RECEIVING THAT AMOUNT WHICH THE ASSESSEE HAS RECEIVED FOR THE DISCHARGE OF ITS OBJECTS. 5. THE LD CIT(A) HAS ERRED IN THE LAW AND ON FACTS IN ALLOWING THE ACCUMULATION OF RSA, 60, 00, 000/- U/S.11(2) AND AC CUMULATION ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 3 - @15% OF RS.L.23,59.649/- U/S11(1)(A) OF THE ACT WIT HOUT APPRECIATING THE FACT THAT ONCE THE PROVISO TO SECT ION 2(15) IS APPLICABLE, THE BENEFIT OF SECTION 11 AND 12 CANNOT BE ALLOWED FURTHER. 5. AS PER ITS GROUNDS OF APPEAL, THE REVENUE HAS IM PUGNED THE ACTION OF THE CIT(A) IN REVERSING THE ACTION OF THE AO TOW ARDS DENIAL OF EXEMPTION UNDER S.11 & 12 OF THE ACT. 6. BRIEFLY STATED, THE ASSESSEE TRUST FILED ITS RET URN OF INCOME FOR A.Y. 2009-10 DECLARING ITS INCOME AT RS.NIL. THE ASSESSM ENT ORDER U/S.143(3) R.W.S.147 OF THE ACT WAS PASSED DETERMINING THE TOT AL INCOME AT RS.7,38,05,536/- AFTER CERTAIN DISALLOWANCES NAMELY ; RS. 1,51,81,991/- BEING PROJECT EXPENSES WHICH IS ALLEGED TO BE CAPIT AL IN NATURE; RS.2,63,896/- BEING ADDITION IN FIXED ASSET; RS.4,6 0,00,000/-BEING CLAIM U/S 11(2) OF THE ACT AND RS.1,23,59,649/- BEING CLA IM U/S.11(1)(A) OF THE ACT. WHILE FINALIZING THE ASSESSMENT ORDER, THE A. O DENIED THE BENEFIT OF SECTION 11 & 12 TO THE ASSESSEE TRUST STATING TH AT THE CASE OF THE ASSESSEE TRUST FALLS UNDER THE AMBIT OF THE PROVISO 1 & 2 OF SECTION 2(15) OF THE ACT AND PROCEEDED TO MAKE ADDITIONS/DISALLOW ANCES NOTED ABOVE. 7. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT (A). 7.1 THE CIT(A) RELIED ON THE DECISION OF HON' BLE GUJARAT HIGH COURT IN THE CASE OF AUDA VS ACIT IN ITA NO.423, 424, 425 OF 2016 DATED 02/05/2017. IT WAS OBSERVED BY THE CIT(A) THAT NOWH ERE IN THE ASSESSMENT ORDER, THE AO POINTED OUT THAT THE ASSES SEE HAD UNDERTAKEN FUNCTIONS BEYOND THE MANDATE OF GTPUD ACT. THE ASSE SSEE IS REGISTERED U/S.12A OF THE ACT THEREFORE, THE ASSESSEE CANNOT B E CONSIDERED TO BE COVERED BY THE PROVISO TO SECTION 2(15) OF THE ACT. THUS, THE AO CANNOT WITHDRAW THE CLAIM OF EXEMPTION BY INVOKING PROVISO TO SECTION 2(15) R.W.S. 13(8) OF THE ACT AND THE COROLLARY IS THAT T HE ASSESSEE CANNOT BE ASSESSED U/S. 28 TO 44 OF THE ACT. ON THESE BROAD O BSERVATION, THE CIT(A) HAS ALLOWED THE EXEMPTION U/S. 11 & 12 OF THE ACT. ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 4 - 7.2 FURTHER, ON THE ISSUE OF SOURCE OF FUNDS SUCH A S GRANTS RECEIVED FROM THE GOVERNMENT AND APPLICATION THEREOF UNDER T HE HEAD PROJECT FUND, THE CIT(A) HELD THAT AS PER SECTIONS 11(1)(A ) AND 11(1)(D) AS WELL AS 12(1) OF THE ACT, THE GRANTS GIVEN FOR THE SPECI FIC PURPOSE CANNOT BE CONSIDERED AS INCOME IN THE FORM OF VOLUNTARY DONAT ION AND ARE ELIGIBLE FOR DEDUCTION U/S.11(1)(D) OF THE ACT. IF ANY VOLUN TARY CONTRIBUTION IS MADE WITH A SPECIFIC DIRECTION, IT SHALL BE TREATED AS THE CAPITAL OF THE TRUST FOR CARRYING ON ITS CHARITABLE ACTIVITIES, AN D THEN SUCH INCOME IS NOT LIABLE TO TAX. AS PER AS-12, WHERE THE GOVERNMENT G RANTS LEADS TO CREATION OF FIXED ASSETS EQUALS THE WHOLE OR VIRTUA LLY THE WHOLE OF THE COST OF THE ASSET, THE ASSET SHOULD BE SHOWN IN THE BALANCE SHEET AT NOMINAL VALUE OR IF GRANTS RELATED TO DEPRECIABLE F IXED ASSETS MAY BE TREATED AS DIVERTED INCOME WHICH SHOULD BE RECOGNIZ ED IN THE P&L ACCOUNT ON A SYSTEMATIC AND RATIONAL BASIS OVER THE USEFUL LIFE OF THE ASSET. ACCORDINGLY, THE CIT(A) HELD THAT ASSESSEE I S ELIGIBLE FOR CLAIM THE BENEFIT U/S.11 OF THE ACT AND THEREFORE, CIT(A) ALLOWED ACCUMULATION @15% OF RS.1,23,59,649/- MADE U/S.11(1)(A) AND ACCU MULATION OF RS.4,60,00,000/- MADE U/S.11(2) OF THE ACT. 7.3 FURTHER, THE CIT(A) THE DIRECTED THE AO THAT AF TER VERIFICATION OF THE FACTS ALLOW THE EXPENDITURE ON ADDITION TO FIXE D ASSETS OF RS.2,63,896/- AND PROJECT EXPENSES OF RS.1,51,81,99 1/- AS APPLICATION OF INCOME. 7.4 THE RELEVANT OPERATIVE PARA OF THE CIT(A) IS RE PRODUCED HEREUNDER: 4.2 I HAVE CAREFULLY CONSIDERED RIVAL CONTENTIONS AND OBSERVATIONS MADE BY THE A.O. IN THE ASSESSMENT ORDER. THE MAIN ISSUE RAISED BY THE APPELLANT IS COVERED BY THE LATEST JUDGMENT OF HON BLE GUJARAT HIGH COURT IN THE CASE OF AUDA VS ACIT IN ITA NO.423, 42 4, 425 OF 2016 DATED 02/05/2017. THE QUESTION OF LAW BEFORE THE H ONBLE HIGH COURT WAS AS FOLLOWS:- '(1)WHETHER THE INCOME TAX APPELLATE TRIBUNAL HAS E RRED IN LAW AND ON FACTS IN HOLDING THAT THE ACTIVITY OF THE AP PELLANT WAS IN THE NATURE OF TRADE, COMMERCE OR BUSINESS AND HENCE IT CANNOT BE REGARDED AS ACTIVITY FOR CHARITABLE PURPOSE IN VIEW OF THE PROVISO TO SECTION 2(15) OF THE INCOME TAX ACT, 1961? ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 5 - (2) WHETHER THE INCOME TAX APPELLATE TRIBUNAL HAS E RRED IN LAW AND ON FACTS IN DISALLOWING THE CLAIM OF EXEMPTION OF THE APPELLANT UNDER SECTION 11 OF THE INCOME TAX ACT, 1 961, AND ASSESSING THE INCOME OF THE APPELLANT UNDER SECTION S 28 TO 44 OF THE INCOME TAX ACT, 1961?' FINDINGS OF HON'BLE GUJARAT HIGH COURT: 10. THE SHORT BUT INTERESTING QUESTION OF LAW POSED FOR THE CONSIDERATION OF THIS COURT IN THE PRESENT APPEAL I S WHETHER THE ACTIVITIES OF THE OF THE ASSESSES AUDA CAN BE SAID TO BE IN THE NATURE OF TRADE, COMMERCE OR BUSINESS SO AS TO DENY THE STATUS OF THE ASSESSEE AS A CHARITABLE INSTITUTION WITHIN THE DEFINITION OF SECTION 2(15) OF THE ACT? THE SECOND QUESTION WHICH IS POSED FOR THE CONSIDER ATION OF THIS COURT IS WHETHER THE ACTIVITY OF THE ASSESSEE CAN B E SAID TO BE ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO AN Y TRADE, COMMERCE OR BUSINESS, FOR CESS OR FEES OR ANY OTHER CONSIDERATION, AS THE ASSESSEE IS COLLECTING / RECO VERING FEES BY PERFORMING DUTY UNDER THE PROVISION OF GUJARAT TOWN PLANNING ACT AND THEREFORE, WHETHER SECOND PART OF THE PROVI SO TO SECTION 2(15) OF THE ACT SHALL BE APPLICABLE SO AS TO DENY THE EXEMPT/ON CLAIMED BY THE ASSESSEE, CLAIM UNDER SECTION 11 OF THE ACT? 11. WHILE CONSIDERING THE AFORESAID QUESTIONS, THE RELEVANT PROVISIONS OF THE GUJARAT TOWN PLANNING ACT, UNDER WHICH, THE ASSESSEE HAS BEEN CONSTITUTED AS URBAN DEVELOPMENT AUTHORITY AND POWERS AND FUNCTIONS OF THE ASSESSEE AS ON URBA N DEVELOPMENT AUTHORITY ORE REQUIRED TO BE CONSIDERED , SO AS TO APPRECIATE WHETHER THE ACTIVITIES OF THE ASSESSEE B EING URBAN DEVELOPMENT AUTHORITY CAN BE SAID TO BE IN THE NATU RE OF TRADE, COMMERCE OR BUSINESS ? THE RELEVANT PROVISIONS OF THE GUJARAT TOWN PLANNIN G ACT, UNDER WHICH, THE ASSESSEE AUDA HAS BEEN CONSTITUTED AS UR BAN DEVELOPMENT AUTHORITY ARE AS UNDER: SECTION 2(VIII): 'DEVELOPMENT', WITH ALL ITS GRAMMATICAL VARIATIONS AND COGNATE EXPRESSIONS, MEANS THE CARRYING OUT OF ANY BUILDING, ENGINEERING, MINING, OR OTHER OPERATIONS IN, OR OVER, OR UNDER LAND OR THE MAKING OF ANY MAT ERIAL CHANGE IN ANY BUILDING OR LAND OR IN THE USE OF ANY BUILDI NG OR LAND, AND INCLUDES LAYOUT AND SUBDIVISION OF ANY LAND; SECTION 2(XXVIII):' URBAN DEVELOPMENT AUTHORITY' MEANS AN URBAN DEVELOPMENT AUTHORITY CONSTITUTED UN DER SECTION 22; SECTION 2(XXIX).'URBAN DEVELOPMENT AREA' MEA NS AN AREA DECLARED TO BE AN URBAN DEVELOPMENT AREA UNDER SECT ION 22. SECTION 22: DECLARATION OF URBAN DEVE LOPMENT AREA AND CONSTITUTION OF URBAN DEVELOPMENT AUTHORITY: (1) WHERE THE STATE GOVERNMENT IS OF OPINION THAT T HE OBJECT OF PROPER DEVELOPMENT OR REDEVELOPMENT OF ANY URBAN AR EA OR GROUP OF URBAN AREAS IN THE STATE TOGETHER WITH SUC H ADJACENT AREAS AS MAY BE CONSIDERED NECESSARY, WHETHER COVER ED UNDER A DEVELOPMENT AREA ALREADY DECLARED AS SUCH UNDER SEC TION 3 OR ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 6 - NOT, WILL BE BEST SERVED BY ENTRUSTING THE WORK OF DEVELOPMENT OR REDEVELOPMENT THEREOF TO A SPECIAL AUTHORITY, INSTE AD OF TO AN AREA DEVELOPMENT AUTHORITY, THE STATE GOVERNMENT MA Y, BY NOTIFICATION, DECLARE SUCH AREA TO BE AN URBAN DEVE LOPMENT AREA AND CONSTITUTE AN AUTHORITY FOR SUCH AREA TO BE CAL LED THE URBAN DEVELOPMENT AUTHORITY OF THAT AREA, AND THEREUPON A LL THE POWERS AND FUNCTIONS OF AN AREA DEVELOPMENT AUTHORITY RELA TING TO THE DEVELOPMENT OR REDEVELOPMENT OF A DEVELOPMENT AREA UNDER THIS ACT SHALL, IN RELATION TO SUCH URBAN DEVELOPMENT AR EA, BE EXERCISED AND PERFORMED BY SUCH URBAN DEVELOPMENT A UTHORITY 1*** (2) EVERY NOTIFICATION ISSUED UNDER SUBSECTION (1) SHALL DEFINE THE LIMITS OF THE AREA TO WHICH IT RELATES. 2[(2A) THE STATE GOVERNMENT MAY, BY NOTIFICATION IN THE OFFICIAL GAZ ETTE, INCLUDE IN OR EXCLUDE ANY AREA FROM AN URBAN DEVELOPMENT AR EA, AMALGAMATE TWO OR MORE URBAN DEVELOPMENT AREAS INTO ONE URBAN DEVELOPMENT AREA, SUBDIVIDE ANY URBAN DEVELOP MENT AREA INTO DIFFERENT URBAN DEVELOPMENT AREAS AND INCLUDE SUCH SUBDIVIDED URBAN DEVELOPMENT AREA IN ANY OTHER URBA N DEVELOPMENT AREA.] (3) EVERY URBAN DEVELOPMENT AUTHORITY CONSTITUTED U NDER SUBSECTION (1) SHALL BE A BODY CORPORATE BY THE NAM E AFORESAID, HAVING PERPETUAL SUCCESSION AND A COMMON SEAL, WITH POWER TO ACQUIRE, HOLD AND DISPOSE OF PROPERTY, BOTH MOVABLE AND IMMOVABLE, AND TO CONTRACT, AND BY THE SAID NAME SU E AND BE SUED. (4) THE URBAN DEVELOPMENT AUTHORITY SHALL CONSIST O F THE FOLLOWING MEMBERS NAMELY: (I) A CHAIRMAN TO BE APPOINTED BY THE STATE GOVERNM ENT; (II) SUCH PERSONS, NOT EXCEEDING3[FOUR IN NUMBER] WHO AR E MEMBERS OF THE LOCAL AUTHORITY OR AUTHORITIES FUNCTIONING I N THE URBAN DEVELOPMENT AREA, AS MAY BE NOMINATED BY THE STATE GOVERNMENT; (III)4[THREE OFFICIALS) OF THE STATE GO VERNMENT, TO BE NOMINATED BY THAT GOVERNMENT, EXOFFICIO; (IV) TH E PRESIDENTS OF THE DISTRICT PANCHAYATSFUNCTIONING IN THE URBAN DEVELOPMENT AREA, OR, AS THE CASE MAY BE, PART THEREOF, EXOFFIC IO; (V) THE CHIEF TOWN PLANNER OR HIS REPRESENTATIVE, EXOFFICIO ; (VI) THE CHIEF ENGINEER OR ENGINEERS (PUBLIC HEALTH) OF THE LOCAL AUTHORITY OR AUTHORITIES FUNCTIONING IN THE URBAN D EVELOPMENT AREA OR HIS OR THEIR NOMINEE OR NOMINEES, EXOFFICIO ; 5[(VIA) THE MUNICIPAL COMMISSIONER OF THE MUNICIPAL CORPORATION , IF ANY, FUNCTIONING IN THE URBAN DEVELOPMENT AREA, EXOFFICI O;] (VII) A MEMBER SECRETARY TO BE APPOINTED BY THE STATE GOVER NMENT WHO SHALL A/SO BE DESIGNATED AS THE CHIEF EXECUTIVE AUT HORITY OF THE URBAN DEVELOPMENT AUTHORITY. (5) THE PROVISIONS OF SUBSECTIONS (5) TO (12) OF SE CTION 5 SHALL APPLY IN RELATION TO AN URBAN DEVELOPMENT AUTHORITY AS THEY APPLY IN RELATION TO AN AREA DEVELOPMENT AUTHORITY, WITH THE MODIFICATION THAT REFERENCES TO AN AREA DEVELOPMENT AUTHORITY IN ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 7 - THE SAID SUBSECTION SHALL BE CONSTRUED AS REFERENCE S TO AN URBAN DEVELOPMENT AUTHORITY. SECTION 23: POWERS AND FUNCTION OF URBAN DEVELOPMEN T AUTHORITY: (1) [THE POWERS AND FUNCTIONS OF] AN URBAN DEVELOPM ENT AUTHORITY SHALL BE:(I) TO UNDERTAKE THE PREPARATION OF DEVELOPMENT PLANS UNDER THE PROVISIONS OF THIS ACT, FOR THE URBAN DEVELOPMENT AREA; (II) TO UNDERTAKE THE PREPARATION [AND EXECUTION] OF TOWN PLANNING SCHEMES UNDER THE PROVI SIONS OF THIS ACT, IF SO DIRECTED BY THE STATE GOVERNMENT; (HI) T O CARRY OUT SURVEYS IN THE URBAN DEVELOPMENT AREA FOR THE PREPA RATION OF DEVELOPMENT PLANS OR TOWN PLANNING SCHEMES; (IV) TO GUIDE, DIRECT AND ASSIST THE LOCAL AUTHORITY OR AUTHORITIE S AND OTHER STATUTORY AUTHORITIES FUNCTIONING IN THE URBAN DEVE LOPMENT AREA IN MATTERS PERTAINING TO THE PLANNING, DEVELOPMENT AND USE OF URBAN LAND; (V) TO CONTROL THE DEVELOPMENT ACTIVITI ES IN ACCORDANCE WITH THE DEVELOPMENT PLAN IN THE URBAN D EVELOPMENT AREA; 3 [(VA) TO LEVY AND COLLECT SUCH SECURITY FEE S FOR SCRUTINY OF DOCUMENTS SUBMITTED TO THE APPROPRIATE AUTHORITY FOR PERMISSION FOR DEVELOPMENT AS MAY BE PRESCRIBED BY REGULATIONS;] (VI) TO EXECUTE WORKS IN CONNECTION W ITH SUPPLY OF WATER, DISPOSAL OF SEWERAGE AND PROVISION OF OTHER SERVICES AND AMENITIES; 4 [(VIA) TO LEVY AND COLLECT SUCH LEES L OR THE EXECUTION OF WORKS REFERRED TO IN CLAUSE (VI) AND FOR PROVISI ON OF OTHER SERVICES AND AMENITIES AS MAY BE PRESCRIBED BY REGU LATIONS,] (VII) TO ACQUIRE, HOLD, MANAGE AND DISPOSE OF PROPE RTY, MOVABLE OR IMMOVABLE, AS IT MAY DEEM NECESSARY; (VIII) TO E NTER INTO CONTRACTS, AGREEMENTS ORARRANGEMENTS, WITH ANY LOCA L AUTHORITY, PERSON OR ORGANISATION AS THE URBAN DEVELOPMENT AUT HORITY MAY CONSIDER NECESSARY FOR PERFORMING ITS FUNCTIONS; (I X) TO CARRY ANY DEVELOPMENT WORKS IN THE URBAN DEVELOPMENT AREA AS MAY BE ASSIGNED TO IT BY THE STATE GOVERNMENT FROM TIME TO TIME; (X) TO EXERCISE SUCH OTHER POWERS AND PERFORM SUCH OTHER F UNCTIONS AS ARE SUPPLEMENTAL, INCIDENTAL OR CONSEQUENTIAL TO AN Y OF THE FOREGOING POWERS AND FUNCTIONS OR AS MAY BE