The Dy. Commr. of Income Tax, (Exemption) Circle-2, Ahmedabad V. Jamnagar Area Development Authority, JAMNAGAR

ITA 2425/AHD/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 3238 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 22-10-2019
• Assessment Year: 2009-2010
• Appeal Filed On: 03-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Search and seizure; Charitable institution; Audit objection; Deemed to accrue or arise in india; Question of law; Cost of acquisition; Capital receipt; Benefit of exemption; Capital expenditure
• Section: 143(3); 12A; 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. 2425 TO 2428/AHD/2017 ( ASSESSMENT YEARS : 2009-10, 2010-11, 2011-12 & 2014-15) DEPUTY COMMISSIONER OF INCOME-TAX (EXEMPTIONS) CIRCLE-2, AHMEDABAD 2 ND FLOOR, NATURE VIEW BUILDING, OPP. H. K. HOUSE, ASHRAM ROAD, AHMEDABAD - 380009 / VS. JAMNAGAR AREA DEVELOPMENT AUTHORITY 1 ST FLOOR, DR. HEDGEWAR COMMERCIAL COMPLEX, NEAR M. P. SHAH COLLEGE, SAT RASTA, JAMNAGAR - 361001 ./ ./ PAN/GIR NO. : AAALJ0188Q ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI ALOK SINGH, CIT.D.R. / RESPONDENT BY : SHRI SANJAY R. SHAH, A.R. DATE OF HEARING 22/10/2019 !'# / DATE OF PRONOUNCEMENT 15/11/2019 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEALS FILED AT THE INSTANCE OF REVE NUE ARISE FROM THE RESPECTIVE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) (CIT(A)) AGAINST RESPECTIVE ASSESSMENT ORDERS FOR DIFFERENT ASSESSMENT YEARS AS TABULATED BELOW: ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 2 - ITA NOS. NAME OF ASSESSEE AY CIT(A)S ORDER DATED AOS ORDER DATED AOS ORDER UNDER SECTION 2425/AHD/17 JAMNAGAR AREA DEVELOPMENT AUTHORITY 2009-10 21.08.2017 28.12.2016 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (THE ACT) 2426/AHD/17 -DO- 2010-11 -DO- -DO- -DO- 2427/AHD/17 -DO- 2011-12 -DO- -DO- 143(3) R.W.S 263 OF THE ACT 2428/AHD/2017 -DO- 2014-15 -DO- -DO- 143(3) OF THE ACT 2. THE ISSUE INVOLVED BEING COMMON IN ALL THE FOUR APPEALS FILED BY THE REVENUE, ALL SUCH APPEALS WERE HEARD TOGETHER A ND DISPOSED OF BY THE COMMON ORDER. 3. WE SHALL ADOPT THE FACTS CONCERNING AY 2009-10 I N ITA NO. 2425/AHD/2017 FOR THE PURPOSES OF DELIBERATION ON T HE ISSUES INVOLVED FOR CONVENIENCE PURPOSES. ITA NO. 2425/AHD/2017-AY-2009-10 4. THE SUBSTANTIVE GROUNDS OF APPEAL RAISED BY THE REVENUE 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 JAMNAGAR WHICH IS IN THE NATURE OF ADVANCEM ENT OF GENERAL PUBLIC UTILITY NOT HIT BY THE NEWLY INTRODUCED FIRS T 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 COV ERED 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.64,99,534/- MADE ON ACCOUNT OF RECEI PT OF INFRASTRUCTURE FUND CONSIDERING THE CAPITAL RECEIPT S WOULD BE PART OF BALANCE SHEET AND NOT INCOME OF THE ASSESSEE. 