DIRECTE D BY THE STATE GOVERNMENT. (2) THE URBAN DEVELOPMENT AUTHORITY MAY, WITH THE A PPROVAL OF THE STATE GOVERNMENT, DELEGATE 5 [ANY OF ITS POWERS AND FUNCTIONS] TO THE LOCAL AUTHORITY OR AUTHORITIES FU NCTIONING IN THE URBAN DEVELOPMENT AREA. (3) THE URBAN DEVELOPMENT AUTHORITY SHALL HAVE ITS OFFICE AT SUCH PLACE AS THE STATE GOVERNMENT MAY SPECIFY IN THIS B EHALF. SECTION 40.MAKING AND CONTENTS OF A TOWN PLANNING S CHEME : (1) SUBJECT TO THE PROVISION OF THIS ACT OR ANY OTH ER LAW FOR THE TIME BEING IN FORCE, THE APPROPRIATE AUTHORITY MAY MAKE ONE OR MORE TOWN PLANNING SCHEMES FOR THE DEVELOPMENT AREA OR ANY PART THEREOF, REGARD BEING HAD TO THE PROPOSALS IN THE FINAL DEVELOPMENT PLAN, IF ANY. (2) A TOWN PLANNING SCHEMA MAY BE MADE IN ACCORDANC E WITH THE PROVISIONS OF THIS ACT IN RESPECT OF ANY LAND WHICH IS(I) IN THE COURSE OF DEVELOPMENT; 1 [(II) LIKELY TO BE USED FO R RESIDENTIAL OR COMMERCIAL OR INDUSTRIAL OR FOR BUILDING PURPOSES; OR] (III) ALREADY BUILT UPON, EXPLANATION: FOR THE PURPOSE OF THIS SUBSECTION THE EXPRESSION 'LAND LIKELY TO BE USED F OR BUILDING ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 8 - PURPOSES' SHALL INCLUDE ANY LAND LIKELY TO BE USED AS, OR FOR THE PURPOSE OF PROVIDING, OPEN SPACES, ROADS, STREETS, PARKS, PLEASURE OR RECREATION GROUNDS, PARKING SPACES OR F OR THE PURPOSE OF EXECUTING ANY WORK UPON OR UNDER THE LAN D INCIDENTAL TO A TOWN PLANNING SCHEME, WHETHER IN THE NATURE OF A BUILDING WORK OR NOT. (3) A TOWN PLANNING SCHEME MAY MAKE PROVISION FOR A NY OF THE FOLLOWING MATTERS, NAMELY:(A) THE LAYING OUT OR REL AYING OUT OF LAND, EITHER VACANT OR ALREADY BUILT UPON: (B) THE FILLING UP OR RECLAMATION OF LOW LYING, SWAMPY OR UNHEALTHY AREAS , OR LEVELLING UP OF LAND; (C) LAYOUT OF NEW STREETS OR ROADS, CONSTRUCTION, DIVERSION, EXTENSION, ALTERATION, IMPROVEMENT AND CLOSING UP OF STREETS AND ROADS AND DISCONTINUA NCE OF COMMUNICATIONS; (D) THE CONSTRUCTION, ALTERATION AND REMOVAL OF BUILDINGS, BRIDGES AND OTHER STRUCTURE S; (E) THE ALLOTMENT OR RESERVATION OF/AND FOR ROADS, OPEN SPA CES, GARDENS, RECREATION GROUNDS, SCHOOLS, MARKETS, GREENBELTS, D AIRIES, TRANSPORT FACILITIES, PUBLIC PURPOSES OF ALL KINDS; (F) DRAINAGE, INCLUSIVE OF SEWERAGE, SURFACE OR SUBSOIL DRAINAGE AND SEWAGE DISPOSAL; (G) LIGHTING; (H) WATER SUPPLY; (I) THE P RESERVATION OF OBJECTS OF HISTORICAL OR NATIONAL INTEREST OR NATUR AL BEAUTY, AND OF BUILDINGS ACTUALLY USED FOR RELIGIOUS PURPOSES; (J) THE RESERVATION OF LAND TO THE EXTENT OF TEN PER CENT- OR SUCH PERCENTAGE AS NEAR THERETO AS POSSIBLE OF THE TOTAL AREA COVERED UNDER THE SCHEME, FOR THE PURPOSE OF PROVIDING HOUS ING ACCOMMODATION TO THE MEMBERS OF SOCIALLY AND EC ONOMICALLY BACKWARD CLASSES OF PEOPLE; 2 [3 [(JJ) (A) THE ALLO TMENT OF LAND FROM THE TOTAL AREA COVERED UNDER THE SCHEME, TO TH E EXTENT OF.(I) FIFTEEN PER CENT, FOR ROADS, (II) FIVE PER CENT, FO R PARKS, PLAY GROUNDS, GARDENS AND OPEN SPACE, (III) FIVE PER CEN T, FOR SOCIAL INFRASTRUCTURE SUCH AS SCHOOL, DISPENSARY, FIRE BRI GADE, PUBLIC UTILITY PLACE AS EARMARKED IN THE DRAFT TOWN PLANNI NG SCHEME, AND (IV) FIFTEEN PER CENT, FOR SALE BY APPROPRIATE AUTHORITY FOR RESIDENTIAL, COMMERCIAL OR INDUSTRIAL USE DEPEN DING UPON THE NATURE OF DEVELOPMENT: PROVIDED THAT THE PERCENTAGE OF THE ALLOTMENT OF LAND SPECIFIED IN PARAGRAPHS (I ) TO (III) MAY BE ALTERED DEPENDING UPON THE NATURE OF DEVELOPMENT AND FOR THE REASONS TO BE RECORDED IN WRITING; (B) THE PROCEEDS FROM THE SALE OF LAND REFERRED TO IN PARA (IV) OF SUB CLAUSE (A) SHALL BE USED FOR THE PURPOSE OF PROVIDING INFRASTRUCTURAL FACILI TIES; (C) THE LAND ALLOTTED FOR THE PURPOSES REFERRED TO IN PARAG RAPHS (II) AND (III) OF SUB CLAUSE (A) SHALL NOT BE CHANGED BY VAR IATION OF SCHEMES FOR THE PURPOSES OTHER THAN PUBLIC PURPOSE; ]] (K) THE IMPOSITION OF CONDITIONS AND RESTRICTIONS IN REGARD TO THE OPEN SPACE TO BE MAINTAINED AROUND BUILDINGS, THE PERCEN TAGE OF BUILDING AREA FOR A PLOT, THE NUMBER, SIZE, HEIGHT AND CHARACTER OF BUILDING ALLOWED IN SPECIFIED AREAS, THE PURPOSE S TO WHICH BUILDINGS OR SPECIFIED AREAS MAY OR MAY NOT BE APPR OPRIATED: THE SUBDIVISION OF PLOTS, THE DISCONTINUANCE OF OBJEC TIONABLE USES OF LANDS IN ANY AREA IN SPECIFIED PERIODS, PARKI NGS SPACE AND LOADING AND UNLOADING SPACE FOR ANY BUILDING AND TH E SIZES OR LOCATIONS OF PROJECTIONS AND ADVERTISEMENT SIGNS; ( I) THE SUSPENSION, SO FAR AS MAY BE NECESSARY, FOR THE PRO PER CARRYING OUT OF THE SCHEME, OF ANY RULE, BYELAW, REGULATION, NOTIFICATION OR ORDER MADE OR ISSUED UNDER ANY ACT OF THE STATE LEGISLATURE ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 9 - OR ANY OF THE ACTS WHICH THE STATE LEGISLATURE IS C OMPETENT TO AMEND: PROVIDED THAT ANY SUSPENSION UNDER THIS CLAU SE SHALL CEASE TO OPERATE IN THE EVENT OF THE STATE GOVERNME NT REFUSING TO SANCTION THE PRELIMINARY SCHEME, OR IN THE EVENT OF THE WITHDRAWAL OF THE SCHEME UNDER SECTION 66. OR ON TH E COMING INTO FORCE OF THE FINAL SCHEME; (M) SUCH OTHER MATTERS NOT INCONSISTENT WITH THE OBJECTS OF THIS ACT AS MAY BE PRESCRIBED. SECTION 91: FUND OF THE APPROPRIATE AUTHORITY : (1) AN APPROPRIATE AUTHORITY SHALL HAVE AND MAINTAI N ITS OWN FUND TO WHICH SHALL BE CREDITED(A) ALL MONEYS RECEI VED BY THE AUTHORITY BY WAY OF GRANTS, LOANS, 1 [ADVANCES, FEE S, DEVELOPMENT CHARGES OR OTHERWISE;] (B) ALL MONEYS DERIVED FROM ITS UNDERTAKINGS, PROJECTIONS AND OTHER SOURCES; (C) SU CH AMOUNT OF CONTRIBUTIONS FROM LOCAL AUTHORITIES AS THE STATE G OVERNMENT MAY SPECIFY FROM TIME TO TIME TO BE CREDITED TO THE FUN D OF, THE AUTHORITY. (2) THE FUND OF AN APPROPRIATE AUTHORITY SHALL BE APPLIED TOWARDS MEETING (A) EXPENDITURE INCURRED IN THE ADMINISTRATION OF THIS ACT; (B) COST OF ACQUISITION OF LAND FOR THE PURPOSES OF THIS ACT; (C) EXPENDITURE FOR ANY DEVEL OPMENT OF LAND IN THE DEVELOPMENT AREA; (D) EXPENDITURE FOR S UCH OTHER PURPOSES AS THE STATE GOVERNMENT MAY DIRECT. (3) AN APPROPRIATE AUTHORITY MAY KEEP IN CURRENT ACCOUNT WITH THE STAT E BANK' OF INDIA OR ANY OTHER BANK APPROVED BY THE STATE GOVER NMENT IN THIS BEHALF, SUCH SUMS OF MONEY OUT OF ITS FUND AS MAY BE PRESCRIBED AND ANY MONEY IN EXCESS OF THE SAID SUM SHALL BE INVESTED IN SUCH MANNER AS MAY BE APPROVED BY THE S TATE GOVERNMENT. (4) THE STATE GOVERNMENT MAY, MAKE SUCH GRANTS, ADVANCES AND BANS TO AN APPROPRIATE AUTHORITY AS TH E STATE GOVERNMENT MAY DEEM NECESSARY FOR THE PERFORMANCE O F ITS FUNCTIONS UNDER THIS ACT AND ALL GRANTS, LOANS AND ADVANCES SO MADE SHALL BE MADE ON SUCH TERMS AND CONDITIONS AS THE STATE GOVERNMENT MAY DETERMINE. SECTION 95:ACCOUNTS AND AUDIT: (1) AN APPROPRIATE AUTHORITY SHALL MAINTAIN PROPER ACCOUNTS AND OTHER RELEVANT RECORDS AND PREPARE AN ANNUAL STATEM ENT OF ACCOUNTS INCLUDING THE BALANCE SHEET IN SUCH FORM A S THE STATE GOVERNMENT MAY PRESCRIBE, (2) THE ACCOUNTS OF AN APPROPRIATE AUTHORITY SHALL BE SUBJECT TO AUDIT ANNUALLY BY THE ACCOUNTANT GENERAL OF THE STA TE AND ANY EXPENDITURE INCURRED BY HIM IN CONNECTION WITH SUCH AUDIT SHALL BE PAYABLE BY THE AUTHORITY TO THE ACCOUNTANT GENER AL. (3) THE ACCOUNTANT GENERAL OR ANY PERSON APPOINTED BY HIM I N CONNECTION WITH THE AUDIT OF ACCOUNTS OF AN APPROPR IATE AUTHORITY SHALL HAVE THE SAME RIGHTS, PRIVILEGES AND AUTHORIT Y IN CONNECTION WITH SUCH AUDIT AS THE ACCOUNTANT GENERA L HAS IN CONNECTION WITH GOVERNMENT ACCOUNTS AND IN PARTICUL AR SHALL HAVE THE RIGHT TO DEMAND THE PRODUCTION OF BOOKS, A CCOUNTS, CONNECTED VOUCHERS AND OTHER DOCUMENTS AND PAPERS A ND TO INSPECT THE OFFICE OF THE APPROPRIATE AUTHORITY. (4 ) THE ACCOUNTS OF AN AUTHORITY AS CERTIFIED BY THE ACCOUNTANT GENE RAL OR ANY OTHER PERSON AUTHORISED BY HIM IN THIS BEHALF, TOGE THER WITH THE AUDIT REPORT THEREON, SHALL BE FORWARDED ANNUALLY T O THE STATE GOVERNMENT. 12. FROM THE AFORESAID PROVISIONS OF THE TOWN PLANN ING ACT, IT CAN BE GATHERED THAT ASSESSEE HAS BEEN CONSTITUTED AS URBAN ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 10 - DEVELOPMENT AUTHORITY UNDER THE PROVISIONS OF SECTI ON 22 OF THE TOWN PLANNING ACT. THE PURPOSE AND OBJECT OF CONSTI TUTION OF THE URBAN DEVELOPMENT AUTHORITY IS PROPER DEVELOPMENT O R REDEVELOPMENT OF URBAN AREA. EVEN URBAN DEVELOPMENT AUTHORITY CONSISTS OF (I) A CHAIRMAN TO BE APPOINTED BY THE S TATE GOVERNMENT; (II) SUCH PERSONS, NOT EXCEEDING [FOUR IN NUMBER] WHO ARE MEMBERS OF THE LOCAL AUTHORITY OR AUTHORITI ES FUNCTIONING IN THE URBAN DEVELOPMENT AREA, AS MAY I K: NOMINATED BY THE STATE GOVERNMENT; (III) THREE OFFI CIALS OF THE STATE GOVERNMENT, TO BE NOMINATED BY THAT GOVERNMEN T, EXOFFICIO; (IV) THE PRESIDENTS OF THE DISTRICT PANC HAYATS FUNCTIONING IN THE URBAN DEVELOPMENT AREA, OR, AS T HE CASE MAY BE, PART THEREOF, EXOFFICIO; (V) THE CHIEF TOWN PLA NNER OR HIS REPRESENTATIVE, EXOFFICIO; (VI) THE CHIEF ENGINEER OR ENGINEERS (PUBLIC HEALTH) OF THE LOCAL AUTHORITY OR AUTHORITI ES FUNCTIONING IN THE URBAN DEVELOPMENT AREA OR HIS OR THEIR NOMIN EE OR NOMINEES, EXOFFICIO; 5[(VIA) THE MUNICIPAL COMMISSI ONER OF THE MUNICIPAL CORPORATION, IF ANY, FUNCTIONING IN THE U RBAN DEVELOPMENT AREA, EXOFFICIO;] (VII) A MEMBER SECRET ARY TO BE APPOINTED BY THE STATE GOVERNMENT WHO SHALL ALSO BE DESIGNATED AS THE CHIEF EXECUTIVE AUTHORITY OF THE URBAN DEVEL OPMENT AUTHORITY. THUS, THE CONSTITUTION OF THE URBAN DEVE LOPMENT AUTHORITY IS SUBJECT TO THE CONTROL OF THE STATE GO VERNMENT. THE POWERS AND FUNCTIONS OF THE URBAN DEVELOPMENT AUTHO RITY AS CONTAINED IN SECTION 23 ARE REPRODUCED HEREIN ABOVE . CONSIDERING SECTION 40 OF THE TOWN PLANNING ACT, T HE TOWN PLANNING SCHEME PREPARED BY THE URBAN DEVELOPMENT AUTHORITY WHICH HAS BEEN PREPARED SUBJECT TO SANCTION BY THE STATE GOVERNMENT FOR DEVELOPMENT OF THE URBAN DEVELOPMENT AREA, ALSO PROVIDE FOR ROADS, OPEN SPACES, GARDENS, REC REATION GROUNDS, SCHOOLS, MARKETS, GREENBELTS, DAIRIES, TRA NSPORT FACILITIES, PUBLIC PURPOSES OF ALL KINDS; DRAINAGE, INCLUSIVE OF SEWERAGE, SURFACE OR SUBSOIL DRAINAGE AND SEWAGE DI SPOSAL; LIGHTING; WATER SUPPLY ETC. THE TOWN PLANNING SCHEM E ALSO PROVIDE FOR HISTORICAL OR NATIONAL INTEREST OR NATU RAL BEAUTY, AND OF BUILDINGS ACTUALLY USED FOR RELIGIOUS PURPOSES. THE SCHEME ARE ALSO PROVIDE FOR RESERVATION OF LAND TO THE EXT ENT OF TEN PERCENT, OR SUCH PERCENTAGE AS NEAR THERETO AS POSS IBLE OF THE TOTAL AREA COVERED UNDER THE SCHEME, FOR THE PURPOS E OF PROVIDING HOUSING ACCOMMODATION TO THE MEMBERS OF S OCIALLY AND ECONOMICALLY BACKWARD CLASSES OF PEOPLE. AS PER SEC TION 40(I)(JJ) FOR THE AFORESAID PURPOSES CERTAIN PERCEN TAGE OF TOTAL AREA COVERED UNDER THE SCHEME ARE ALLOTTED EARMARKE D. FIFTEEN PERCENT OF TOTAL AREA IS ALLOTTED FOR THE PURPOSE O F ROADS, FIVE PERCENT FOR PARKS, PLAY GROUNDS, GARDENS AND OPEN SPACE, FIVE PERCENT FOR SOCIAL INFRASTRUCTURE SUCH AS SCHOOL, DISPENSARY, FIRE BRIGADE, PUBLIC UTILITY PLACE AS EARMARKED IN THE D RAFT TOWN PLANNING SCHEME AND FIFTEEN PERCENT FOR SALE BY APP ROPRIATE AUTHORITY FOR RESIDENTIAL, COMMERCIAL OR INDUSTRIAL USE DEPENDING UPON THE NATURE OF DEVELOPMENT. LAST FIFTEEN PERCEN T IS EARMARKED UNDER THE TOWN PLANNING SCHEME FOR SALE, BY APPROPRIATE AUTHORITY FOR RESIDENTIAL, COMMERCIAL O R INDUSTRIAL USE. THE APPROPRIATE AUTHORITY / URBAN DEVELOPMENT AUTHORITY IS PERMITTED TO SALE THE SAID PLOTS / LANDS TO THE EXT ENT OF 15% OF THE TOTAL AREA TO MEET WITH THE EXPENDITURE TOWARDS DRAINAGE, ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 11 - ROADS, GARDENS, SCHOOLS, MARKETS, WATER SUPPLY ETC. SO THAT MAXIMUM PRICE CAN BE FETCHED AND THE SAME CAN BE UT ILIZED FOR THE DEVELOPMENT OF THE URBAN DEVELOPMENT AREA AND S O AS TO AVOID ANY A/LEGATION OF FAVORITISM AND NEPOTISM, TH E PLOTS ARE SOLD BY PUBLIC AUCTION. IT IS REQUIRED TO BE NOTED THE ENTIRE AMOUNT REALIZED BY THE ASSESSEE BEING URBAN DEVELOP MENT AUTHORITY EITHER BY SELLING PLOTS OR BY RECOVERY OF SOME FEES / CHARGES, URBAN AUTHORITY IS REQUIRED TO USE ONLY FO R THE PURPOSE OF DEVELOPMENT IN THE URBAN DEVELOPMENT AREA AND NO T FOR ANY OTHER PURPOSE. THE LEARNED TRIBUNAL HAS OBSERVED AN D HELD THAT AS THE ASSESSEE IS SELLING THE PLOTS, TO THE EXTENT OF 15% OF TOTAL AREA, BY PUBLIC AUCTION AND GETS MAXIMUM AMOUNT, I T AMOUNTS TO PROFITEERING AND THEREFORE, THE ACTIVITIES OF THE A SSESSEE CAN BE SAID TO BE IN THE NATURE OF BUSINESS. HOWEVER, WHIL E HOLDING SO, LEARNED TRIBUNAL HAS NOT PROPERLY APPRECIATED THE O BJECT AND PURPOSE OF PERMITTING THE URBAN DEVELOPMENT AUTHORI TY TO SALE THE PLOTS, MAXIMUM TO THE EXTENT OF 15% OF THE TOTA L AREA I.E. TO MEET WITH THE EXPENDITURE FOR PROVIDING THEM INFRAS TRUCTURAL FACILITIES LIKE GARDENS, ROADS, LIGHTING, WATER SUPPLY, DRAINAGE SYSTEM ETC. THE LEARNED TRIBUNAL HAS ALSO NO T PROPERTY APPRECIATED THE REASONS FOR SELLING THE PLOT BY HOL DING PUBLIC AUCTION I.E.; (1) TO AVOID ANY FURTHER ALLEGATION O F FAVORITISM AND NEPOTISM AND (2) SO THAT MAXIMUM MARKET PRICE CAN B E FETCHED, WHICH CAN BE USED FOR THE DEVELOPMENT OF THE URBAN DEVELOPMENT AREA. 12.1. AT THIS STAGE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF AHMEDABAD GREEN BELT KHEDUT MANDAL (SUPRA) ((2014) 7 SCO 357) IS REQUIRED TO BE REFERRED TO. BEFORE THE HON'BLE SUPREME COURT, IT WAS CONTENDED ON BEHALF OF ORIGIN AL LAND OWNERS WHOSE LANDS WERE INCLUDED IN THE TP SCHEME T HAT BY PERMITTING THE AREA DEVELOPMENT AUTHORITY / URBAN D EVELOPMENT AUTHORITY TO SELL 15% OF THE TOTAL AREA, BY THAT TH E URBAN DEVELOPMENT AUTHORITY WILL BE MAKING PROFIT, THE HO N'BLE SUPREME COURT HAS NEGATIVED THE AFORESAID AND HAS O BSERVED THAT THE ACTIVITIES OF THE URBAN DEVELOPMENT AUTHOR ITY /AREA DEVELOPMENT AUTHORITY WHILE SELLING THE LAND TO THE EXTENT OF 15% TO THE TOTAL AREA COVERED UNDER THE SCHEME CANN OT BE SAID TO BE PROFITEERING. IT IS OBSERVED AND HELD THAT SALE UPTO 15% IS FROM TOTAL AREA COVERED UNDER THE SCHEME AND NOT IN RESPECT OF EVERY PLOT OF LAND. IN ORDER TO GENERATE FINANCIAL RESOURCES FOR THE DEVELOPMENT OF INFRASTRUCTURE, THE SALABLE PLOT FOR RESIDENTIAL, COMMERCIAL AND INDUSTRIAL USE ARE ALLO TTED BY THE APPROPRIATE AUTHORITY. IT IS FURTHER OBSERVED THAT THE PROVISION OF THE ACT HAVE TO BE READ AS A WHOLE AND THEREFORE, T HE PROVISION OF SECTION 40(3)(JJ)(A)(IV) FOR SALE IS TO BE IN CO NSONANCE / CONJOINTLY WITH OTHER STATUTORY PROVISIONS AND NOT IN ISOLATION. UNDER THE CIRCUMSTANCES, THE LEARNED TRIBUNAL HAS C OMMITTED GROSS ERROR IN CONSIDERING THE ACTIVITIES OF THE AP PELLANT URBAN DEVELOPMENT AUTHORITY FOR PROFIT BY SELLING 15% OF THE TOTAL AREA AND THEREBY HAS COMMITTED GROSS ERROR IN HOLDING TH E ACTIVITIES OF THE ASSESSEE IN THE NATURE OF TRADE, COMMERCE OR BUSINESS. 12.2. WHETHER THE ACTIVITIES OF THE APPELLANT AUDA CAN BE SAID TO BE IN THE NATURE OF TRADE, COMMERCE OR BUSINESS AS OCCURRING ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 12 - IN THE FIRST PROVISO TO SECTION 2(15) OF THE ACT, F EW DECISIONS OF THE HON'BLE SUPREME COURT AS WELL AS OTHER HIGH COU RTS ARE REQUIRED TO BE REFERRED TO AT THIS STAGE. 12.3. IN THE CASE OF KHODAY DISTILLERIES LTD AND OT HERS VS. STATE OF KARNATAKA AND OTHERS REPORTED IN (1995) 1 SCC 57 4, THE HON'BLE SUPREME COURT HAD AN OCCASION TO CONSIDER T HE WORD 'TRADE'. IN THE SAID DECISION, THE HON'BLE SUPREME COURT HAS HELD THAT 'THE PRIMARY MEANING OF THE WORD 'TRADE' IS THE EXCHANGE OF GOODS FOR GOODS OR GOODS FOR MONEY'. 12.4. IN THE CASE OF STATE OF ANDHRA PRADESH VS. AB DUL BAKHI AND BROS REPORTED IN 1964(5) STC 644 (SC) WHILE CONSIDE RING THE WORD 'BUSINESS', THE HON'BLE SUPREME COURT HAS HELD THAT 'THE WORD 'BUSINESS' WAS OF INDEFINITE IMPORT AND IN A T AXING STATUTE, IT IS USED IN SENSE OF AN OCCUPATION, OR PROFESSION WHICH OCCUPIES TIME, ATTENTION OR LABOUR OF A PERSON, AND IS CLEARLY ASSOCIATED WITH THE OBJECT OF MARKING PROFIT'. 12.5 IN THE CASE OF INSTITUTE OF CHARTERED ACCOUNTA NTS OF INDIA (SUPRA) WHILE CONSIDERING THE WHETHER ACTIVITIES OF INDIAN TRADE PROMOTION ORGANIZATION CAN BE SAID TO BE IN THE NAT URE OF 'BUSINESS', DESPITE THE FACT THAT THE SAID ORGANIZA TION WAS COLLECTING RENT FOR PROVIDING THE SPACE AT TRADE, F AIR AND EXHIBITIONS AND THOUGH WAS RECEIVING INCOME BY WAY OF SALE OF TICKETS AND INCOME FROM TICKETS AND SALE IN PRAGATI MAIDAN ETC., AFTER CONSIDERING THE VARIOUS DECISIONS OF THE HON' BLE SUPREME COURT AS WELL AS DECISIONS OF THE OTHER HIGH COURTS , IT IS HELD THAT ACTIVITIES OF THE SAID ORGANIZATION CANNOT BE CONSIDERED AS 'BUSINESS'. WHILE HOLDING SO, DELHI HIGH COURT HAS OBSERVED AND HELD AS UNDER: 'AN ACTIVITY WOULD BE CONSIDERED 'BUSINESS' IF IT I S UNDERTAKEN WITH A PROFIT MOTIVE, BUT IN SOME CASES, THIS MAY N OT BE DETERMINATIVE. NORMALLY, THE PROFIT MOTIVE TEST SHO ULD BE SATISFIED, BUT IN A GIVEN CASE ACTIVITY MAY BE REGA RDED AS A BUSINESS EVEN WHEN PROFIT MOTIVE CANNOT BE ESTABLIS HED / PROVED. IN SUCH CASES, THERE SHOULD BE EVIDENCE AND MATERIA L TO SHOW THAT THE ACTIVITY HAS CONTINUED ON SOUND AND RECOGN IZED BUSINESS PRINCIPLES AND PURSUED WITH REASONABLE CONTINUITY. THERE SHOULD BE FACTS AND OTHER CIRCUMSTANCES WHICH JUSTIFY AND SHOW THAT THE ACTIVITY UNDERTAKEN IS IN FACT IN THE NATURE OF BUS INESS.' 12.6. IN THE AFORESAID DECISION, AFTER CONSIDERING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF COMMISSION ER OF SALES TAX VS. SAI PUBLICATION FUND REPORTED IN (2002) 258 ITR 70(SC), IT IS HELD BY THE DELHI HIGH COURT THAT 'THUS, IF T HE DOMINANT ACTIVITY OF THE ASSESSES WAS NOT BUSINESS, THEN ANY INCIDENTAL OR ANCILLARY ACTIVITY WOULD ALSO NOT FALL WITHIN THE D EFINITION OF BUSINESS.' IN PARA 64, 67, 69, 70, 71 AND 72 THE DE LHI HIGH COURT HAS OBSERVED AND HELD AS UNDER: '64. IT IS NOT NECESSARY THAT A PERSON SHOULD GIVE SOMETHING FOR FREE OR AT A CONCESSIONAL RATE TO QUALIFY AS BEING ESTABLISHED FOR A CHARITABLE PURPOSE. IF THE OBJECT AND PURPOSE OF THE INSTITUTION ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 13 - IS CHARITABLE, THE FACT THAT THE INSTITUTION COLLEC TS CERTAIN CHARGES, DOES NOT ALTER THE CHARACTER OF THE INSTIT UTION. 67. THE EXPRESSIONS TRADE, COMMERCE AND BUSINESS A S OCCURRING IN THE FIRST PROVISO TO SECTION 2(15) OF THE ACT MUST BE READ IN THE CONTEXT OF THE INTENT AND PURPORT OF SE CTION 2(15) OF THE ACT AND CANNOT BE INTERPRETED TO MEAN ANY ACTIV ITY WHICH IS CARRIED ON IN AN ORGANISED MANNER. THE PURPOSE AND THE DOMINANT OBJECT FOR WHICH AN INSTITUTION CARRIES ON ITS ACTIVITIES IS MATERIAL TO DETERMINE WHETHER THE SAME IS BUSINE SS OR NOT. THE PURPORT OF THE FIRST PROVISO TO SECTION 2(15) OF TH E ACT IS NOT TO EXCLUDE ENTITIES WHICH ARE ESSENTIALLY FOR CHARITAB LE PURPOSE BUT ARE CONDUCTING SOME ACTIVITIES FOR A CONSIDERATION OR A FEE. THE OBJECT OF INTRODUCING THE FIRST PROVISO IS TO EXCLU DE ORGANIZATIONS WHICH ARE CARRYING ON REGULAR BUSINESS FROM THE SCO PE OF CHARITABLE PURPOSE. THE PURPOSE OF INTRODUCING THE PROVISO TO SECTION 2(15) OF THE ACT CAN BE UNDERSTOOD FROM THE BUDGET SPEECH OF THE FINANCE MINISTER WHILE INTRODUCING TH E FINANCE BILL 2008. THE RELEVANT EXTRACT TO THE SPEECH IS AS UNDER: CHARITABLE PURPOSE INCLUDES RELIEF OF THE POOR, EDU CATION, MEDICAL RELIEF AND ANY OTHER OBJECT OF GENERAL PUBL IC UTILITY- THESE ACTIVITIES ARE TAX EXEMPT, AS THEY SHOULD BE. HOWEVER, SOME ENTITIES CARRYING ON REGULAR TRADE, COMMERCE O R BUSINESS OR PROVIDING SERVICES IN RELATION TO ANY TRADE, COMMER CE OR BUSINESS AND EARNING INCOMES HAVE SOUGHT TO CLAIM T HAT THEIR PURPOSES WOULD ALSO FALL UNDER CHARITABLE PURPOSE. OBVIOUSLY, THIS WAS NOT THE INTENTION OF PARLIAMENT AND, HENCE , I PROPOSE TO AMEND , THE LAW TO EXCLUDE THE AFORESAID CASES. GEN UINE CHARITABLE ORGANIZATIONS WILL NOT IN ANY WAY BE AFF ECTED.' THE EXPRESSIONS BUSINESS, TRADE OR COMMERCE AS USED IN THE FIRST PROVISO MUST, THUS, BE INTERPRETED RESTRICTIVELY AN D WHERE THE DOMINANT OBJECT OF AN ORGANISATION IS CHARITABLE AN Y INCIDENTAL ACTIVITY FOR FURTHERANCE OF THE OBJECT WOULD NOT FA LL WITHIN THE EXPRESSIONS BUSINESS, TRADE OR COMMERCE. 69. IN THE CASE OF ADDL. COMMISSIONER OF INCOME TAX V. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION: [1980] 121 IT R 1 (SC), THE SUPREME COURT HELD AS UNDER: THE TEST WHICH HAS, THEREFORE, NOW TO BE APPLIED IS WHETHER THE PREDOMINANT OBJECT OF THE ACTIVITY INVOLVED IN CARR YING OUT THE OBJECT OF GENERAL PUBLIC UTILITY IS TO SUBSERVE THE CHARITABLE PURPOSE OR TO EARN PROFIT. WHERE PROFIT MAKING IS T HE PREDOMINANT OBJECT OF THE ACTIVITY, THE. PURPOSE, T HOUGH AN OBJECT OF GENERAL PUBLIC UTILITY WOULD CEASE TO BE A CHARITABLE PURPOSE. BUT WHERE THE PREDOMINANT OBJECT OF THE AC TIVITY IS TO ANY OUT THE CHARITABLE PURPOSE AND NOT TO EARN PROF IT, IT WOULD NOT LOSE ITS CHARACTER OF A CHARITABLE PURPOSE MERE LY BE CAUSE SOME PROFIT ARISES FROM THE ACTIVITY.' 70. ALTHOUGH IN THAT CASE THE STATUTORY PROVISIONS BEING CONSIDERED BY THE SUPREME COURT WERE DIFFERENT AND THE UTILISATION OF INCOME EARNED IS, NOW, NOT A RELEVAN T CONSIDERATION IN VIEW OF THE EXPRESS WORDS OF THE F IRST PROVISO TO ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 14 - SECTION 2(15) OF THE ACT, NONETHELESS THE TEST OF D OMINANT OBJECT OF AN ENTITY WOULD BE RELEVANT TO DETERMINE WHETHER THE ENTITY IS CARRYING ON BUSINESS OR NOT. IN THE PRESENT CASE, T HERE IS LITTLE DOUBT THAT THE OBJECTS OF THE ACTIVITIES OF THE PET ITIONER ARE ENTIRELY FOR CHARITABLE PURPOSES. WP(C) -1879/13 PA GE 4$ OF 55 FINALLY IN ICAI(II) (SUPRA), THIS COURT, WITH REFER ENCE LO H. ABDU! BAKHI AND BROS (SUPRA) OBSERVED AS UNDER: 71. ALTHOUGH, IT IS NOT ESSENTIAL THAT AN ACTIVITY BE CARRIED ON FOR PROFIT MOTIVE IN ORDER TO BE CONSIDERED AS BUSINESS , BUT EXISTENCE OF PROFIT MOTIVE WOULD BE A VITAL INDICATOR IN DETE RMINING WHETHER AN ORGANISATION IS CARRYING ON BUSINESS OR NOT. IN THE PRESENT CASE, THE PETITIONER HAS SUBMITTED FIGURES TO INDICATE THAT EXPENDITURE ON SALARIES AND DEPRECIATION EXCEEDS TH E SURPLUS AS GENERATED FROM HOLDING COACHING CLASSES. IN ADDITIO N, THE PETITIONER INSTITUTE PROVIDES STUDY MATERIAL AND OT HER ACADEMIC SUPPORT SUCH AS FACILITIES OF A LIBRARY WITHOUT ANY MATERIAL ADDITIONAL COSTS. THE SUPREME COURT IN THE CASE OF STATE OF ANDHRA PRADESH V. H. ABDUL BAKHI AND BROS, (SUPRA) HELD AS UNDER: THE EXPRESSION 'BUSINESS' THOUGH EXTENSIVELY USED A WORD OF INDEFINITE IMPORT, IN TAXING STATUTES IT IS USED IN THE SENSE OF AN OCCUPATION, OR PROFESSION WHICH OCCUPIES THE TIME, ATTENTION AND LABOUR OF A PERSON, NORMALLY WITH THE OBJECT OF MAK ING PROFIT. TO REGARD AN ACTIVITY AS BUSINESS THERE MUST BE A COUR SE OF DEALINGS, EITHER ACTUALLY CONTINUED OR CONTEMPLATED TO BE CONTINUED WITH A PROFIT MOTIVE, AND NOT FOR SPORT O R PLEASURE. (UNDERLINING ADDED) 72. THERE IS NOTHING ON RECORD FA INDICATE THE ASSE RTION OF THE PETITIONER THAT ITS ACTIVITIES ARE NOT FUELLED BY P ROFIT MOTIVE IS INCORRECT. ABSENCE OF PROFIT MOTIVE, THOUGH NOT CON CLUSIVE, DOES INDICATE THAT THE PETITIONER IS NOT CARRYING ON ANY BUSINESS.' 12.7. IDENTICAL QUESTION CAME TO BE CONSIDERED BY ( HE DELHI HIGH COURT IN THE CASE OF BUREAU OF INDIA STANDARD VS. D IRECTOR GENERAL OF INCOME TAX (EXEMPTIONS) REPORTED IN (201 3) 212 TAXRNAN 210 (DELHI). IN THE SAID DECISION, THE DELH I HIGH COURT WAS CONSIDERING WHETHER THE ACTIVITIES OF THE BUREA U OF INDIAN STANDARDS (SUPRA) IN GRANTING LICENSES AND TRADING CERTIFICATES AND CHARGING AMOUNTED TO CARRYING ON BUSINESS, TRAD E OR COMMERCE AND WHILE CONSIDERING THE SAID QUESTION, I T IS OBSERVED AS UNDER: ' IN THESE CIRCUMSTANCES, RENDERING ANY SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS CANNOT, IN THE OPINION OF THE COURT, RECEIVE SUCH A WIDE CONSTRUCTION AS TO ENFOLD REGUL ATORY AND SOVEREIGN AUTHORITIES, SET UP UNDER STATUTORY ENACT MENTS, AND TASKED TO ACT AS AGENCIES OF THE STATE IN PUBLIC DU TIES WHICH CANNOT BE DISCHARGED BY PRIVATE BODIES. OFTEN, APAR T FROM THE CONTROLLING OR PARENT STATUTES, LIKE THE BIS ACT, T HESE STATUTORY BODIES (INCLUDING BIS) ARE EMPOWERED TO FRAME RULES OR REGULATIONS, EXERCISE COERCIVE POWERS, INCLUDING IN SPECTION, RAIDS; THEY POSSESS SEARCH AND SEIZURE POWERS AND A RE INVARIABLY ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 15 - SUBJECTED TO PARLIAMENTARY OR LEGISLATIVE OVERSIGHT . THE PRIMARY OBJECT FOR SETTING UP SUCH REGULATORY BODIES WOULD BE TO ENSURE GENERAL PUBLIC UTILITY. THE PRESCRIBING OF STANDARD S, AND ENFORCING THOSE STANDARDS, THROUGH ACCREDITATION AN D CONTINUING SUPERVISION THROUGH INSPECTION ETC., CANNOT BE CONS IDERED AS TRADE, BUSINESS OR COMMERCIAL ACTIVITY, MERELY BECA USE THE TESTING PROCEDURES, OR ACCREDITATION INVOLVES CHARG ING OF SUCH FEES. IT CANNOT BE SAID THAT THE PUBLIC UTILITY ACT IVITY OF EVOLVING, PRESCRIBING AND ENFORCING STANDARDS, INVOLVES THE C ARRYING ON OF TRADE OR COMMERCIAL ACTIVITY.' 