4. THE LD CIT(A) HAS ERRED IN THE LAW AND ON FACTS IN DELETING THE ADDITION OF RS.1,53,00,676/- CONSIDERING THAT A CAP ITAL EXPENDITURE BY A PERSON NEED NOT BE A CAPITAL RECEIPT OF THE PE RSON RECEIVING ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 3 - 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 RS.79,11,578/- U/S.11(2) AND ACCUMU LATION @15% OF RS.59,04,481/- U/S11(1)(A) OF THE ACT WITHOUT AP PRECIATING THE FACT THAT ONCE THE PROVISO TO SECTION 2(15) IS APPL ICABLE, THE BENEFIT OF SECTION 11 & 12 CANNOT BE ALLOWED FURTHER. 5. AS SUBMITTED ON BEHALF OF THE ASSESSEE BEFORE THE CIT(A), THE ASSESSEE [JAMNAGAR AREA DEVELOPMENT AUTHORITY (JADA )] HAS BEEN CONSTITUTED ON 30.10.1978 UNDER THE PROVISIONS OF G UJARAT TOWN PLANNING AND URBAN DEVELOPMENT ACT, 1976. IT IS AN AUTHORITY WHOLLY OWNED AND CONTROLLED BY THE STATE GOVERNMENT OF GUJ ARAT. 5.1 THE MAIN PURPOSE OF FORMING THE SAID ACT WAS FO R SETTING UP AN AUTHORITY FOR PLANNING, COORDINATING AND SUPERVISIN G FOR PROPER, ORDERLY AND RAPID DEVELOPMENT OF THE AREAS IN VARIOUS REGIO N AND FOR EXECUTING PLANS, PROJECTS AND SCHEMES FOR SUCH DEVELOPMENT AN D TO PROVIDE FOR THE MATTERS CONNECTED THEREWITH, SO THAT HOUSING, COMMU NITY FACILITIES, CIVIL AMENITIES AND OTHER INFRASTRUCTURAL FACILITIES ARE CREATED. HAVING CONSTITUTED TO ACHIEVE THE ABOVE OBJECTS, THE AUTHO RITY PERFORMS IN THE AREA OF URBAN RENEWAL, ENVIRONMENT AND ECOLOGY DIRE CTLY OR THROUGH ITS FUNCTIONAL BOARDS AND IT IS NOT ONLY ENGAGED IN PLA NNING THE URBAN AREA WITH MASTER DEVELOPMENT PLAN AND ZONAL DEVELOPMENT PLAN BUT ALSO SANCTION PROJECTS AND SCHEMES FOR DEVELOPMENT. IN F ACT, THE AUTHORITY IS A TOOL OF THE STATE GOVERNMENT FOR COORDINATED AND PL ANNED DEVELOPMENT IN A PARTICULAR REGION. THE AUTHORITY ALSO CARRIES OUT WORK RELATING TO CONSTRUCTION OF ROADS, SEWERAGE, PARKS, PLAY GROUND S, PROVIDE PLOTS FOR EDUCATIONAL, HEALTH AND CULTURAL INSTITUTION FOR OV ER ALL DEVELOPMENT OF THE COMMUNITY. THE REVENUE GENERATED THROUGH THESE ACTIVITIES IS ALSO FINALLY UTILIZED FOR THE BENEFIT OF THE PUBLIC AND WHILE PERFORMING THESE ACTIVITIES, THE INTENTION OF THE AUTHORITY IS NOT T O EARN PROFIT BUT RECOVER THE COST OF THE ESTABLISHMENT AS WELL AS OTHER EXPE NDITURE TO IMPLEMENT ITS OBJECTS. ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 4 - 5.2 IT WAS ALSO STATED THAT THE AUTHORITY HAS BEEN GRANTED REGISTRATION U/S. 12A BY THE COMMISSIONER OF INCOME TAX, JAMNAGA R VIDE NUMBER CIT.J/TECH/12A(A)/66/2003-04/3484 ON 17.03.2005. 