12.8. CIRCULAR NO.11 OF 2008 ISSUED BY THE CBDT FEL L FOR CONSIDERATION BY THE DELHI HIGH COURT IN THE CASE O F M/S G.S. 1 INDIA V. DIRECTOR GENERAL OF INCOMETAX (EXEMPTION) AND ANOTHER : WP(C) 7797/2009, DECIDED ON 26.09.2013 (2013) 219 TAXMAN 205. IT IS HELD THAT EVEN AS PER THE SAID CIRCULAR, PROVISO TO SECTION 2(15) OF THE ACT IS APPLICABLE TO ASSESSEE, WHO ARE ENGAGED IN COMMERCIAL ACTIVITIES I.E. CARRYING ON B USINESS, TRADE OR COMMERCE, IN THE GARB OF 'PUBLIC UTILITIES' TO A VOID FAX LIABILITY AS IT WAS NOTICED THAT THE OBJECT 'GENERA L PUBLIC UTILITY' WAS SOMETIMES USED AS A MASK OR DEVICE OF HIDE THE TRUE PURPOSE, WHICH WAS 'TRADE, COMMERCE OR BUSINESS'. THUS, IT I S EVIDENT THAT INTRODUCTION OF PROVISO TO SECTION 2(15) BY VIRTUE OF THE FINANCE ACT, 2008 WAS DIRECTED TO PREVENT THE UNHOLY PRACTI CE OF PURE TRADE, COMMERCE AND BUSINESS ENTITIES FROM MASKING THEIR ACTIVITIES AND PORTRAYING THEM IN THE GARB OF AN AC TIVITY WITH THE OBJECT OF A GENERAL PUBLIC UTILITY, IT IS NOT DESIG NED TO HIT AT THOSE INSTITUTIONS, WHICH HAD THE ADVANCEMENT OF TH E OBJECTS OF GENERAL PUBLIC UTILITY AT THEIR HEARTS AND WERE CHA RITY INSTITUTIONS. THE ATTEMPT WAS TO REMOVE THE MASKS F ROM THE ENTITIES, WHICH WERE PURELY TRADE, COMMERCE OR BUSI NESS ENTITIES, AND TO EXPOSE THEIR TRUE IDENTITIES. IN THE CASE OF M/S G.S. 1 INDIA (SUPRA), IN PARA 21 , 22 AND 27, THE DELHI HIGH COURT HAS OBSERVED AND HELD AS UNDER : '21. ... AS OBSERVED ABOVE, LEGAL TERMS, TRADE, COM MERCE OR BUSINESS IN SECTION 2(15), MEAN ACTIVITY UNDERTAKEN WITH A VIEW TO MAKE OR EARN PROFIT. PROFIT MOTIVE IS DETERMINAT IVE AND A CRITICAL FACTOR TO DISCERN WHETHER AN ACTIVITY IS B USINESS, TRADE OR COMMERCE. THE COURT FURTHER HELD:- 22. BUSINESS ACTIVITY HAS AN IMPORTANT PERVADING EL EMENT OF SELF INTEREST, THOUGH FAIR DEALING SHOULD AND CAN BE PRE SENT, WHILST CHARITY OR CHARITABLE ACTIVITY IS ANTITHESIS OF ACT IVITY UNDERTAKEN WITH PROFIT MOTIVE OR ACTIVITY UNDERTAKEN ON SOUND OR RECOGNIZED BUSINESS PRINCIPLES. CHARITY IS DRIVEN BY ALTRUISM AND DESIRE TO SERVE OTHERS, THOUGH ELEMENT OF SELF PRESERVATION M AY BE PRESENT. FOR CHARITY, BENEVOLENCE SHOULD BE OMNIPRESENT AND DEMONSTRABLE BUT IT IS NOT EQUIVALENT TO SELF SACRI FICE AND ABNEGATION. THE ANTIQUATED DEFINITION OF CHARITY, W HICH ENTAILS GIVING AND RECEIVING NOTHING IN RETURN IS OUTDATED- A MANDATORY FEATURE WOULD BE; CHARITABLE ACTIVITY SHOULD BE DEV OID OF SELFISHNESS OR ILLIBERAL SPIRIT. ENRICHMENT OF ONES ELF OR SELF GAIN SHOULD BE MISSING AND THE PREDOMINANT PURPOSE OF TH E ACTIVITY WP(C) 1872/13 PAGE 52 OF 55 SHOULD BE TO SERVE AND BENEFIT ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 16 - OTHERS. A SMALL CONTRIBUTION BY WAY OF FEE THAT THE BENEFICIARY PAYS WOULD NOT CONVERT CHARITABLE ACTIVITY INTO BUS INESS, COMMERCE OR TRADE IN THE ABSENCE OF CONTRARY EVIDEN CE. QUANTUM OF FEE CHARGED, ECONOMIC STATUS OF THE BENEFICIARIE S WHO PAY, COMMERCIAL VALUE OF BENEFITS IN COMPARISON TO THE T EE. PURPOSE AND OBJECT BEHIND THE FEE ETC. ARE SEVERAL FACTORS WHICH WILL DECIDE THE SEMINAL QUESTION, IS IT BUSINESS? 27. AS OBSERVED ABOVE, FEE CHARGED AND QUANTUM OF I NCOME EARNED CAN BE INDICATIVE OF THE FACT THAT THE PERSO N IS CARRYING ON BUSINESS OR COMMERCE AND NOT CHARITY, BUT WE MUS T KEEP IN MIND THAT CHARITABLE ACTIVITIES REQUIRE OPERATIONAL /RUNNING EXPENSES AS WELL AS CAPITAL EXPENSES TO BE ABLE TO SUSTAIN AND CONTINUE IN LONG RUN. THE PETITIONER HAS TO BE SUBS TANTIALLY SELF SUSTAINING IN LONG TERM AND SHOULD NOT DEPEND UPON GOVERNMENT, IN OTHER WORDS TAXPAYERS SHOULD NOT SUBSIDIZE THE S AID ACTIVITIES, WHICH NEVERTHELESS ARE CHARITABLE AND FALL UNDER WP (C) 1872/13 PAGE 53 OF 55 THE RESIDUARY CLAUSE GENERAL PUBLIC U TILITY. THE IMPUGNED ORDER DOES NOT REFER TO ANY STATUTORY MAND ATE THAT A CHARITABLE INSTITUTION FALLING UNDER THE LAST CLAUS E SHOULD BE WHOLLY, SUBSTANTIALLY OR IN PART MUST BE FUNDED BY VOLUNTARY CONTRIBUTIONS. NO SUCH REQUIREMENT HAS BEEN POINTED OUT OR ARGUED. A PRACTICAL AND PRAGMATIC VIEW IS REQUIRED WHEN WE EXAMINE THE DATA, WHICH SHOULD BE ANALYZED OBJECTIV ELY AND A NARROW AND COLOURED VIEW WILL BE COUNTERPRODUCTIVE AND CONTRARY TO THE LANGUAGE OF SECTION 2(15) OF THE AC T.' 12.9. WHILE UPHOLDING THE CONSTITUTIONAL VALIDITY O F THE- PROVISO TO SECTION 2(15) OF THE ACT, THE DIVISION BENCH OF THE DELHI HIGH COURT IN THE CASE OF INDIAN TRADE PROMOTION ORGANIZ ATION VS. DIRECTOR OF INCOME TAX (EXEMPTION) IN WP(C) NO.1872 OF 2013 DECIDED ON 22.01.2015 HAS OBSERVED IN PARA 58 AS UN DER: 'AS DEFINED IN SECTION 2(15) CANNOT BE CONSTRUED LI TERALLY AND IN ABSOLUTE TERMS. IT HAS TO TAKE COLOUR AND BE CONSID ERED IN THE CONTEXT OF SECTION 10(23C)(IV) OF THE SAID ACT. IT IS ALSO CLEAR THAT IF THE LITERAL INTERPRETATION IS GIVEN TO THE PROVISO TO SECTION 2(15) OF THE SAID ACT, THEN THE PROVISO WOULD BE AT RISK OF RUNNING FOWL OF THE PRINCIPLE OF EQUALITY ENSHRINED IN ARTICLE 14 OF THE CONSTITUTION INDIA. IN ORDER TO SAVE THE CON STITUTIONAL VALIDITY OF THE PROVISO, THE SAME WOULD HAVE TO BE READ DOWN AND INTERPRETED IN THE CONTEXT OF SECTION 10(23C)(IV) B ECAUSE, IN OUR VIEW, THE CONTEXT REQUIRES SUCH AN INTERPRETATION. THE CORRECT INTERPRETATION OF THE PROVISO TO SECTION 2(15) OF T HE SAID ACT WOULD BE THAT IT CARVES OUT AN EXCEPTION FROM THE C HARITABLE PURPOSE OF ADVANCEMENT OF ANY OTHER OBJECT OF GENER AL PUBLIC UTILITY AND THAT EXCEPTION IS LIMITED TO ACTIVITIES IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR ANY ACTIVITY OF REND ERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSIN ESS FOR A CESS OR FEE OR ANY OTHER CONSIDERATION. IN BOTH THE ACTI VITIES, IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR THE ACTIVI TY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COM MERCE OR BUSINESS, THE DOMINANT AND THE PRIME OBJECTIVE HAS TO BE SEEN. IF THE DOMINANT AND PRIME OBJECTIVE OF THE WP(C) 1872/ 13 PAGE 54 OF 55 INSTITUTION, WHICH CLAIMS TO HAVE BEEN ESTABL ISHED FOR ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 17 - CHARITABLE PURPOSES, IS PROFIT MAKING, WHETHER ITS ACTIVITIES ARE DIRECTLY IN THE NATURE OF TRADE, COMMERCE OR BUSINE SS OR INDIRECTLY IN THE RENDERING OF ANY SERVICE IN RELAT ION TO ANY TRADE, COMMERCE OR BUSINESS, THEN IT WOULD NOT BE E NTITLED TO CLAIM ITS OBJECT TO BE A 'CHARITABLE PURPOSE'. ON T HE FLIP SIDE, WHERE AN INSTITUTION IS NOT DRIVEN PRIMARILY BY A D ESIRE OR MOTIVE TO EARN PROFITS, BUT TO DO CHARITY THROUGH THE ADVA NCEMENT OF AN OBJECT OF GENERAL PUBLIC UTILITY, IT CANNOT BUT BE REGARDED AS AN INSTITUTION ESTABLISHED FOR CHARITABLE PURPOSES.' 13. APPLYING THE AFORESAID DECISIONS TO THE FACTS O F THE CASE ON HAND AND WITH RESPECT TO THE ACTIVITIES OF THE AUDA AHMEDABAD URBAN DEVELOPMENT AUTHORITY UNDER THE PROVISIONS OF THE GUJARAT TOWN PLANNING ACT BY NO STRETCH OF IMAGINAT ION, IT CAN BE SAID THAT THE ACTIVITIES OF THE ASSESSEE (AUDA) CAN BE SAID TO BE IN THE NATURE OF TRADE, COMMERCE OR BUSINESS AND / OR ITS OBJECT AND PURPOSE IS PROFITEERING. MERELY BECAUSE UNDER THE STATUTORY PROVISIONS AND TO MEET WITH THE EXPENDITU RE OF TOWN PLANNING SCHEME AND / OR PROVIDING VARIOUS SERVICES UNDER THE TOWN PLANNING SCHEME, SUCH AS ROAD, DRAINAGE, ELECT RICITY, WATER SUPPLY ETC. IF THE ASSESSEE IS PERMITTED TO S ALE THE PLOTS (LAND) TO THE EXTENT OF 15% OF THE TOTAL AREA UNDER THE TOWN PLANNING SCHEME AND WHILE SELLING THE SAID PLOTS TH EY ARE SOLD BY HOLDING THE PUBLIC AUCTION, IT CANNOT BE SAID TH AT ACTIVITIES OF THE ASSESSEE IS PROFITEERING, TO BE IN THE NATURE O F TRADE, COMMERCE AND BUSINESS. 13.1. IN THE CASE OF LUCKNOW DEVELOPMENT AUTHORITY, GOMTI NAGAR (SUPRA), IT IS HELD BY THE ALLAHABAD HIGH COU RT THAT THE ACTIVITIES OF THE AUTHORITY CANNOT BE SAID TO BE IN THE NATURE OF TRADE, COMMERCE OR BUSINESS AND / OR PROFITEERING A ND THEREFORE, PROVISO TO SECTION 2(15) OF THE ACT SHALL NOT BE AP PLICABLE. 13.2. SIMILAR, VIEW HAS BEEN EXPRESSED BY THE RAJAS THAN HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX, JO DHPUR VS. JODHPUR DEVELOPMENT AUTHORITY, JODHPUR TAX APPEAL N O. 63 OF 2012 DECIDED ON 5.7.2016. 14. CONSIDERING THE AFORESAID FACTS AND CIRCUMSTANC ES AND MORE PARTICULARLY, CONSIDERING THE FACT THAT THE ASSESSE E IS A STATUTORY BODY URBAN DEVELOPMENT AUTHORITY CONSTITUTED UNDER THE PROVISIONS OF THE ACT, CONSTITUTED TO CARRY OUT THE OBJECT AND PURPOSE OF TOWN PLANNING ACT AND COLLECTS REGULATOR Y FEES FOR THE OBJECT OF THE ACTS; NO SERVICES ARE RENDERED TO ANY PARTICULAR TRADE, COMMERCE OR BUSINESS; WHATEVER THE INCOME IS EARNED /RECEIVED BY THE ASSESSEE EVEN WHILE SELLING THE PL OTS (TO THE EXTENT OF 15% OF THE TOTAL AREA COVERED UNDER THE T OWN PLANNING SCHEME) IS REQUIRED TO BE USED ONLY FOR THE PURPOSE TO CARRY OUT THE OBJECT AND PURPOSE OF TOWN PLANNING ACT AND TO MEET WITH EXPENDITURE WHILE PROVIDING GENERAL UTILITY SERVICE TO THE PUBLIC SUCH AS ELECTRICITY, ROOD, DRAINAGE, WATER ETC. AND OVEN THE ENTIRE CONTROL IS WITH STATE GOVERNMENT AND EVEN AC COUNTS ARE ALSO SUBJECTED TO AUDIT AND THERE IS NO ELEMENT OF PROFITEERING AT ALL, THE ACTIVITIES OF THE ASSESSEE CANNOT BE SAID TO BE IN THE NATURE OF TRADE, COMMERCE AND BUSINESS AND THEREFOR E, PROVISO TO ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 18 - SECTION 2(15)OF THE ACT SHALL NOT BE APPLICABLE SO FAR AS ASSESSEE IS CONCERNED AND THEREFORE, THE ASSESSEE IS ENTITLE D TO EXEMPTION UNDER SECTION 11 OF THE INCOME TAX ACT. THEREFORE, THE QUESTION NO. 1 IS TO BE HELD IN FAVOUR OF THE ASSESSEE AND A GAINST THE REVENUE. 15. NOW, SO FAR AS ANOTHER QUESTION WHICH IS POSED FOR THE CONSIDERATION OF THIS COURT I.E. WHETHER WHILE COLL ECTING THE CESS OR FEES, ACTIVITIES OF THE ASSESSEE CAN BE SAID TO BE RENDERING ANY SERVICES IN RELATION TO ANY TRADE, COMMERCE OR BUSI NESS IS CONCERNED, FOR THE REASONS STATED ABOVE, MERELY BEC AUSE THE ASSESSES IS COLLECTING CESS OR FEES WHICH IS REGULA TORY IN NATURE, THE PROVISO TO SECTION 2(15)OF THE ACT SHALL NOT BE APPLICABLE AS OBSERVED HEREIN ABOVE NEITHER THERE IS ELEMENT OF P ROFITEERING NOR THE SAME CAN BE SAID TO BE IN THE NATURE OF TRA DE, COMMERCE OR BUSINESS. AT THIS STAGE, DECISION OF THE DIVISIO N BENCH OF THIS COURT IN THE CASE OF SABARMATI ASHRAM GAUSHALA TRUS T (SUPRA) IS REQUIRED TO BE REFERRED TO. IN THE CASE BEFORE THE DIVISION BENCH, THE ASSESSEE TRUST SABARMATI ASHRAM GAUSHALA TRUST WAS ENGAGED IN THE ACTIVITY OF BREEDING MILK CATTLE; TO IMPROVE THE QUALITY OF COWS AND OXEN AND OTHER RELATED ACTIVITI ES. THE ASSESSING OFFICER DENIED THE EXEMPTION TO THE TRUST UNDER SECTION 11 OF THE ACT ON THE GROUND THAT CONSIDERABLE INCOM E WAS GENERATED FROM THE ACTIVITIES OF MILK PRODUCTION AN D SALE AND THEREFORE, CONSIDERING THE PROVISO TO SECTION 2(15) OF THE ACT, THE SAID TRUST ASSESSEE WAS DENIED THE EXEMPTION UN DER SECTION 11 OF THE ACT. WHILE HOLDING THAT THE ACTIVITIES OF THE ASSESSEE TRUST STILL CAN BE SAID TO BE FOR CHARITABLE PURPOS E WITHIN THE MEANING OF SECTION 2(15) OF THE ACT AND SAME CANNOT BE SAID TO BE IN THE NATURE OF TRADE, COMMERCE OR BUS/NESS FOR WHICH PROVISO TO SECTION 2(15) OF THE ACT IS REQUIRED TO BE APPLIED. IN PARA 6, 7, 8 AND 12, IT IS OBSERVED AND HELD AS UND ER: 6. THE LEGAL CONTROVERSY IN THE PRESENT TAX APPEAL CENTERS AROUND THE FIRST PROVISO. IN THE PLAIN TERMS, THE P ROVISO PROVIDES FOR EXCLUSION FROM THE MAIN OBJECT OF THE DEFINITIO N OF THE TERM CHARITABLE PURPOSES AND APPLIES ONLY TO CASES OF AD VANCEMENT OF ANY OTHER OF GENERAL PUBLIC UTILITY. IF THE CONDITI ONS PROVIDED UNDER THE PROVISO ARE SATISFIED, ANY ENTITY, EVEN I F INVOLVED IN ADVANCEMENT OF ANY OTHER OBJECT OF GENERA/ PUBLIC U TILITY BY VIRTUE TO PROVISO, WOULD BE EXCLUDED FROM THE DEFIN ITION OF CHARITABLE TRUST. HOWEVER, FOR THE APPLICATION OF T HE PROVISO, WHAT IS NECESSARY IS THAT THE ENTITY SHOULD BE INVO LVED IN CARRYING ON ACTIVITIES IN THE NATURE OF TRADE, COMM ERCE OR BUSINESS, OR ANY ACTIVITY OF RENDERING SERVICES IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, FOR A CESS OR FEE OR A NY OTHER CONSIDERATION. IN SUCH A SITUATION, THE NATURE, USE OR APPLICATION, OR RETENTION OF INCOME FROM SUCH ACTIV ITIES WOULD NOT BE RELEVANT. UNDER THE CIRCUMSTANCES, THE IMPOR TANT ELEMENTS OF APPLICATION OF PROVISO ARE THAT THE ENTITY SHOUL D BE INVOLVED IN CARRYING ON THE ACTIVITIES OF ANY TRADE, COMMERCE O R BUSINESS OR ANY ACTIVITIES OF RENDERING SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, FOR A CESS OR FEE OR ANY OTHE R CONSIDERATION. SUCH STATUTORY AMENDMENT WAS EXPLAIN ED BY THE ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 19 - FINANCE MINISTERS SPEECH IN THE PARLIAMENT. RELEVAN T PORTION OF WHICH READS AS UNDER: I ONCE AGAIN ASSURE THE HOUSE THAT GENUINE CHARITAB LE ORGANIZATIONS WILL NOT IN ANY WAY BE AFFECTED. THE CBDT WILL, FOLLOWING THE USUAL PRACTICE, ISSUE AN EXPLANATORY CIRCULAR CONTAINING GUIDELINES FOR DETERMINING WHETHER ANY E NTITY IS CARRYING ON ANY ACTIVITY IN THE NATURE OF TRADE, CO MMERCE OR BUSINESS OR ANY ACTIVITY OF RENDERING ANY SERVICE I N RELATION TO ANY TRADE, COMMERCE OR BUSINESS. WHETHER THE PURPOS E IS A CHARITABLE PURPOSE WILL DEPEND ON THE TOTALITY OF T HE FACTS OF THE CASE. ORDINARILY, CHAMBERS OF COMMERCE AND SIMILAR ORGANIZATIONS RENDERING SERVICES TO THEIR MEMBERS W OULD NOT BE AFFECTED BY THE AMENDMENT AND THEIR ACTIVITIES WOUL D CONTINUE TO BE REGARDED AS ADVANCEMENT OF ANY OTHER OBJECT OF G ENERA! PUBLIC UTILITY. 