5.3 THE AUTHORITY UNDERTAKES THE FOLLOWING ACTIVITI ES: PREPARATION OF DEVELOPMENT PLANS UNDER THE PRO VISIONS OF THE ACT FOR THE DEVELOPMENT OF AREA PREPARATION AND EXECUTION OF TOWN PLANNING SC HEMES UNDER THE PROVISIONS OF THE ACT IF SO DIRECTED BY THE STATE G OVERNMENT CARRYING OUT SURVEYS IN THE DEVELOPMENT AREA FO R THE PREPARATION OF DEVELOPMENT PLANS OR TOWN PLANNING SCHEMES TO LEVY AND COLLECT SUCH FEES FOR SCRUTINY OF D OCUMENTS SUBMITTED TO THE APPROPRIATE AUTHORITY FOR PERMISSION FOR DEV ELOPMENT AS MAY BE PRESCRIBED BY THE REGULATIONS. TO EXECUTE WORKS IN CONNECTION WITH SUPPLY OF W ATER, DISPOSAL OF SEWAGE AND PROVISION OF OTHER SERVICES AND AMENITIE S TO LEVY AND COLLECT SUCH FEES FOR EXECUTION OF WORKS AND FOR PROVISION OF OTHER SERVICES AND AMENITIES AS MAY BE PRESCRIBED BY REGULATION TO PERFORM SUCH OTHER FUNCTIONS AS ARE SUPPLEME NTAL, INCIDENTAL OR CONSEQUENTIAL TO THE ACTIVITIES AS MENTIONED HEREIN ABOVE. 5.4 THE AO WHILE FRAMING THE ASSESSMENT HELD THAT T HE NATURE OF ACTIVITY OF AUTHORITY IS TOWARDS ADVANCEMENT OF OBJ ECTS OF GENERAL PUBLIC UTILITY AND THE SAME IS IN THE NATURE OF TRADE, COM MERCE OR BUSINESS. AS A SEQUEL TO SUCH OBSERVATIONS, THE AO HELD THAT THE ACTIVITY OF THE ASSESSEE DOES NOT FALL WITHIN THE SWEEP OF DEFINITI ON OF CHARITABLE PURPOSE AS DEFINED UNDER S.2(15) OF THE ACT IN VIE W OF THE PROVISO TO SECTION 2(15) OF THE ACT. THE AO ACCORDINGLY DENIE D THE BENEFIT OF EXEMPTION UNDER S.11 OF THE ACT ON THE PROFITS GENE RATED BY THE ASSESSEE AUTHORITY AND CARRIED DISALLOWANCES OF BENEFITS CLA IMED BY ASSESSEE UNDER S.11(2)/11(1)(A) OF THE ACT TOWARDS ACCUMULAT IONS ETC. ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 5 - 6. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). THE CIT(A) FOUND MERITS IN THE PLEA OF THE ASSESSE AND HELD THE ACTIVITY OF ASSESSEE AUTHORITY TO BE CHARITABLE IN NATURE. THE RELEVANT OPERATIVE PARA OF THE CIT(A) IS REPRODUCED HEREUNDER: 5.2 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, 424, 425 OF 2016 DATED 02/05/2017. THE QUESTION OF LAW BEFORE THE HON'BLE 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? (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, 1961, AND A SSESSING THE INCOME OF THE APPELLANT UNDER SECTIONS 28 TO 44 OF THE INCOME TAX ACT, 1961?' FINDINGS OF HON'BLE GUJARAT HIGH COURT: 10. THE SHORT HUT INTERESTING QUESTION OF LAW POSE D FOR THE CONSIDERATION OF THIS COURT IN THE PRESENT APPEAL I S WHETHER THE ACTIVITIES OF THE OF THE ASSESSEE 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 ASSESSES 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 CONSIDER ATION, AS THE ASSESSEE IS COLLECTING / RECOVERING FEES BY PERFORM ING DUTY UNDER THE PROVISION OF GUJARAT TOWN PLANNING ACT AND THER EFORE, WHETHER SECOND PART OF THE PROVISO TO SECTION 2(15) OF THE ACT SHALL BE APPLICABLE SO AS TO DENY THE EXEMPTION CLAIMED BY T HE ASSESSES, 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 ASSESSES AS AN URBAN DE VELOPMENT AUTHORITY ARE REQUIRED TO BE CONSIDERED, SO AS TO A PPRECIATE WHETHER THE ACTIVITIES OF THE ASSESSED BEING URBAN DEVELOPMENT AUTHORITY CAN BE SAID TO BE IN THE NATURE OF TRADE, COMMERCE OR BUSINESS ? ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 6 - THE RELEVANT PROVISIONS OF THE GUJARAT TOWN PLANNIN G ACT, UNDER WHICH, THE ASSESSES 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 OPER ATIONS IN, OR OVER, OR UNDER LAND OR THE MAKING OF ANY MATERIAL C HANGE IN ANY BUILDING OR LAND OR IN THE USE OF ANY BUILDING OR L AND, AND INCLUDES LAYOUT AND SUBDIVISION OF ANY LAND; SECTION 2(XXVIII):'URBAN DEVELOPMENT AUTHORITY' MEA NS AN URBAN DEVELOPMENT AUTHORITY CONSTITUTED UNDER SECTION 22; SECTION 2(XXIX):'URBAN DEVELOPMENT AREA' MEANS AN AREA DECL ARED TO BE AN URBAN DEVELOPMENT AREA UNDER SECTION 22. SECTION 22: DECLARATION OF URBAN DEVELOPMENT AREA A ND 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 SUCH ADJA CENT AREAS AS MAY BE CONSIDERED NECESSARY, WHETHER COVERED UNDER A DEVELOPMENT AREA ALREADY DECLARED AS SUCH UNDER SECTION 3 OR NO T, WILL BE BEST SERVED BY ENTRUSTING THE WORK OF DEVELOPMENT OR RED EVELOPMENT THEREOF TO A SPECIAL AUTHORITY, INSTEAD OF TO AN AR EA DEVELOPMENT AUTHORITY, THE STATE GOVERNMENT MAY, BY NOTIFICATIO N, DECLARE SUCH AREA TO BE AN URBAN DEVELOPMENT AREA AND CONSTITUTE AN AUTHORITY FOR SUCH AREA TO BE CALLED THE URBAN DEVELOPMENT AU THORITY OF THAT AREA, AND THEREUPON ALL THE POWERS AND FUNCTIONS OF AN AREA DEVELOPMENT AUTHORITY RELATING TO THE DEVELOPMENT O R REDEVELOPMENT OF A DEVELOPMENT AREA UNDER THIS ACT SHALL, IN RELATION TO SUCH URBAN DEVELOPMENT AREA, BE EXERCIS ED AND PERFORMED BY SUCH URBAN DEVELOPMENT AUTHORITY 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 GAZETTE, INCLU DE IN OR EXCLUDE ANY AREA FROM AN URBAN DEVELOPMENT AREA, AMALGAMATE TWO OR MORE URBAN DEVELOPMENT AREAS INTO ONE URBAN DEVELOPMENT AREA, SUBDIVIDE ANY URBAN DEVELOPMENT AREA INTO DIFFERENT URBAN DEVELOPMENT AREAS AND INCLUDE SUCH SUBDIVIDED URBAN DEVELOPMENT AREA IN ANY OTHER URBAN 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. (1) THE URBAN DEVELOPMENT AUTHORITY SHALL CONSIST O F THE FOLLOWING MEMBERS NAMELY: (I) A CHAIRMAN TO BE APPOINTED BY THE STATE GOVERNMENT; (II) SUCH PERSONS, NOT EXCEEDING 3 [FOUR IN NUMBER] WHO ARE MEMBERS OF THE LOCAL AUTHORITY OR AUTHORI TIES FUNCTIONING IN THE URBAN DEVELOPMENT AREA, AS MAY BE NOMINATED BY THE STATE ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 7 - GOVERNMENT: (III)4[THREE OFFICIALS] OF THE STATE GO VERNMENT, TO BE NOMINATED BY THAT