7. IN CONSONANCE WITH SUCH ASSURANCE GIVEN BY THE F INANCE MINISTER ON THE FLOOR OF THE HOUSE, CBDT ISSUED A C IRCULAR NO. 11 OF 2008 DATED 19TH DECEMBER 2008 EXPLAINING THE AMENDMENT AS UNDER: 3. THE NEWLY INSERTED PROVISO TO SECTION 2 (15) WIL L APPLY ONLY TO ENTITIES WHOSE PURPOSE IS ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY IE., THE FOURTH LIMB OF THE DEFINITION OF CHARITABLE PURPOSE CONTAINED IN SECTION 2 (15). HEN CE, SUCH ENTITIES WILL NOT BE ELIGIBLE FOR EXEMPTION UNDER S ECTION 11 OR UNDER SECTION 10 (23C) OF THE ACT IF THEY CARRY ON COMMERCIAL ACTIVITIES. WHETHER SUCH AN ENTITY IS CARRYING ON A NY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS IS A QUES TION OF FACT WHICH WILL BE DECIDED BASED ON THE NATURE, SCOPE, E XTENT AND FREQUENCY OF THE ACTIVITY. 3.1 THERE ARE INDUSTRY AND TRADE ASSOCIATIONS WHO C LAIM EXEMPTION FROM TAX UNDER SECTION 11 ON THE GROUND T HAT THEIR OBJECTS ARE FOR CHARITABLE PURPOSE AS THESE ARE COV ERED UNDER ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. UNDER T HE PRINCIPLE OF MUTUALITY, IF TRADING TAKES PLACE BETWEEN PERSONS W HO ARE ASSOCIATED TOGETHER AND CONTRIBUTE TO A COMMON FUND FOR THE FINANCING OF SOME VENTURE OR OBJECT AND IN THIS RES PECT HAVE NO DEALINGS OR RELATIONS WITH ANY OUTSIDE BODY, THEN A NY SURPLUS RETURNED TO THE PERSONS FORMING SUCH ASSOCIATION IS NOT CHARGEABLE TO TAX. IN SUCH CASES, THERE MUST BE COM PLETE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPANTS. THER EFORE, WHERE INDUSTRY OR TRADE ASSOCIATIONS CLAIM BOTH TO BE CHA RITABLE INSTITUTIONS AS WELL AS MUTUAL ORGANIZATIONS AND TH EIR ACTIVITIES ARE RESTRICTED TO CONTRIBUTIONS FROM AND PARTICIPAT ION OF ONLY THEIR MEMBERS, THESE WOULD NOT FALL UNDER THE PURVI EW OF THE PROVISO TO SECTION 2 (15) OWING TO THE PRINCIPLE OF MUTUALITY. HOWEVER, IF SUCH ORGANIZATIONS HAVE DEALINGS WITH N ONMEMBERS, THEIR CLAIM TO BE CHARGEABLE ORGANIZATIONS WOULD NO W BE GOVERNED BY THE ADDITIONAL CONDITIONS STIPULATED IN THE PROVISO TO SECTION 2 (15). ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 20 - 3.2 IN THE FINAL ANALYSIS, HOWEVER, WHETHER THE ASS ESSEE HAS FOR ITS OBJECT THE ADVANCEMENT OF ANY OTHER OBJECT OF G ENERAL PUBLIC UTILITY IS A QUESTION OF FACT. IF SUCH ASSESSEE IS ENGAGED IN ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINE SS OR RENDERS ANY SERVICE IN RELATION TO TRADE, COMMERCE OR BUSIN ESS, IT WOULD NOT BE ENTITLED TO CLAIM LHAT ITS OBJECT IS CHARITA BLE PURPOSE. IN SUCH A CASE, THE OBJECT OF GENERAL PUBLIC UTILITY W ILL BE ONLY A MASK OR D DEVICE TO HIDE THE TRUE PURPOSE WHICH IS [FADE, COMMERCE OR BUSINESS OR THE RENDERING OF ANY SERVIC E IN RELATION TO TRADE, COMMERCE OR BUSINESS. EACH CASE WOULD, TH EREFORE, BE DECIDED ON ITS OWN FACTS AND NO GENERALIZATION IS P OSSIBLE. ASSESSEES, WHO CLAIM THAT THEIR OBJECT IS CHARITABL E PURPOSE WITHIN THE MEANING OF SECTION 2(15), WOULD BE WELL ADVISED TO ESCHEW ANY ACTIVITY WHICH IS IN THE NATURE OF TRADE , COMMERCE OR BUSINESS OR THE RENDERING OF ANY SERVICE IN RELATIO N TO ANY TRADE, COMMERCE OR BUSINESS. 8. WHAT THUS EMERGES FROM THE STATUTORY PROVISIONS, AS EXPLAINED IN THE SPEECH OF FINANCE MINISTER AND THE CBDT CIRC ULAR, IS THAT THE ACTIVITY OF A TRUST WOULD BE EXCLUDED FROM THE TERM CHARITABLE PURPOSE IF IT IS ENGAGED IN ANY ACTIVITY IN THE NAT URE OF TRADE, COMMERCE OR BUSINESS OR RENDERS ANY SERVICE IN RELA TION TO TRADE, COMMERCE OR BUSINESS FOR A CESS, FEE AND/OR ANY OTH ER CONSIDERATION. IT IS NOT AIMED AT EXCLUDING THE GEN UINE CHARITABLE TRUSTS OF GENERAL PUBLIC UTILITY BUT IS AIMED AT EXCLUDING ACTIVITIES IN THE NATURE OF TRADE, COMMER CE OR BUSINESS WHICH ARE MASKED AS CHARITABLE PURPOSE. 12. ALL THESE WERE THE OBJECTS OF THE GENERAL PUBLI C UTILITY AND WOULD SQUARELY FALL UNDER SECTION 2 (15) OF THE ACT . PROFIT MAKING WAS NEITHER THE AIM NOR OBJECT OF THE TRUST. IT WAS NOT THE PRINCIPAL ACTIVITY. MERELY BECAUSE WHILE CARRYI NG OUT THE ACTIVITIES FOR THE PURPOSE OF ACHIEVING THE OBJECTS OF THE TRUST, CERTAIN INCIDENTAL SURPLUSES WERE GENERATED, WOULD NOT RENDER THE ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BU SINESS. AS CLARIFIED BY THE CBDT IN ITS CIRCULAR NO. 11/2008 D ATED 19TH DECEMBER 2008 THE PROVISO AIMS TO ATTRACT THOSE ACT IVITIES WHICH FIRE TRULY IN THE NATURE OF TRADE, COMMERCE OR BUSI NESS BUT ARE CARRIED OUT UNDER THE GUISE OF ACTIVITIES IN THE NA TURE OF PUBLIC UTILITY. 15.1. APPLYING THE AFORESAID DECISION TO THE FACTS OF THE CASE ON HAND AND THE OBJECT AND PURPOSE FOR WHICH THE ASSES SEE IS ESTABLISHED / CONSTITUTED UNDER THE PROVISIONS OF T HE GUJARAT TOWN PLANNING ACT AND COLLECTION OF FEES AND CESS I S INCIDENTAL TO THE OBJECT AND PURPOSE OF THE ACT, EVEN THE CASE WOULD NOT FALL UNDER SECOND PART OF PROVISO TO SECTION 2(15) OF TH E ACT. 15.2. CONSIDERING THE AFORESAID FACTS AND CIRCUMSTA NCES OF THE CASE, WE ARE OF OPINION THAT THE LEARNED TRIBUNAL H AS COMMITTED A GRAVE ERROR IN HOLDING THE ACTIVITIES OF THE ASSE SSEE IN THE NATURE OF TRADE, COMMERCE OR BUSINESS AND CONSEQUEN TLY HOLDING THAT THE PROVISO TO SECTION 2(15) OF THE ACT SHALL BE APPLICABLE AND THEREFORE, THE ASSESSEE IS NOT ENTITLED TO EXEM PTION UNDER SECTION 11 OF THE ACT. FOR THE REASONS STATED ABOVE , IT IS HELD ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 21 - THAT THE PROVISO TO SECTION 2(15) OF THE ACT SHALL NOT BE APPLICABLE SO FAR AS ASSESSEE AUDA IS CONCERNED AND AS THE ACTIVITIES OF THE ASSESSEE CAN BE SAID TO BE PROVID ING GENERAL PUBLIC UTILITY SERVICES, THE ASSESSEE IS ENTITLED T O EXEMPTION UNDER SECTION 11 OF THE ACT. BOTH THE QUESTIONS ARE THEREFORE, ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 4.3 BOTH, I.E. THE APPELLANT AND AUDA ARE CONSTITUT ED AS AUTHORITIES UNDER THE GUJARAT TOWN PLANNING AND URBAN DEVELOPME NT ACT, 1976. THE POWERS AND FUNCTIONS OF BOTH THE AUTHORITIES HA VE BEEN LAID DOWN UNDER THE SAID ACT AND ARE IDENTICAL IN NATURE. NOW HERE IN THE ORDER OF ASSESSMENT THE AO POINTED OUT THAT THE APPELLANT HA S UNDERTAKEN FUNCTIONS BEYOND THE MANDATE OF GUJARAT TOWN PLANNI NG AND URBAN DEVELOPMENT ACT. THE APPELLANT IS A REGISTERED U/S 12A OF THE IT ACT. THEREFORE AS HELD BY HON'BLE GUJARAT H.C. IN DECISI ON QUOTED ABOVE, THE APPELLANT CANNOT BE CONSIDERED TO COVERED BY TH E PROVISO TO SECTION 2(15) OF THE ACT. THUS AO CANNOT WITHDRAW THE CLAIM OF EXEMPTION BY INVOKING PROVISO TO SECTION 2(15) R.W.S. 13(8) OF T HE ACT. THE COROLLARY IS THAT THE APPELLANT CANNOT BE ASSESSED U/S 28 TO 44 OF THE ACT. 4.4 ALTHOUGH HON'BLE HIGH COURT OF GUJARAT HAS DENI ED APPLICABILITY OF PROVISIONS OF PROVISO TO SECTION 2(15) R.W.S. 13(8) TO THE APPELLANT, THE AO NEEDS TO BE CAREFUL WHILE COMPUTING THE INCOME O F THE APPELLANT. THERE ARE ISSUES WITH REGARD TO MAINTENANCE OF ACCO UNTS AND THE APPELLANT HAS TREATED THE VARIOUS GRANTS RECEIVED B Y IT. THERE ARE ISSUES WITH REGARD (A) TO CLAIM OF ACCUMULATION 15% U/S 1 1(1)(A) OF THE ACT; (B) TO CLAIM U/S 11(1)(D) OF THE ACT; (C) TO CLAIM OF CORRECT RATE OF DEPRECIATION; (D) TO CLAIM OF INCOME RECEIPTS BEING REFLECTED IN THE BALANCE SHEET; (E) TO CLAIM OF APPLICATION OF INCOM E FROM PROJECT SPECIFIC GRANTS; (F) TO CLAIM OF CAPITAL EXPENSES A S APPLICATION OF INCOME ETC. AS CERTAIN GROUNDS OF APPEAL PERTAIN TO THESE ISSUES, THE RELEVANT DISCUSSION IN SUBSEQUENT PARAS HAS BEEN MA DE. 4.5 WITH REFERENCE TO TREATMENT OF SPECIFIC PROJECT GRANTS, HON'BLE HIGH COURT OF DELHI HAS HELD IN THE CASE OF DIT VS SOCIE TY FOR DEVELOPMENT ALTERNATIVES 18 TAXMAN.COM 364 THAT GRANTS WITH SPE CIFIC DIRECTIONS FROM THE GOVT. CANNOT BE TREATED AS INCOME. THESE G RANTS WILL HAVE TO BE SPENT AS PER THE CONDITIONS AND PURPOSE LAID DOW N BY THE DONOR. AS PER SEC,12(1) ANY VOLUNTARY CONTRIBUTION RECEIVED B Y A TRUST/INSTITUTIONS CREATED FULLY FOR CHARITABLE OR RELIGIOUS PURPOSE S HALL FOR PURPOSES OF SEC.11 BE DEEMED TO BE INCOME DERIVED FROM PROPERTY HELD BY SAID TRUST/INSTITUTIONS AND SEC 13 SHALL APPLY ACCORDING LY. HOWEVER SEC.12(1) HAS MADE AN EXCEPTION TO THE VOLUNTARY CO NTRIBUTIONS AS DEEMED INCOME OF THE TRUST OR INSTITUTION IF SUCH C ONTRIBUTION HAS BEEN MADE WITH A SPECIFIC DIRECTION. FURTHER SEC.11(1)( A) STATES: '(A) INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR C HARITABLE OR RELIGIOUS PURPOSE TO THE EXTENT TO WHICH SUCH INCOM E IS APPLIED TO SUCH PURPOSES IN INDIA AND WHERE ANY SUCH INCOME IS ACCU MULATED OR SET APART FOR APPLICATION TO SUCH PURPOSE IN INDIA, TO THE EXTENT TO WHICH THE INCOME SO ACCUMULATED OR SET APART IS NOT IN EX CESS OF 15% OF THE INCOME FROM SUCH PROPERTY.' FURTHER SEC.11(1)(D) ST ATES THAT '(D) INCOME IN THE FORM OF VOLUNTARY CONTRIBUTIONS MADE WITH A SPECIFIC DIRECTION THAT THEY SHALL FORM PART OF THE CORPUS OF THE TRUS T OR INSTITUTION'. IT CAN BE SEEN FROM THE COMBINED READING OF SEC.11(1)( A) AND 11(1)(D) AS WELL AS SEC.12(1) THAT THE GRANTS GIVEN FOR THE SPE CIFIC PURPOSE CANNOT ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 22 - BE CONSIDERED AS INCOME IN THE FORM OF VOLUNTARY DO NATION AND ARE ELIGIBLE FOR DEDUCTION U/S.11(1)(D). THUS, SUCH SPE CIFIC PROJECT GRANTS CANNOT BE CONSIDERED AS INCOME DERIVED FROM THE PRO PERTY HELD UNDER THE TRUST U/S.11 (1)(A). SUCH PROJECTS SPECIFIC G RANTS CANNOT BE USED BY THE TRUST/INSTITUTION FREELY TOWARDS THE OBJECTS OF THE TRUST. SUCH TRUSTS/INSTITUTIONS HAVE TO ACT AS A TRUSTEE O F A SPECIAL FUND GRANTED BY THE DONOR AND HENCE IT CANNOT BE POOLED OR INTEGRATED WITH ITS NORMAL INCOME OR THE CORPUS CREATED BY THE TRUS TS. (NIRMAL AGRICULTURAL SOCIETY VS ITO 71 ITD 152 (HYD.). THE INCOMING AND OUTGOING FROM SUCH TIED UP GRANTS CANNOT BE REFLECT ED IN THE INCOME AND EXPENDITURE ACCOUNT OF TRUSTS/INSTITUTIONS. IN TH E CASE OF CIT VS STHANAKWASI VARDHMAN VANIK JAIN SANGH 151 TAXMAN 27 0 HON'BLE GUJARAT HIGH COURT HAS HELD THAT CONTRI BUTION RECEIVED BY THE ASSESSEE TRUST TOWARDS CONSTRUCTION OF WADI FOR CASTE PEOPLE WOULD FORM PART OF CORPUS OF TRUST AND THEREFORE WOULD NO T BE TREATED AS INCOME OF ASSESSEE TRUST. IT FURTHER HELD THAT O N THE PLAIN READING OF SEC.12, ANY VOLUNTARY CONTRIBUTION MADE WITH A SPE CIFIC DIRECTION WOULD NOT BE DEEMED TO BE INCOME DERIVED FROM PRO PERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSE. IN THE CASE OF DIT VS SRI RAMAKRISHNA SEVA ASHRAM 18 TAXMAN.COM 37 (KAR) IT WAS HELD THAT DONATION FOR SPECIFIC PROJECT SHALL BE TREATED AS C ORPUS DONATION AND THE 85% APPLICATION CONDITION SHALL NOT APPLY. IT W AS HELD THAT THE WORD 'CORPUS' IS USED IN THE CONTEXT OF THE ACT. THEREFO RE, IF ANY VOLUNTARY CONTRIBUTION IS MADE WITH A SPECIFIC DIRECTION, IT SHALL BE TREATED AS THE CAPITAL OF THE TRUST FOR CARRYING ON ITS CHARITABLE OR RELIGIOUS ACTIVITIES, THEN SUCH AN INCOME FALLS U/S.11(1)(D) AND IS NOT L IABLE TO TAX. IN MANY OTHER CASES VARIOUS HIGH COURTS HAVE HELD THAT ANY RECEIPT OF CAPITAL NATURE CANNOT BE TREATED AS INCOME AND HENCE IT WAS OUTSIDE THE PURVIEW OF SEC. 12. 46 IT WOULD BE PERTINENT HERE TO REFER TO ACCOUNTIN G STANDARD (AS) 12 THAT DEALS WITH THE ACCOUNTING FOR GOVT. GRANTS. AC CORDING TO THE CLAUSE-4 AS-12 THE RECEIPT OF GOVT. GRANTS BY AN EN TERPRISE IS SIGNIFICANT FOR PREPARATION OF THE FINANCIAL STATEM ENTS FOR TWO REASONS. FIRSTLY, IF THE GOVT. GRANT HAS BEEN RECEIVED AN AP PROPRIATE METHOD OF ACCOUNTING THEREFORE IS NECESSARY. SECONDLY, IT IS DESIRABLE TO GIVE AN INDICATION TO THE EXTENT TO WHICH THE ENTERPRISE HA S BENEFITTED FROM SUCH GRANT DURING THE REPORTING PERIOD. PARA-5 OF AS-12 DEALS WITH THE TREATMENT OF GOVT. GRANTS. IT IS REPRODUCED BELOW F OR THE SAKE OF CONVENIENCE :- 'ACCOUNTING TREATMENT OF GOVERNMENT GRANTS 5. CAPITAL APPROACH VERSUS INCOME APPROACH 5.1 TWO BROAD APPROACHES MAY BE FOLLOWED FOR THE AC COUNTING TREATMENT OF GOVERNMENT GRANTS: THE 'CAPITAL APPROA CH', UNDER WHICH A GRANT IS TREATED AS PART OF SHAREHOLDERS' F UNDS, AND THE 'INCOME APPROACH', UNDER WHICH A GRANT IS TAKEN TO INCOME OVER ONE OR MORE PERIODS. 