GOVERNMENT, EXOFFICIO; (IV) THE P RESIDENTS OF THE DISTRICT PANCHAYATS FUNCTIONING IN THE URBAN DEVELO PMENT AREA, OR, AS THE CASE MAY BE, PART THEREOF, EXOFFICIO: (V) TH E 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 DEVELOPMENT AREA OR HIS OR THEIR NOMINEE OR NOMINEES, EXOFFICIO: 5[(VIA) THE MUNICIPAL COMMI SSIONER 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 DEVELOPM ENT 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 THE SAID SUBSECTION SHALL BE CONSTRUED AS REFERENCES TO AN U RBAN 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 DEVELO PMENT PLANS UNDER THE PROVISIONS OF THIS ACT, FOR THE URBAN DEV ELOPMENT AREA: (H) TO UNDERTAKE THE PREPARATION [AND EXECUTION] OF TOWN PLANNING SCHEMES UNDER THE PROVISIONS OF THIS ACT, IF SO DIR ECTED BY THE STATE GOVERNMENT: (HI) TO CARRY OUT SURVEYS IN THE URBAN DEVELOPMENT AREA FOR THE PREPARATION OF DEVELOPMENT PLANS OR TO WN PLANNING SCHEMES: (IV) TO GUIDE, DIRECT AND ASSIST THE LOCAL AUTHORITY OR AUTHORITIES AND OTHER STATUTORY AUTHORITIES FUNCTIO NING IN THE URBAN DEVELOPMENT AREA IN MATTERS PERTAINING TO THE PLANN ING, DEVELOPMENT AND USE OF URBAN LAND, (V) TO CONTROL T HE DEVELOPMENT ACTIVITIES IN ACCORDANCE WITH THE DEVELOPMENT PLAN IN THE URBAN DEVELOPMENT AREA: 3 [(VA) TO LEVY AND COLLECT SUCH SECURITY FEES 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 WITH SUPPLY OF WATER, DISPOSAL OF SEWERAGE AND PROVISION OF OTHER SERVICES AND AME NITIES: 4 [(VIA) TO LEVY AND COLLECT SUCH FEES FOR THE EXECUTION OF WORKS REFERRED TO IN CLAUSE (VI) AND FOR PROVISION OF OTHER SERVICES AND AMENITIES AS MAY BE PRESCRIBED BY REGULATIONS;] (VII) TO ACQUIRE , HOLD, MANAGE AND DISPOSE OF PROPERTY, MOVABLE OR IMMOVABLE, AS I T MAY DEEM NECESSARY; (VIII) TO ENTER INTO CONTRACTS, AGREEMEN TS OR ARRANGEMENTS, WITH ANY LOCAL AUTHORITY, PERSON OR O RGANISATION AS THE URBAN DEVELOPMENT AUTHORITY MAY CONSIDER NECESS ARY FOR PERFORMING ITS FUNCTIONS; (IX) TO CARRY ANY DEVELOP MENT 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 FUNCTIONS AS ARE SUPPLEMENTA L, INCIDENTAL OR CONSEQUENTIAL TO ANY OF THE FOREGOING POWERS AND FU NCTIONS OR AS MAY BE DIRECTED 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 FUNCTIONING IN T HE URBAN DEVELOPMENT AREA. ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 8 - (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 A NY PART THEREOF, REGARD BEING HAD TO THE PROPOSALS IN THE F INAL DEVELOPMENT PLAN,IF ANY. (2) A TOWN PLANNING SCHEME 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 SU BSECTION THE EXPRESSION 'LAND LIKELY TO BE USED FOR BUILDING PUR POSES' SHALL INCLUDE ANY LAND LIKELY TO BE USED AS, OR FOR THE P URPOSE OF PROVIDING, OPEN SPACES, ROADS, STREETS, PARKS, PLEA