5.2 THOSE IN SUPPORT OF THE 'CAPITAL APPROACH' ARGU E AS FOLLOWS: (I) MANY GOVERNMENT GRANTS ARE IN THE NATURE OF PRO MOTERS' CONTRIBUTION, I.E., THEY ARE GIVEN WITH REFERENCE T O THE TOTAL INVESTMENT IN AN UNDERTAKING OR BY WAY OF CONTRIBUT ION TOWARDS ITS TOTAL CAPITAL OUTLAY AND NO REPAYMENT IS ORDINA RILY EXPECTED IN THE CASE OF SUCH GRANTS. THESE SHOULD, THEREFORE , BE CREDITED ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 23 - DIRECTLY TO SHAREHOLDERS' FUNDS, (II) IT IS INAPPRO PRIATE TO RECOGNISE GOVERNMENT GRANTS IN THE PROFIT AND LOSS STATEMENT, SINCE THEY ARE NOT EARNED BUT REPRESENT AN INCENTIV E PROVIDED BY GOVERNMENT WITHOUT RELATED COSTS. 5.3 ARGUMENTS IN SUPPORT OF THE 'INCOME APPROACH' A RE AS FOLLOWS: (I) GOVERNMENT GRANTS ARE RARELY GRATUITOU S. THE ENTERPRISE EARNS THEM THROUGH COMPLIANCE WITH THEIR CONDITIONS AND MEETING THE ENVISAGED OBLIGATIONS- THEY SHOULD THEREFORE BE TAKEN TO INCOME AND MATCHED WITH THE ASSOCIATED COS TS WHICH THE GRANT IS INTENDED TO COMPENSATE, (II) AS INCOME TAX AND OTHER TAXES ARE CHARGES AGAINST INCOME, IT IS LOGICAL TO DEAL ALSO WITH GOVERNMENT GRANTS, WHICH ARE AN EXTENSION OF FISCAL POLICIES, IN THE PROFIT AND LOSS STATEMENT. (HI) IN CASE GRANTS ARE CREDITED TO SHAREHOLDERS' FUNDS, NO CORRELATION IS DONE BETWEEN THE ACCOUNTING TREATMENT OF THE GRANT AND THE ACCOUNTIN G TREATMENT OF THE EXPENDITURE TO WHICH THE GRANT RELATES. 5.4 IT IS GENERALLY CONSIDERED APPROPRIATE THAT ACC OUNTING FOR GOVERNMENT GRANT SHOULD BE BASED ON THE NATURE OF T HE RELEVANT GRANT. GRANTS WHICH HAVE THE CHARACTERISTICS SIMILA R TO THOSE OF PROMOTERS' CONTRIBUTION SHOULD BE TREATED AS PART O F SHAREHOLDERS' FUNDS. INCOME APPROACH MAY BE MORE AP PROPRIATE IN THE CASE OF OTHER GRANTS. 5.5 IT IS FUNDAMENTAL TO THE 'INCOME APPROACH' THAT GOVERNMENT GRANTS BE RECOGNISED IN THE PROFIT AND LOSS STATEME NT ON A SYSTEMATIC AND RATIONAL BASIS OVER THE PERIODS NECE SSARY TO MATCH THEM WITH THE RELATED COSTS. INCOME RECOGNITI ON OF GOVERNMENT GRANTS ON A RECEIPTS BASIS IS NOT IN ACC ORDANCE WITH THE ACCRUAL ACCOUNTING ASSUMPTION (SEE ACCOUNTING S TANDARD (AS) 1, DISCLOSURE OF ACCOUNTING POLICIES). 5.6 IN MOST CASES, THE PERIODS OVER WHICH AN ENTERP RISE RECOGNISES THE COSTS OR EXPENSES RELATED TO A GOVER NMENT GRANT ARE READILY ASCERTAINABLE AND THUS GRANTS IN RECOGN ITION OF SPECIFIC EXPENSES ARE TAKEN TO INCOME IN THE SAME P ERIOD AS THE RELEVANT EXPENSES. 5. FURTHER PARA-8 DEALS WITH THE PRESENTATION OF GR ANTS RELATED TO SPECIFIC FIXED ASSETS. THE RELEVANT PARAS I.E. PARA -8.1 TO 8.3 ARE REPRODUCED BELOW FOR THE SAKE OF CONVENIENCE :- '8. PRESENTATION OF GRANTS RELATED TO SPECIFIC FIXE D ASSETS 8.1 GRANTS RELATED TO SPECIFIC FIXED ASSETS ARE GOV ERNMENT GRANTS WHOSE PRIMARY CONDITION IS THAT AN ENTERPRISE QUALI FYING FOR THEM SHOULD PURCHASE, CONSTRUCT OR OTHERWISE ACQUIRE SUC H ASSETS. OTHER CONDITIONS MAY ALSO BE ATTACHED RESTRICTING T HE TYPE OR LOCATION OF THE ASSETS OR THE PERIODS DURING WHICH THEY ARE TO BE ACQUIRED OR HELD. 8.2 TWO METHODS OF PRESENTATION IN FINANCIAL STATEM ENTS OF GRANTS (OR THE APPROPRIATE PORTIONS OF GRANTS) RELA TED TO SPECIFIC FIXED ASSETS ARE REGARDED AS ACCEPTABLE ALTERNATIVE S. ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 24 - 8.3 UNDER ONE METHOD, THE GRANT IS SHOWN AS A DEDUC TION FROM THE GROSS VALUE OF THE ASSET CONCERNED IN ARRIVING AT ITS BOOK VALUE. THE GRANT IS THUS RECOGNISED IN THE PROFIT A ND LOSS STATEMENT OVER THE USEFUL LIFE OF A DEPRECIABLE ASS ET BY WAY OF A REDUCED DEPRECIATION CHARGE. WHERE THE WHOLE, OR VI RTUALLY THE WHOLE, OF THE COST OF THE ASSET, THE ASSET IS SHOWN IN THE BALANCE SHEET AT A NOMINAL VALUE.' 6. FINALLY PARA-13, 14, 15 ARE THE MAIN PARA S THAT HAVE LAID DOWN THE PRINCIPLES OF ACCOUNTING FOR GOVT. GRANTS. THE SAME ARE REPRODUCED BELOW .- '13. GOVERNMENT GRANTS SHOULD NOT BE RECOGNISED UNT IL THERE IS REASONABLE ASSURANCE THAT (I) THE ENTERPRISE WILL C OMPLY WITH THE CONDITIONS ATTACHED TO THEM, AND (II) THE GRANTS WI LL BE RECEIVED. 14. GOVERNMENT GRANTS RELATED TO SPECIFIC FIXED ASS ETS SHOULD BE PRESENTED IN THE BALANCE SHEET BY SHOWING [HE GRANT AS A DEDUCTION FROM THE GROSS VALUE OF THE ASSETS CONCER NED IN ARRIVING AT THEIR BOOK VALUE. WHERE THE GRANT RELAT ED TO A SPECIFIC FIXED ASSET EQUALS THE WHOLE, OR VIRTUALLY THE WHOLE, OF THE COST OF THE ASSET, THE ASSET SHOULD BE SHOWN IN THE BALANCE SHEET AT A NOMINAL VALUE. ALTERNATIVELY, GOVERNMENT GRANTS RELATED TO DEPRECIABLE FIXED ASSETS MAY BE TREATED AS DEFERRED INCOME WHICH SHOULD BE RECOGNISED IN THE PROFIT AND LOSS STATEMENT ON A SYSTEMATIC AND RATIONAL BASIS OVER T HE USEFUL LIFE OF THE ASSET, I.E., SUCH GRANTS SHOULD BE ALLOCATED TO INCOME OVER THE PERIODS AND IN THE PROPORTIONS IN WHICH DEPRECI ATION ON THOSE ASSETS IS CHARGED. GRANTS RELATED TO NON-DEPR ECIABLE ASSETS SHOULD BE CREDITED TO CAPITAL RESERVE UNDER THIS ME THOD. HOWEVER, IF A GRANT RELATED TO A NON-DEPRECIABLE AS SET REQUIRES THE FULFILLMENT OF CERTAIN OBLIGATIONS, THE GRANT S HOULD BE CREDITED TO INCOME OVER THE SAME PERIOD OVER WHICH THE COST OF MEETING SUCH OBLIGATIONS IS CHARGED TO INCOME. THE DEFERRED INCOME BALANCE SHOULD BE SEPARATELY DISCLOSED IN TH E FINANCIAL STATEMENTS. 15. GOVERNMENT GRANTS RELATED TO REVENUE SHOULD BE RECOGNISED ON A SYSTEMATIC BASIS IN THE PROFIT AND LOSS STATEM ENT OVER THE PERIODS NECESSARY TO MATCH THEM WITH THE RELATED CO STS WHICH THEY ARE INTENDED TO COMPENSATE. SUCH GRANTS SHOULD EITHER BE SHOWN SEPARATELY UNDER 'OTHER INCOME' OR DEDUCTED I N REPORTING THE RELATED EXPENSE' 7. THUS, IT IS SEEN FROM THE AS-12 AS QUOTED ABOVE THAT AS PER AS-12 THE GRANTS RECEIVED WITH SPECIFIC DIRECTION ESPECIALLY FOR SPECIFIED FIXED ASSETS WHICH IS APPLICABLE TO THE APPELLANT CAN BE ACCOUNTED FOR IN TWO WAYS IN THE BOOKS OF THE APPELLANT. WHERE THE GRANT LEADS TO CREATION OF FIXED ASSETS EQUALS THE WHOLE OR VIRTUALLY THE WHOLE OF THE COST OF THE ASSET, THE ASSET SHOULD BE SHOWN IN THE BALANCE SHE ET AT NOMINAL VALUE. OR ALTERNATIVELY GOVT GRANTS RELATED TO DEPRECIABLE FIXED ASSETS MAY BE TREATED AS DIVERTED INCOME WHICH SHOULD BE RECOGNIZ ED IN THE P & L A/C. ON A SYSTEMATIC AND RATIONAL BASIS OVER THE US EFUL LIFE OF THE ASSET. ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 25 - 8. BASED ON ABOVE REFERRED DISCUSSION, THE AO IS DI RECTED TO VERIFY AND COMPUTE THE INCOME OF APPELLANT AS PER THE FOLL OWING GUIDELINES: (I) APPELLANT MIGHT HAVE SHOWN CERTAIN GRANTS WHICH ARE NOT PROJECTS SPECIFIC GRANTS OR THE GRANTS GIVEN FOR GE NERIC PURPOSE. THE DONOR ALLOWS APPELLANT TO APPLY THESE FUNDS FOR ANY OF ITS OBJECTS. IF SUCH GRANTS ARE RECEIVED BY THE APPELLANT WHICH DOES NOT HAVE ANY SPECIFIC DIRECTIO N FOR THE PURPOSE, THEN IT WILL HAVE TO BE CONSIDERED AS VOLUNTARY DONATION AND WILL BE INCLUDED AS THE INCO ME OF THE APPELLANT U/S.12(1) OF THE ACT. EVEN IF APPELLA NT HAS SHOWN SUCH GRANTS IN THE BALANCE SHEET THEN THE APP ELLANT (A) WOULD BE ELIGIBLE TO CLAIM EXPENSES OUT OF THEM AS APPLICATION OF INCOME AND IF THE APPELLANT CREATES FIXED ASSETS OUT OF SUCH GRANTS, APPELLANT (B) WOULD BE E LIGIBLE TO CLAIM CAPITAL EXPENDITURE AS APPLICATION OF ITS INCOME AND (C) WOULD BE ELIGIBLE TO CLAIM DEPRECIATION ON SUCH FIXED ASSETS AS APPLICATION OF INCOME. RELIANCE PLA CED ON THE JUDGMENT OF HON'BLE HIGH COURT OF GUJARAT IN TH E CASE OF CIT VS SHETH MANILAL RANCHHODDAS VISHRARN BHAWAN TRUST, 198 ITR 598. A.O. IS DIRECTED TO CALCULATE T HE INCOME OF THE APPELLANT FROM THE PROPERTY HELD BY I T ACCORDINGLY. (II) FURTHER, THE APPELLANT MIGHT HAVE RECEIVED C ERTAIN FUNDS IN THE FORM OF GRANTS, FOR A SPECIFIC PURPOSE OR FO R A SPECIFIC PROJECT THAT IS CAPITAL IN NATURE. THE SAN CTION LETTER FROM THE INSTITUTION/AUTHORITIES GIVING GRAN T TO THE APPELLANT CATEGORICALLY MENTIONS THAT FUNDS RECEIVE D UNDER THESE GRANTS CANNOT BE UTILIZED FOR ANY OTHER PURPOSE EXCEPT FOR THE PURPOSE FOR WHICH THE GRANT IS GIVEN. AS THE APPELLANT HAS RECEIVED SUCH KIND OF G RANTS WITH A SPECIFIC DIRECTION, ALL SUCH GRANTS ARE REQU IRED TO BE CONSIDERED AS CAPITAL RECEIPTS. SUCH CAPITAL REC EIPTS WOULD BE PART OF BALANCE SHEET AND NOT ITS INCOME. THE APPELLANT WOULD BE ELIGIBLE TO CLAIM DEDUCTION U/S 11F1)(D) OF THE ACT ON SUCH CAPITAL RECEIPTS. BUT S INCE THESE CANNOT BE A PART OF THE INCOME OF THE APPELLA NT, THE APPELLANT (A) CANNOT CLAIM ACCUMULATION @ 15% U/S 11(1)(A) OF THE ACT ON SUCH SPECIFIC GRANTS. THE AS SETS CREATION MADE OUT OF THESE GRANTS WOULD BE REFLECTE D IN THE BALANCE SHEET AND THE APPELLANT (B) CANNOT CLAI M CAPITAL EXPENDITURE OUT OF THESE GRANTS AS THE MONE Y APPLIED TOWARDS ITS OBJECTS AS APPLICATION OF INCOM E. FINALLY, THE APPELLANT (C) CANNOT CLAIM DEPRECIATION ON FIXED ASSETS CREAT ED OUT OF GRANTS GIVEN FOR SPECIFIC PURPOSE, AS APPLICATION O F INCOME. (III) (A)DURING THE APPELLATE PROCEEDINGS IT IS SEE N FROM THE BALANCE SHEET AND INCOME AND EXPENDITURE ACCOUNT OF THE APPELLANT THAT CERTAIN RECEIPTS HAVE BEEN TAKEN BY THE APPELLANT DIRECTLY TO THE BALANCE SHEET. THE AG, AU DIT HAD BEEN RAISING AUDIT OBJECTION FOR TREATING THEM AS R EVENUE ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 26 - RECEIPTS AND HENCE THE SAID RECEIPTS HAVE BEEN CONS IDERED AS CAPITAL RECEIPTS. ACCORDING TO THESE AUDIT OBJEC TIONS FOR E.G. RECEIPT FROM 'BETTERMENT CHARGES' ARE REQU IRED TO BE SHOWN AS LIABILITIES IN BALANCE SHEET BECAUSE TH EY SHOULD BE ADJUSTED AGAINST THE NET AMOUNT TO BE PAI D BY THE OWNERS. SIMILARLY AS PER THE FORM Q UNDER GTPUD RULES, 1979, 'DEVELOPMENT CHARGES' ARE REQUIRED TO BE SHOWN IN THE BALANCE SHEET UNDER THE HEAD OF 'CAPIT AL RECEIPTS'. AUDIT DEPARTMENT ALSO WANTS THE PART PLA N FEES, ADDITIONAL TSI CHARGES ETC. TO BE REFLECTED A S 'CAPITAL RECEIPTS' AS PER THE REQUIREMENT OF FORMAT OF ANNUAL ACCOUNTS. THERE ARE MANY OTHER ISSUES ON WHI CH 'AUDIT' WING HAD BEEN RAISING AUDIT OBJECTION WITH REGARD TO CLASSIFICATION OF RECEIPTS. BE AS IT MAY, AS FAR AS AUDIT OBJECTIONS ARE CONCERNED. HERE, WE ARE CONCERNED WI TH COMPUTATION OF INCOME UNDER THE INCOME TAX ACT. (B) IT IS A MATTER OF FACT THAT APPELLANT HAS RECEI VED THESE FUNDS AS PER THE PROVISIONS OF GTPUD ACT. THE GTPUD ACT AUTHORIZES THE APPELLANT TO RECEIVE FUNDS UNDER VARIOUS CATEGORIES SUCH AS DEVELOPMENT CHARGE S, BETTERMENT CHARGES, IMPACT FEES, AMENITIES FEES, SC RUTINY FEES, ZONING FEES ETC. THESE FEES/FUNDS OR THE SOUR CES OF RECEIPTS HAVE BEEN RECEIVED BY THE APPELLANT DURING THE DISCHARGE OF ITS FUNCTIONS. THESE ARE RECURRING AND OPERATIONAL RECEIPTS OF THE APPELLANT. THE APPELLAN T IS REQUIRED TO APPLY THESE RECEIPTS TOWARDS ITS OBJECT S. I AM OF THE CONSIDERED OPINION THAT A CAPITAL EXPENDITUR E BY A PERSON NEED NOT BE A CAPITAL RECEIPT OF THE PERSON RECEIVING THAT AMOUNT. THEREFORE, A.O. IS DIRECTED TO CONSIDER ALL THESE RECEIPTS AS THE INCOME OF THE AP PELLANT IRRESPECTIVE OF THE FACT THAT IT HAS TREATED THEM A S BALANCE SHEET ITEM. (C) THE APPELLANT HAS TO KEEP IN MIND THAT IF THESE RECEIPTS ARC CONSIDERED AS CAPITAL RECEIPTS AS A BALANCE SHE ET ITEM THEN APPELLANT WOULD BE ELIGIBLE TO CLAIM DEDUCTION U/S 11(1)(D) OF THE ACT ON SUCH CAPITAL RECEIPTS. BUT S INCE THESE CANNOT BE A PART OF THE INCOME OF THE APPELLA NT, THE APPELLANT (A) CANNOT CLAIM ACCUMULATION @ 15% U/S 11(1)(A) OF THE ACT ON SUCH CAPITAL RECEIPTS. THE A SSETS CREATION MADE OUT OF THESE RECEIPTS WOULD BE REFLEC TED IN THE BALANCE SHEET AND THE APPELLANT (B) CANNOT CLAI M CAPITAL EXPENDITURE OUT OF THESE RECEIPTS AS THE MO NEY APPLIED TOWARDS ITS OBJECTS AS APPLICATION OF INCOM E. FINALLY, THE APPELLANT (C) CANNOT CLAIM DEPRECIATIO N ON FIXED ASSETS CREATED OUT OF RECEIPTS, AS APPLICATIO N OF INCOME. (IV) FURTHER, AO IS DIRECTED TO VERIFY THE RATE OF DEPRECIATION CLAIMED BY THE APPELLANT. SECTION 32 OF THE ACT IS NOT APPLICABLE TO THE EXEMPT PERSON. THE INCOME OF EXEM PT PERSON HAS TO BE CALCULATED ON THE BASIS OF NORMAL COMMERCIAL PRINCIPLES AND BY RULE OF ACCOUNTANCY. ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 27 - ACCORDINGLY THE RATE OF DEPRECIATION WOULD APPLY AN D NOT THE RATES OF DEPRECIATION AS PER SECTION 32 OF THE ACT. (V) A.O. IS DIRECTED TO CALCULATE THE EXPENDITU RE INCURRED OR AMOUNT APPLIED TOWARDS THE OBJECTS OF THE APPELLANT . THE AMOUNT APPLIED WOULD ALSO INCLUDE THE CAPITAL EXPEN DITURE AS PER THE DIRECTION GIVEN ABOVE (RELIANCE PLACED O N THE JUDGMENT OF GUJARAT HIGH COURT IN THE CASE OF SATYA VIJAY PATEL HINDU DHARMASHALA TRUST VS CIT 86 ITR 683, HON'BLE SUPREME COURT IN THE CASE OF SRM CTM TIRUPA NNI TRUST, 230 ITR 636, HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS MOOLCHAND SHARBATI DEVI HOSPITAL TRU ST 190 TAXMAN 338). (VI) AFTER THE CALCULATION OF EXPENSES OR AMOUNT APPLIED FOR THE OBJECTS OF THE APPELLANT, A.O. WILL ALLOW THE ACCUMULATION U/S 11(1)(A)OF THE ACT TO THE EXTENT O F 15% OF INCOME. IF THE EXCESS OF INCOME OVER THE EXPENDI TURE IS LESS THAN 15% OF THE INCOME, THEN A.O. SHALL ALLOW ACCUMULATION TO THE EXTENT OF 15% U/S.11(1)(A) OF T HE ACT. (FOR EXAMPLE: IF APPELLANT EARNS RS, 100 AND APPLIE S RS. 90 THEN ONLY RS. 10 WOULD BE ALLOWED TO BE ACCUMULA TED U/S 11(1)(A) OF THE ACT.) (VII) IF THE APPELLANT HAS APPLIED MORE THAN THE INCOME DURING THE YEAR THEN A.O. IS DIRECTED TO ALLOW CARRY FORWA RD OF DEFICIT OF THAT YEAR TO BE SET OFF AGAINST FUTURE I NCOME OF THE APPELLANT (RELIANCE PLACED ON THE JUDGMENT OF H ON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS SRI PLOT SWETAMBER MURTIPUJAK JAIN MANDAL 211 ITR 293). IN T HAT YEAR, THE AO SHALL NOT ALLOW ANY ACCUMULATION U/S.11(1)(A) OF THE ACT @ 15%. (FOR EXAMPLE: IF APP ELLANT 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 AN IMMEDIATE SUBSEQUENT YEAR, AO WILL ALLOW, FIRSTLY, THE SET OF F OF THE DEFICIT CARRIED FORWARD FROM EARLIER YEAR. THEN, AO SHALL REDUCE THE AMOUNT APPLIED DURING THE YEAR. IF, AFTE R THE ADJUSTMENTS OF CARRIED FORWARD DEFICIT AND APPLICAT ION OF INCOME, THE APPELLANT HAS ANY SURPLUS OF INCOME OVE R THE EXPENDITURE THEN THE APPELLANT WOULD BE ELIGIBLE TO ACCUMULATE TO THE EXTENT OF 15% U/S.11(1)(A) FROM T HE INCOME. (FOR EXAMPLE: IF APPELLANT EARNS RS. 100 IN IMMEDIATE SUCCEEDING YEAR AND APPLIES RS. 80 THEN R S. 90, I.E. RS. 10 AS EARLIER YEAR DEFICIT AND RS. 80 BEIN G CURRENT YEARS 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 A MOUNT SHALL BE ALLOWED BY THE A.O. TO BE ACCUMULATED U/S. 11(2) OF THE ACT AND ACCORDING TO THE STIPULATIONS MENTIO NED THEREIN I.E. FILING OF FORM 10 AND PURPOSE FOR WHIC H ACCUMULATION U/S. 11 (2) HAS BEEN MADE ETC. IN SHOR T, THE AO WILL NOT ALLOW ACCUMULATION OF INCOME CITHER U/S 11(1)(A) @15% OR U/S 11(2) OF THE ACT ALONG WITH CA RRY ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 28 - FORWARD OF DEFICIT. APPLICATION OF INCOME SHALL PRE CEDE ACCUMULATION. (VIII) IF THE APPELLANT INCURS ANY EXPENDITURE OUT OF THE ACCUMULATED AMOUNT U/S. 11(2) OF THE ACT, THEN THE SAID EXPENDITURE WILL NOT BE ALLOWED AS APPLICATION AGAI NST THE CURRENT YEAR'S INCOME OF THE APPELLANT. IT WILL HAV E TO BE SET OFF FROM THE ACCUMULATED FUNDS U/S 11 (2) OF TH E ACT. A.O. IS ACCORDINGLY DIRECTED TO CALCULATE THE INCOM E OF THE APPELLANT AS PER THE DIRECTIONS GIVEN ABOVE. 9. AS FAR AS VARIOUS GROUNDS OF APPEAL FILED BY THE APPELLANT ARE CONCERNED ALL OF THEM HAVE ALREADY BEEN ADDRESSED I N ABOVE PARAS AND THE DIRECTIONS HAVE BEEN GIVEN AT PARA-4.3 TO PARA- 8 ABOVE. ACCORDINGLY, GROUND OF APPEAL NOS.1, 2, 4, 5, 6 & 7 ARE THE GROUNDS WHICH ARE DIRECTLY COVERED BY THE JUDGMENT OF HON'B LE GUJARAT HIGH COURT IN THE CASE OF AUDA DATED 2/5/2017. THEREFORE , ALL THESE GROUNDS OF APPEAL ARE HEREBY ALLOWED. 9.1 GROUND OF APPEAL NO.3 IS GENERAL IN NATURE , THEREFORE, IT IS DISMISSED. 9.2 VIDE GROUND OF APPEAL NO.8 THE APPELLANT HAS RA ISED THE ISSUE OF NOT EXAMINING THE SOURCE OF FUNDS SUCH AS GRANTS WHICH HAVE BEEN RECEIVED FROM STATE GOVERNMENT AND APPLICATION THEREOF UNDER THE HEAD PROJECT FUND. I HAVE ALREADY DISCUSSED THE ISSUE OF PROJECT SPECIFIC GRANT AND GENERIC GRANT AND THE TREATMENT TO BE GIVEN BY THE A.O AS PER THE DIRECTIONS GIVEN AT PARA-8(I) AND 8(II). THE A.O IS DIRECTED TO FOLLOW THOSE DIRECTIONS. THE GROUND OF APPEAL NO.8 IS ALLO WED FOR STATISTICAL PURPOSE. 9.3 GROUND OF APPEAL NO,9 RELATES TO CLAIM OF ACCUM ULATION AT THE RATE OF 15% U/S.11(1)(A) AND U/S.11(2). THE APPELLANT WO ULD BE ELIGIBLE TO CLAIM THE BENEFIT U/S.11 OF THE ACT. A.O IS DIRECTE D' TO ALLOW THE ACCUMULATIONS U/S.11(1)(A) AND 11(2) OF THE ACT. HO WEVER, DURING THE APPELLATE PROCEEDINGS AND AS PER THE DISCUSSIONS WI TH THE A.R, THE APPELLANT HAS FILED THE REVISED COMPUTATION OF INCO ME. THE A.O IS DIRECTED TO FOLLOW THE DIRECTIONS GIVEN AT PARA-8(I ) TO PARA-8(VIII) AND ACCORDINGLY ALLOW THE QUANTUM OF ACCUMULATION U/S.1 1(1)(A) AND 11(2) OF THE ACT. THE APPELLANT HAS BEEN CLAIMING THE VAR IOUS OPERATIONAL RECEIPTS AS CAPITAL RECEIPTS IN THE BALANCE SHEET. HOWEVER, AS MENTIONED AT PARA-8(III), I AM OF THE CONSIDERED OP INION THAT THESE CANNOT BE THE CAPITAL RECEIPT BUT WILL HAVE TO BE C ONSIDERED AS INCOME FROM THE PROPERTY HELD BY THE TRUST. THE A.O IS DIR ECTED TO COMPUTE THE INCOME AND ALLOW THE ACCUMULATIONS U/S.11(1)(A) OF THE ACT AND U/S.11(2) OF THE ACT ACCORDINGLY. SUBJECT TO THESE REMARKS THE GROUND OF APPEAL NO.9 IS ALLOWED FOR STATISTICAL PURPOSE. 9.4 VIDE GROUND OF APPEAL NO.10, THE APPELLANT HAS RAISED THE ISSUE OF DENIAL OF EXPENDITURE INCURRED ON ADDITION TO FI XED ASSETS AND ON PROJECT EXPENDITURE BY THE A.O. AT PARA-8(I), 8(II) AND 8(V) I HAVE ALREADY GIVEN DIRECTIONS TO THE A.O TO ALLOW SUCH E XPENSES SUBJECT TO CERTAIN CONDITIONS. IF THE ADDITION TO FIXED ASSETS HAS BEEN MADE FROM THE PROJECT SPECIFIED GRANTS THEN THAT EXPENDITURE WILL NOT BE ALLOWABLE ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 29 - TO THE APPELLANT AS APPLICATION OF INCOME OR IF THE PROJECT EXPENSES HAVE BEEN INCURRED FROM THE PROJECT SPECIFIC GRANT, AGAIN THE SIMILAR TREATMENT WILL FOLLOW. IF THE EXPENSES ON ADDITION TO FIXED ASSETS AND ON PROJECT EXPENSES HAVE BEEN INCURRED FROM THE OPERAT IONAL INCOME OR THE GENERIC GRANTS RECEIVED BY THE APPELLANT, THEN ONLY A.O IS DIRECTED TO ALLOW THE EXPENDITURE ON ADDITION TO FIXED ASSETS A ND PROJECT EXPENSES AS APPLICATION OF INCOME. THEREFORE, SUBJECT TO THE VERIFICATION OF FACTS BY THE A.O, THE GROUND OF APPEAL IS ALLOWED FOR STA TISTICAL PURPOSE, 9.5 VIDE GROUND NO.11 THE APPELLANT IS ALSO AGGRIEV ED BY INITIATION OF PENALTY PROCEEDINGS U/S.271(1)(C) OF IT. ACT, IT IS SEEN THAT THE A.O. HAS MERELY INITIATED PENALTY PROCEEDINGS U/S.271(1) (C). THIS GROUND BEING PREMATURE, THE SAME IS TREATED AS DISMISSED. 9.6 THE LAST GROUND OF APPEAL IS RESIDUARY IN NATUR E. APPELLANT HAS NOT AVAILED THIS GROUND OF APPEAL. ACCORDINGLY, TH IS GROUND OF APPEAL IS DISMISSED. 10. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. 8. AGGRIEVED BY THE RELIEF GRANTED BY CIT(A), THE R EVENUE PREFERRED APPEAL BEFORE THE TRIBUNAL. 9. WHEN THE MATTER WAS CALLED FOR HEARING, NONE APP EARED FOR THE ASSESSEE. THE MATTER WAS ACCORDINGLY PROCEEDED EX PARTE IN THE ABSENCE OF THE ASSESSEE. 10. THE LEARNED DR FOR THE REVENUE RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THE ASSESSEE WILL NOT FALL WITH THE EXCLUSION PROVIDED IN PROVISIONS OF PROVISO TO SECTION 2(15) OF THE AC T AND CONSEQUENTLY THE ACTION OF THE ASSESSEE CANNOT BE REGARDED AS CHARI TABLE PURPOSE AS ENVISAGED UNDER S.2(15) OF THE ACT HAVING REGARD TO FOLLOWING FACTS AND CONDITIONS. 10.1 THE MAIN OBJECT OF THE ASSESSEE IS CONTRIBUTIO N TOWARDS PLANNED AND CONTROLLED DEVELOPMENT FOR THE ENTIRE URBAN DEV ELOPMENT AREA AND SUCH ACTIVITY FALLS UNDER THE CATEGORY OF 'ADVANCEM ENT OF GENERAL PUBLIC UTILITY. WHEN THE ACTIVITIES OF THE ASSESSEE CAN BE SAID TO BE IN THE NATURE OF TRADE, COMMERCE AND BUSINESS, CONSIDERING THE PR OVISO TO SECTION 2(15), THE ACTIVITIES OF THE ASSESSEE CANNOT BE SAI D TO BE FOR CHARITABLE PURPOSE. ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 30 - 10.2 FURTHER, FIRST AND SECOND PROVISOS TO SECTION 2(15) INSERTED BY FINANCE ACT, 2010 AND ARE EFFECTIVE FROM 01.04.2009 . PRIOR TO INSERTION OF THESE PROVISIONS CERTAIN BODIES HAVE BEEN TREATE D AS 'CHARITABLE' ON THE GROUND OF ADVANCEMENT OF OBJECT OF GENERAL PUBL IC UTILITY. HOWEVER, AFTER THE INSERTION OF THE ABOVE PROVISOS, THE ADVA NCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE A CHA RITABLE PURPOSE, IF IT INVOLVES CARRYING ON OF. A) ANY ACTIVITY IN THE NATURE OF TRADE, COMMERC E OR BUSINESS; B) ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATI ON TO ANY TRADE, COMMERCE OR BUSINESS; C) FOR A CASES OR A FEES OR ANY OTHER CONSIDERAT ION, IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION OF RETENTION OF INCOME FROM SUCH ACTIVITY. SECOND PROVISO PROVIDES THAT PROVISIONS OF FIRST PR OVISO SHALL NOT APPLY IF THE AGGREGATED VALUE OF RECEIPTS FROM THE ACTIVI TIES REFERRED TO IN 1 ST PROVISO IS RS. 25,00,000/- OR LESS IN THE PREVIOUS YEAR. 10.3 IT WAS CONTENDED THAT IN THE INSTANT CASE, ASS ESSES IS ENGAGED, IN URBAN DEVELOPMENT AND TOWN PLANNING. AS PER THE AME NDED DEFINITION, THE ACTIVITY OF THE ADVANCEMENT OF GENERAL PUBLIC U TILITY SHALL NOT BE CHARITABLE PURPOSE. HENCE, IT IS HIT BY PROVISO FIR ST AND SECOND OF SECTION 2(15) OF THE ACT. FURTHER, IT WAS CONTENDED FROM T HE DETAILS FILED BY THE ASSESSEE THAT: (A) THE EXPENDITURE ON DEVELOPMENT OF RAJKOT WAS IN CURRED FROM FEE COLLECTED BY THE AUTHORITY AND GRANTS FROM GOVERNME NT WHICH RESULTED IN INTEGRATED OVER ALL DEVELOPMENT OF RAJKOT. THIS, IN TURN BROUGHT TO R.U.D.A. EXTRA REVENUE AND IT WAS THIS EXTRA REVENU E IN THE FORM OF VARIOUS 'FEES & PENALTIES CHARGED BY RUDA, CHARGES ON GIVING LAND ON LEASE, VARIOUS RENT COLLECTED AND RECEIPTS OF MISCE LLANEOUS NATURE AND INTEREST INCOME FROM DEPOSITS ETC. ON THIS BACK GRO UND, IT WAS VERY CLEAR THAT THE ACTIVITY OF THE AUTHORITY IS HIT BY THE SE CTION 2(15) R.W.S PROVISO FIRST AND SECOND. ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 31 - (B) THE ASSESSEE IS ENGAGED IN URBAN DEVELOPMENT A ND TOWN PLANNING AS PART OF ITS ACTIVITIES, THE ASSESSEE DEVELOPS DI FFERENT PROJECTS. FOR SUCH PROJECTS, LAND IS PROVIDED BY THE GOVERNMENT A LONG WITH GRANT TO DEVELOP THE PROJECTS. THE SAID PROJECTS/UNITS IN SA ID PROJECTS ARE SOLD GIVEN ON LEASE/RENT TO PROSPECTIVE BUYERS. IN THESE ACTIVITIES ASSESSEE DERIVES A HUGE SURPLUS WHICH IS THE KIND OF BUSINES S ACTIVITY. (C) THE ASSESSEE CHARGED VARIOUS FEES FROM THE GENE RAL PUBLIC LIKE BETTERMENT CHARGES, BUILDING HEIGHT FEE, CHANGE OF USE FEE, DEVELOPMENT CHARGES, IMPACT FEE SCRUTINY FEE, REGULAR REGULARIZ ATION FEE LICENSE FEE, ZONING FEE, PART PLAN FEE, SKETCH PLAN FEE SALE OF GDCR BOOK, TENDER FORM FEE, FINE/PENALTY, AMALGAMATION FEE, COMPOSITI ON FEE, CERTIFIED COPY FEE, COLOR MAP, SERVICE AND AMANITAS FEE, SALE OF FORM FEE ETC FOR THE VARIOUS SERVICES RENDERED BY THE ASSESSEE FOR C ARRYING OUT THE ACTIVITY OF URBAN DEVELOPMENT AND TOWN PLANNING SCHEMES. THE ASSESSEE BEING AN URBAN DEVELOPMENT AUTHORITY CHARGES VARIOUS TYPES O F FEES FROM THE PUBLIC FOR PROVIDING CERTAIN AMENITIES LIKE ROADS, BRIDGES ETC, WHICH IS RECOVERED FROM THE BENEFICIARIES WHO GET BENEFIT OU T OF DEVELOPMENT OF SUCH COMMON INFRASTRUCTURE. SIMILARLY ASSESSEE CHAR GES BETTERMENT CHARGES FROM BENEFICIARY LAND OWNER TO COMPENSATE F OR THE INFRASTRUCTURE COST. SIMILARLY, THE ASSESSEE CHARGES BUILDING HEIG HT FEE, CHARGE OF USE FEE; GROUND COVERAGE FEE, DEVELOPMENT CHARGES. JANT REE FEE. NOC PROCESSING FEE, REGULATION FEE. IMPACT FEE, SEWAGE CHARGE ETC. IT IS EVIDENT THAT THESE ARE CHARGES LEVIED BY THE ASSESS EE FROM THE BENEFICIARY/LAND OWNER FOR CERTAIN SERVICES RENDERE D BY IT. THE BENEFICIARY ON PAYMENT OF THE SAID FEE GETS CERTAIN AMENITIES, REGULARIZATION OF CERTAIN INFIRMITIES IN LAND/ PLAN , INCREASE IN FSI/ADDITIONAL FSI. NOC CERTIFICATE FOR CERTAIN OTH ER AMENITIES/PRIVILEGES ETC THESE ARE RECEIPTS FROM THE BENEFICIARIES FOR T HE SERVICES RENDERED BY THE ASSESSEE IN ITS CAPACITY AS AN URBAN DEVELOPMEN T AUTHORITY. THESE RECEIPTS ARE NOT IN THE NATURE OF CAPITAL, JUST BEC AUSE IT IS NOT RECURRING IN NATURE. THE NATURE OF THE RECEIPT CANNOT BE CHANGED JUST BECAUSE IT IS NOT RECURRING OR JUST BECAUSE IT IS CATEGORIZED AS 'CAP ITAL RECEIPT' BY THE ASSESSEE, IN ITS BOOKS. THESE ARE RECEIPTS WHICH AR E RECEIVED BY THE ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 32 - ASSESSEE FOR THE SERVICE RENDERED BY THE ASSESSEE T O THE GENERAL PUBLIC/BENEFICIARIES. THEREFORE, THE SAME HAVE TO B E CONSIDERED AS BUSINESS INCOME OF THE ASSESSEE. (D) IT WAS ALSO IMPORTANT TO NOTE THAT THE PLOTS O F LAND HAVE BEEN ACQUIRED BY THE ASSESSEE AT A VERY NOMINAL PRICE IN THE NAME OF TOWN PLANNING SCHEME BUT HAVE BEEN GIVEN LEASE AT A VERY HIGH PREMIUM BY MEANS OF AUCTION TO THE HIGHEST BIDDER. THE LAND WA S GIVEN ON LEASE NOT EVEN AT ITS JANTRI RATE (STAMP VALUE), BUT AT A COM MERCIAL/ MARKET RATE. THIS VIRTUE OF THE LAND TRANSACTIONS IS VERY CHARAC TERISTIC OF COMMERCIAL ACTIVITY WITH A PROFIT MOTIVE THE SAID ACTIVITY OF THE ASSESSEE CAN BY NO STRETCH OF IMAGINATION BE TREATED AS CHARITABLE ACT IVITY WITHIN THE MEANING OF EDUCATION, MEDICAL RELIEF, RELIEF OF POO R, AND PRESERVATION OF ENVIRONMENT OR RESERVATION OF MONUMENTS. THE PLOTS OF LAND WERE ACQUIRED FROM THE PUBLIC AT NOMINAL RATES AND SOLD TO VARIOUS COMMERCIAL ENTITIES AT MARKET RATE, AND THIS SYSTEMATIC, REGUL AR AND ORGANIZED ACTIVITY INDICATES THAT RUDA IS INVOLVED IN CARRYIN G ON THE ACTIVITY WHICH IS IN THE NATURE OF TRADE, COMMERCE OR BUSINE SS. SINCE THE ASSESSEE HAS SOLD THE PLOTS OF LAND AT A PREMIUM AND AT MARK ET RATES, TO VARIOUS COMMERCIAL ENTITIES, WITH A MOTIVE TO EARN PROFIT. HENCE, PROVISOS TO SEC 2(15) OF THE ACT SHALL BE SQUARELY APPLICABLE TO TH E FACTS OF THE CASE. (E) TWO MAJOR CHARACTERISTICS OF ANY BUSINESS ACTIV ITY ARE PROFIT MOTIVE AND CONTINUITY. IT WAS SUBMITTED THAT FROM T HE PURCHASE AND SALE DETAILS PERTAINING TO A.Y. 2007-08, 2008-09 AND 200 9-10, IT WAS CLEAR THAT THE APPELLANT ASSESSEE IS ENGAGED IN THE BUSIN ESS OF GIVING LAND ON SALE / LEASEHOLD AT A HIGH PREMIUM ON A CONTINUOUS BASIS AND ON PROFIT BASIS. (F) IN THE PRESENT CASE, THE PRINCIPAL SOURCE OF RE CEIPTS IS AKIN TO A REAL ESTATE DEVELOPER. THE ASSESSEE FUNCTIONS AS AN EFFECTIVE AND EFFICIENT REAL ESTATE DEVELOPMENT ENTITY WITH A VIEW TO MAXIM IZE PROFIT. IT WAS SUBMITTED THAT SOME OF THE ACTIVITIES OF ASSESSEE M AY BE THOSE RELATED TO GOVERNANCE, BUT A LARGE NUMBER OF ACTIVITIES AND TH E RECEIPTS. ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 33 - (G) PROVISO TO SECTION 2(15) ONLY NEEDS AN ASSESSEE TO CARRY ON ACTIVITIES IN THE NATURE OF BUSINESS, COMMERCE OR T RADE IRRESPECTIVE OF WHETHER THE ASSESSEE GENERATES PROFITS FROM SUCH AC TIVITIES OR NOT AND IRRESPECTIVE OF WHETHER PROFIT MAKING IS PRIME MOTI VE OR NOT. SECTION 2(15) HAS DEFINED CHARITABLE PURPOSE TO INCLUDE (I) RELIEF OF THE POOR, (II) EDUCATION, (III) MEDICAL RELIEF, (IV) PRESERVATION OF MONUMENTS OR PLACES OR OBJECTS OF ARTISTIC OR HISTORIC INTEREST AND (V) THE ADVANCEMENT OF ANY OTHER 'OBJECT OF GENERAL PUBLIC UTILITY'. IN THIS R EGARD, IT WAS SUBMITTED THAT THE PROVISO (I) AND (II) TO SECTION 2( 15) WOU LD APPLY IF THE ACTIVITY OF THE TRUST IS DEEMED TO BE THAT OF 'ADVANCEMENT O F ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY' THE PROVISO FURTHER PROVIDE S THAT SUCH ACTIVITIES WILL NOT BE CHARITABLE IF IT INVOLVES THE CARRYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, OR ANY ACTIV ITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSIN ESS, FOR A CESS OR FEE OR ANY CONSIDERATION, IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION, OR RETENTION, OF THE INCOME FROM SUCH ACTIVITY. IN THI S REGARD, IT WAS SUBMITTED THAT NEITHER THE PROVISION OF SECTION 2(1 5) NOR THE PROVISO THERE TO DIFFERENTIATE THE ASSESSEE TRUST AS A TRUS T ENACTED UNDER ANY GOVERNMENT LEGISLATURE OR GAZETTE OR ACT. NOR THESE PROVISIONS SPECIFY THAT THEY WILL NOT BE APPLICABLE TO ANY AUTHORITY C ARRYING ON THE ACTIVITIES OF DEVELOPMENT OF ANY INDUSTRIAL AREA OR A TOWN/ CI TY. (H) THE OBJECT OF THE PROPER DEVELOPMENT OR REDE VELOPMENT OF ANY URBAN AREA IS OF THE STATE GOVERNMENT AND THE CHOIC E OF EITHER CONSTITUTING AN AUTHORITY FOR THE DEVELOPMENT OR EN TRUSTING IT TO A THIRD PARTY IS OF THE GOVERNMENT. IT WAS SUBMITTED THAT T HE OBJECT OF THE URBAN DEVELOPMENT IS OF THE STATE GOVERNMENT. IT WAS SUBM ITTED THAT THE AUTHORITY IS ONLY CARRYING OUT AND EXECUTING THE ST ATE'S OBJECT, IT WAS SUBMITTED THAT THERE ARE MANY ACTIVITIES IN THE NAT URE OF INFRASTRUCTURE DEVELOPMENT LIKE ROADS, POWER, HOUSING, ETC WHERE T HE GOVERNMENT, INSTEAD OF CONSTITUTING AN AUTHORITY, ENTERS INTO A GREEMENT WITH INFRASTRUCTURE DEVELOPMENT COMPANIES. IT WAS SUBMIT TED THAT THESE PRIVATE COMPANIES ARE ALLOWED TO RECOVER THEIR COST AND EARN PROFITS AS A CONCESSIONAIRES OR THE GOVT, MAY ALSO MAKE DIRECT P AYMENTS IT WAS ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 34 - SUBMITTED THAT THE INCOME IN ALL SUCH CASES WOULD U NDOUBTEDLY BE ASSESSED ON PROFITS FROM BUSINESS. IT WAS SUBMITTED THAT THE MERE FACT THAT THE SAME ACTIVITY IS DONE BY AN INSTRUMENTALIT Y OF THE STATE WILL NOT ALTER THE CHARACTER OF THE ACTIVITY. IT WAS THUS SU BMITTED THAT THE ACTIVITY WILL STILL BE IN THE NATURE OF BUSINESS OR TRADE. (I) FURTHER, AS CAN BE SEEN FROM THE FINANCIAL OF THE ASSESSEE, THE COST FOR THE LAND HAS BEEN INCURRED AND HAS BEEN CAPITAL IZED AS COST OF ACQUISITION. THE SAID PRACTICE IS FOLLOWED FROM YEA R TO YEAR. THE ASSESSEE HAS BECOME ENTITLED TO SELL 15% OF THE LAND BY VIRT UE OF THE PROVISIONS OF THE TOWN PLANNING SCHEME. THE SAID ENTITLEMENT COME S FOR A COST AND HAS RESULTED IN HUGE PROFITS. THEREFORE, THE ACTIVI TY IN RESPECT OF 15% OF THE LAND SOLD BY THE ASSESSES, THUS, IS IN THE NATU RE OF TRADE OR BUSINESS AND THEREFORE, THE FIRST LIMB OF PROVISO TO SECTION 2(15) OF THE ACT IS SATISFIED. IT WAS SUBMITTED THAT EVERY PART OF THE COST OF DEVELOPMENT IS RECOVERED FROM THE OWNERS OF THE PLOTS OF LAND. THA T THE AMOUNT OF FINAL COMPENSATION IS DETERMINED AFTER MAKING ADJUSTMENT OF THE DEVELOPMENT COST. THAT ALL KINDS OF CIVIC AMENITIES/SERVICES TH AT ARE BEING PROVIDED ARE NOT FREE BUT FOR AT COST. IT WAS THUS SUBMITTED THAT THEREFORE, EVEN SECOND LIMB OF THE PROVISO TO SECTION 2(15) IS ALSO SATISFIED. (J) THERE ARE SURPLUS AND RESERVES WHICH ARE CONTIN UOUSLY SWELLING. THESE ARE GENERATED BY THE ASSESSEE BY WAY OF THE A CTIVITY OF SALE/LEASE OF LAND AND CHARGING FEES. THE ASSESSEE HAS NOT BEE N CHARGING NOMINAL FEES OR SELLING THE LAND AT A NOMINAL RATE. IT HAS BEEN MAKING MONEY BY PUTTING THE LAND ON AUCTION AFTER TAKING A RESERVE PRICE. THIS ACTIVITY CANNOT BE SAID TO BE A CHARITABLE ACTIVITY. 10.4. IT WAS NEXT CONTENDED THAT; (A) REGARDING 'BUSINESS' AND ACTIVITIES CARRIED OUT BY AN INSTITUTION, HON'BLE ITAT AMRITSAR BENCH IN THE CASE OF JALANDHAR DEVELOPMENT AUTHORITY, ITA NO.562/2008, ITA NO.562/2008, HAS RELIED UPON THE DECISION OF ITAT CHANDIGARH BENCH IN THE CASE OF PUNJAB URBAN ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 35 - PLANNING AND DEVELOPMENT AUTHORITY VS. CIT, 156 TAX MANN 37 (CHD), HON'LE ITAT AND HAS HELD AS UNDER: 'NO ACTIVITY CAN BE CARRIED ON EFFICIENTLY, PROPERL Y UNLESS AND UNTIL IT IS CARRIED OUT ON BUSINESS PRINCIPLE BUT I T DOES NOT MEAN THAT THE PROVISION IS MISUSED IN ANY MANNER UNDER T HE GARB OF CHARITY AND ANY INSTITUTION BE ALLOWED TO BECOME RI CHER AND RICHER UNDER THE GARB OF CHARITY BY MAKING IT A NON-TAX PA YABLE ORGANISATION. (B) SIMILARLY. HON'BLE 1TAT. COCHIN BENCH IN THE CASE OF GREATER COCHIN DEVELOPMENT AUTHORITY VS. JOINT DIR ECTOR OF IT(E) I.T.A. NOS. 792&793/COCH/2013 HAS HELD AS UNDER : 'IN SUCH A SITUATION, WE ARE OF THE VIEW THAT NO CH ARITY IS INVOLVED AND IF ANY INSTITUTION OF PUBLIC IMPORTANCE LIKE SCHOOL S, COMMUNITY CENTERS ARE CREATED/DEVELOPED, THE ASSESSEE IS CHARGING THE COST OF IT FROM THE PUBLIC AT LARGE AND THE MONEY IS COMING FROM THE CO FFER OF THE GOVERNMENT. IT CAN BE SAID THAT OBJECTS/ACF/W'TFES OF THE ASSESSEE ARE MORE OF COMMERCIALIZED NATURE AND WE DO NOT FIND AN Y CHARITY IN IT. AT THE SAME TIME, IF THESE FACILITIES ARE NOT PROVIDED , THEN NOBODY WILL PURCHASE A PLOT IT CAN BE SAID THAT IT IS A MEANS O F ATTRACTING THE PEOPLE SO THAT MAXIMUM PEOPLE MAY APPLY FOR THE SAME AND T HE HIDDEN COST IS ALREADY ADDED, SO NO CHARITY IS INVOLVED. AT BEST, THE ASSESSEE CAN BE SAID TO BE AN AUTHORITY CREATED TO HELP IT TO ACHIE VE CERTAIN OBJECTS. IT CAN BE SAID THAT IT IS THE DUTY OF THE GOVERNMENT T O CREATE/PROVIDE ALL THESE FACILITIES TO PUBLIC AT LARGE, WHICH IS BEING DONE THROUGH THIS AGENCY IN A PARTICULAR AREA. AT THE SAME TIME, THE FUNDS WHICH ARE PROVIDED TO THE ASSESSEE BY THE GOVERNMENT IS AGAIN A PUBLIC MONEY OR GENERATED FROM THE PUBLIC ITSELF, SO WHERE IS THE C HARITY? (C) THERE ARE NO RESTRICTIONS AS TO THE APPLICATION OF THE ASSETS OF THE AUTHORITY ON DISSOLUTION OR WINDING UP. IN THE CASE OF CIT VS. SURAT ART SILK CLOTH MANUFACTURES ASSOCIATION, 121 ITR 1 , IT WAS HELD BY HON'BLE SUPREME COURT THAT- 'SINCE THE INCOME AND PROPERTY OF THE ASSESSEE WERE LIABLE TO BE APPLIED SOLELY AND EXCLUSIVELY FOR THE PROMOTION OF THE OBJECTS SET OUT IN THE MEMORANDUM AND NO PART OF SUCH INCOME OR PRO PERTY COULD BE DISTRIBUTED AMONGST THE MEMBERS IN ANY FORM OR UTIL IZED FOR THEIR BENEFIT EITHER DURING ITS OPERATIONAL EXISTENCE OR ON ITS WINDING UP OR DISSOLUTION AS SUCH THE OBJECT WAS A CHARITABLE ONE '. (D) IN THIS CONTEXT, IT WAS ALSO MENTIONED THAT ON SIMILAR ISSUE, IN THE CASE OF M/S. GREATER NOIDA INDUSTRIAL DEVELOPMENT AUTHORITY , ITA NO.108 OF 2016 DATED 21.4.2017 , THE HON'BLE HIGH COURT OF JUDICATURE AT ALLAHABAD, LUCKNOW BENCH IN WRIT PETITION NO. M.B 25204 OF 2016 ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 36 - DATED 21.4.2017 HAS DISMISSED THE APPEAL OF REVENUE AGAINST WITH S LP HAS BEEN PREFERRED BEFORE HONBLE SUPREME COURT. SI MILARLY, IN THE CASE OF NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY IN ITA NO.114/2016 AND IN THE CASE OF YAMUNA EXPRESSWAY INDUSTRIAL DEVELOPMENT AUTHORITY IN ITA NO.107/2016 AGAINST WHICH SLP BEFORE THE HON'BLE SUPREME COURT HAS BEEN PREFERRED. 10.5 IT WAS THUS CONTENDED THAT THE DECISION OF TH E CIT(A) IS INCORRECT ON MERIT. IT WAS POINTED OUT FOR THE SAME ISSUE, I N THE CASE OF AHMEDABAD URBAN DEVELOPMENT AUTHORITY, THE ITAT HAS GIVEN A JUDGMENT IN THE FAVOUR OF THE DEPARTMENT. HOWEVER, HON'BLE H.C. OF GUJARAT IN THE CASE OF AUDA VS ACIT IN ITA NO. 423,424,425 OF 2016 DTD. 02-05-2017 HAS GIVEN JUDGMENT IN THE FAVOUR OF THE ASSESSEE. IT WAS STATED THAT AGAINST THE DECISION OF HON'BLE GUJARAT HIGH COURT, THE DEPARTMENT HAS PREFERRED SLP BEFORE HON'BLE SUPREME COURT. 10.6 IT WAS THUS ULTIMATELY CONTENDED BY THE LEARN ED DR FOR THE REVENUE THAT THE DECISION OF THE CIT(A) IS NOT PROP ER ON MERITS. 11. WE HAVE CAREFULLY CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. THE CORE CONTROVE RSY PLACED BEFORE US IS WHETHER THE ASSESSEE TRUST IS ENTITLED TO EXEMPTION UNDER S.11 & 12 OF THE ACT ON SURPLUS ARISING FROM CARRYING OUT PLANNED DE VELOPMENT OF AREAS AS DEFINED AND DESIGNED BY THE GOVERNMENT OF GUJARAT A ND FOR CARRYING OUT INFRASTRUCTURAL ACTIVITIES RELATING THERETO SUCH AS CONSTRUCTION OF ROADS, BRIDGES, DRAINAGE SYSTEMS, WATER CONNECTION ETC. FO R THE BENEFIT OF PUBLIC AT LARGE. IT WAS THE CASE OF THE ASSESSEE BEFORE T HE CIT(A) THAT THE TRUST IS REGISTERED UNDER S.12AA OF THE ACT AND THE OBJEC TS OF THE TRUST ARE CLAIMED TO BE ADVANCEMENT OF GENERAL PUBLIC UTILITY BUT WITHOUT ANY PROFIT MOTIVE AND THEREFORE THE CASE FALLS OUTSIDE THE SCOPE OF EXCEPTION CARVED OUT IN PROVISO TO SECTION 2(15) OF THE ACT. IT IS THE CASE OF THE REVENUE, ON THE OTHER HAND, BEFORE US THAT THE ACTI VITIES OF THE TRUST ARE IN THE NATURE OF ADVANCEMENT OF GENERAL PUBLIC UTIL ITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS AND THE CASE OF THE ASS ESSEE FALLS UNDER ITA NOS. 2389 TO 2394/AHD/17 [DCIT(E) VS. RAJKOT URBAN DEVELOPMENT AUTHORITY] A.YS. 2009-10 TO 2014- 15 - 37 - PROVISO TO SECTION 2(15) OF THE ACT AND THEREFORE T HE OBJECTS OF THE TRUST CANNOT BE REGARDED TO BE FOR CHARITABLE PURPOSE A S CONTEMPLATED UNDER S.2(15) OF THE ACT. IT IS THUS THE CASE OF THE REV ENUE THAT THE OBJECTS OF THE ASSESSEE TRUST NOT BEING CHARITABLE, THE BENEFI TS OF SECTION 11 & 12 OF THE ACT CANNOT BE AVAILED. WE FIND THAT THE ISSUE IS NO LONGER RES INTEGRA . THE HONBLE GUJARAT HIGH COURT IN THE CASE OF AU DA ITSELF HAS ADJUDICATED THE ISSUE IN FAVOUR OF THE ASSESSEE. T HE CIT(A) HAS TAKEN COGNIZANCE OF THE BINDING DECISION OF THE HONBLE G UJARAT HIGH COURT IN GREAT LENGTH AND HAS RIGHTLY REVERSED THE ACTION OF THE AO AND HELD THAT THE ASSESSEE IS ENTITLED TO THE RELIEF CLAIMED. WE FIND NO ERROR IN THE ORDER OF THE CIT(A) IN VIEW OF THE DECISION RENDERE D IN AUDA BY THE HONBLE GUJARAT HIGH COURT. WE THEREFORE DECLINE T O INTERFERE WITH THE ORDER OF CIT(A). 12. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO. 2389/AHD/2017 AND ALL OTHER CAPTIONED APPEALS OF THE REVENUE ARE DISMISSED. SD/- SD/- (MADHUMITA ROY) (PRADIP KUMAR KE DIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 18/12/2019 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 18/12/201 9