SURE OR RECREATION GROUNDS, PARKING SPACES OR FOR THE PURPO SE OF EXECUTING ANY WORK UPON OR UNDER THE LAND INCIDENTAL TO 3 TOW N PLANNING SCHEME, WHETHER IN THE NATURE OF A BUILDING WORK OR NOT. (3) A TOWN PLANNING SCHEME MAY MAKE PROVISION FOR ANY 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, CON STRUCTION, DIVERSION, EXTENSION, ALTERATION, IMPROVEMENT AND C LOSING UP OF STREETS AND ROADS AND DISCONTINUANCE OF COMMUNICATI ONS; (D) THE CONSTRUCTION, ALTERATION AND REMOVAL OF BUILDINGS, BRIDGES AND OTHER STRUCTURES; (E) THE ALLOTMENT OR RESERVATION OF/AND FOR ROADS, OPEN SPACES, GARDENS, RECREATION GROUNDS, SCHOOLS, MARKETS, GREENBELTS, DAIRIES, TRANSPORT FACILITIES, PUBLIC P URPOSES OF A/I KINDS; (F) DRAINAGE, INCLUSIVE OF SEWERAGE, SURFACE OR SUBSOIL DRAINAGE AND SEWAGE DISPOSAL; (G) LIGHTING; (H) WAT ER SUPPLY; (I) THE PRESERVATION OF OBJECTS OF HISTORICAL OR NATION AL INTEREST OR NATURAL 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 T HE TOTAL AREA COVERED UNDER THE SCHEME, FOR THE PURPO SE OF PROVIDING HOUSING ACCOMMODATION TO THE MEMBERS OF SOCIALLY AN D ECONOMICALLY BACKWARD CLASSES OF PEOPLE; 2 [3 [(JJ) (A) THE ALLOTMENT OF LAND FROM THE TOTAL AREA COVERED UNDER THE SCHEME, TO THE EXTENT OF.(I) FIFTEEN PER CENT, FOR ROADS, (II) FIVE PER CENT, FOR PARKS, PLAY GROUNDS, GARDENS AND OPEN SPACE, (III) FIVE PER CENT, FOR SOCIAL INFRASTRUCTURE SUCH AS SCHOOL, DISPENSARY, F IRE BRIGADE, PUBLIC UTILITY PLACE AS EARMARKED IN THE DRAFT TOWN PLANNING SCHEME, AND (IV) FIFTEEN PER CENT- FOR SALE BY APPR OPRIATE 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 (H I) MAY BE ALTERED DEPENDING UPON THE NATURE OF DEVELOPMENT AND FOR TH E 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 INFRASTRUCTURE FACILITIES; (C) THE LAND A LLOTTED FOR THE PURPOSES REFERRED TO IN PARAGRAPHS (II) AND (HI) OF SUB CLAUSE (A) ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 9 - SHALL NOT BE CHANGED BY VARIATION OF SCHEMES FOR TH E PURPOSES OTHER THAN PUBLIC PURPOSE;]] (K) THE IMPOSITION OF CONDIT IONS AND RESTRICTIONS IN REGARD TO THE OPEN SPACE TO BE MAIN TAINED AROUND BUILDINGS, THE PERCENTAGE OF BUILDING AREA FOR A PL OT, THE NUMBER, SIZE, HEIGHT AND CHARACTER OF BUILDING ALLOWED IN S PECIFIED AREAS, THE PURPOSES TO WHICH BUILDINGS OR SPECIFIED AREAS MAY OR MAY NOT BE APPROPRIATED. THE SUBDIVISION OF PLOTS, THE DISC ONTINUANCE OF OBJECTIONABLE USES OF LANDS IN ANY AREA IN SPECIFIE D PERIODS, PARKINGS SPACE AND LOADING AND UNLOADING SPACE FOR ANY BUILDING AND THE SIZES OR LOCATIONS OF PROJECTIONS AND ADVER TISEMENT SIGNS; (I) THE SUSPENSION, SO FAR AS MAY BE NECESSARY, FO R THE PROPER CARRYING OUT OF THE SCHEME, OF ANY RULE, BYELAW, REGULATION, NOTIFICATION OR ORDER MODE OR ISSUED UNDER ANY ACT OF THE STATE LEGISLATURE OR ANY OF THE ACTS WHICH THE STATE LEGI SLATURE IS COMPETENT TO AMEND: PROVIDED THAT ANY SUSPENSION UN DER THIS CLAUSE SHALL CEASE TO OPERATE IN THE EVENT OF THE S TATE GOVERNMENT 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 N OT 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 RECEIVED B Y THE AUTHORITY BY WAY OF GRANTS, LOANS, 1 [ADVANCES, FEES, DEVELOP MENT CHARGES OR OTHERWISE:} (B) ALL MONEYS DERIVED FROM ITS UNDERTA KINGS, PROJECTIONS AND OTHER SOURCES; FC) SUCH AMOUNT OF C ONTRIBUTIONS FROM LOCAL AUTHORITIES AS THE STATE GOVERNMENT MAY SPECIFY FROM TIME TO TIME TO BE CREDITED TO THE FUND OF THE AUTH ORITY. (2) THE FUND OF AN APPROPRIATE AUTHORITY SHALL BE APPLIED TOWARD S 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 DEVELOPMENT OF LAND IN THE DEVELOPMENT AREA; (D ) EXPENDITURE FOR SUCH OTHER PURPOSES AS THE STATE GOVERNMENT MAY DIRECT. (3) AN APPROPRIATE AUTHORITY MAY KEEP IN CURRENT ACCOUNT W ITH THE STATE BANK' OF INDIA OR ANY OTHER BANK APPROVED BY THE SL ATE GOVERNMENT 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 LOANS TO AN APPROPRIATE AUTHORITY AS ! HE 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 55: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 AS THE STA TE GOVERNMENT MAY PROSCRIBE. (2) THE ACCOUNTS OF AN APPROPRIATE A UTHORITY SHALL BE SUBJECT TO AUDIT ANNUALLY BY THE ACCOUNTANT GENE RA! OF THE STATE AND ANY EXPENDITURE INCURRED BY HIM IN CONNECTION W ITH SUCH AUDIT ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 10 - SHALL BE PAYABLE BY THE AUTHORITY TO THE ACCOUNTANT GENERAL. (3) THE ACCOUNTANT GENERAL OR ANY PERSON APPOINTED BY H IM IN 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! HAS IN CO NNECTION WITH GOVERNMENT ACCOUNTS AND IN PARTICULAR SHALL HAVE TH E RIGHT TO DEMAND THE PRODUCTION OF BOOKS, ACCOUNTS, CONNECTED VOUCHERS AND OTHER DOCUMENTS AND PAPERS AND TO INSPECT THE OFFIC E OF THE APPROPRIATE AUTHORITY. (4) THE ACCOUNTS OF AN AUTHO RITY AS CERTIFIED BY THE ACCOUNTANT GENERAL OR ANY OTHER PERSON AUTHO RISED BY HIM IN THIS BEHALF, TOGETHER WITH THE AUDIT REPORT THER EON, SHALL BE FORWARDED ANNUALLY TO 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 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 AUTHORITIES F UNCTIONING IN THE URBAN DEVELOPMENT AREA, AS MAY BE NOMINATED BY THE STATE GOVERNMENT; (III) THREE OFFICIALS OF THE STATE GOVE RNMENT, TO BE NOMINATED BY THAT GOVERNMENT, EXOFFICIO; (IV) THE P RESIDENTS OF THE DISTRICT PANCHAYATS FUNCTIONING IN THE URBAN DEVELO PMENT AREA, OR, AS THE CASE MAY BE, PART THEREOF, EXOFFICIO; (V) TH E 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 DEVELOPMENT AREA OR HIS OR THEIR NOMINEE OR NOMINEES, EXOFFICIO, 5[(VIA) THE MUNICIPAL COMMI SSIONER 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 DEVELOPM ENT AUTHORITY. THUS, THE CONSTITUTION OF THE URBAN DEVELOPMENT AUT HORITY IS SUBJECT TO THE CONTROL OF THE STATE GOVERNMENT. THE POWERS AND FUNCTIONS OF THE URBAN DEVELOPMENT AUTHORITY AS CON TAINED IN SECTION 23 ARE REPRODUCED HEREIN ABOVE. CONSIDERING SECTION 40 OF THE TOWN PLANNING ACT, THE TOWN PLANNING SCHEME P REPARED BY THE URBAN DEVELOPMENT AUTHORITY WHICH HAS BEEN PREP ARED SUBJECT TO SANCTION BY THE STATE GOVERNMENT FOR DEVELOPMEN T OF THE URBAN DEVELOPMENT AREA, ALSO PROVIDE FOR MADS, OPEN SPA CES, GARDENS, RECREATION GROUNDS, SCHOOLS, MARKETS, GREEN BELTS, DAIRIES, TRANSPORT FACILITIES, PUBLIC PURPOSES OF ALL KINDS; DRAINAGE, INCLUSIVE OF SEWERUGO, SURFACE NR SUBSOIL DRAINAGE AND SEWAGE DISPOSAL; LIGHTING; WATER SUPPLY ETC. THE TOWN PLAN NING SCHEME ALSO PROVIDE FOR HISTORICAL OR NATIONAL INTEREST OR NATURAL BEAUTY, AND OT BUILDINGS ACTUALLY USED FOR RELIGIOUS PURPOS ES. THE SCHEME ARE ALSO PROVIDE FOR RESERVATION OF LAND TO THE EXT ENT OF TEN PERCENT, OR SUCH PERCENTAGE AS NEAR THERETO AS POSSIBLE OF T HE TOTAL AREA COVERED UNDER THE SCHEME, FOR THE PURPOSE OF PROVID ING HOUSING ACCOMMODATION TO THE MEMBERS OF SOCIALLY AND ECONOM ICALLY BACKWARD CLASSES OF PEOPLE AS PER SECTION 40(I)(JJ) FOR THE AFORESAID PURPOSES CERTAIN PERCENTAGE OF TOTAL AREA COVERED UNDER ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 11 - THE SCHEME ARE ALLOTTED EARMARKED. FIFTEEN PERCENT OF TOTAL AREA IS ALLOTTED FOR THE PURPOSE OF ROADS, FIVE PERCENT FOR PARKS, PLAY GROUNDS, GARDENS AND OPEN SPACE, FIVE PERCENT FOR S OCIAL INFRASTRUCTURE SUCH AS SCHOOL, DISPENSARY, FIRE BRI GADE, PUBLIC UTILITY PLACE AS EARMARKED IN THE DRAFT TOWN PLANNI NG SCHEME AND FIFTEEN PERCENT FOR SALE BY APPROPRIATE AUTHORITY F OR RESIDENTIAL, COMMERCIAL OR INDUSTRIAL USE DEPENDING UPON THE NAT URE OF DEVELOPMENT. LAST FIFTEEN PERCENT IS EARMARKED UNDE R THE TOWN PLANNING SCHEME FOR SALE, BY APPROPRIATE AUTHORITY FOR RESIDENTIAL, COMMERCIAL OR INDUSTRIAL USE. THE APPROPRIATE AUTHO RITY / URBAN DEVELOPMENT AUTHORITY IS PERMITTED TO SALE THE SAID PLOTS / LANDS TO THE EXTENT OF 15% OF THE TOTAL AREA TO MEET WITH TH E EXPENDITURE TOWARDS DRAINAGE, ROADS, GARDENS, SCHOOLS, MARKETS, WATER SUPPLY ETC. SO THAT MAXIMUM PRICE CAN BE FETCHED AND THE S AME CAN BE UTILIZED FOR THE DEVELOPMENT OF THE URBAN DEVELOPME NT AREA AND SO AS TO AVOID ANY ALLEGATION OF FAVORITISM AND NEPOTI SM, THE PLOTS ARE SOLD BY PUBLIC AUCTION IT IS REQUIRED TO BE NOTED T HE ENTIRE AMOUNT REALIZED BY THE ASSESSEE BEING URBAN DEVELOPMENT AU THORITY EITHER BY SELLING PLOTS OR BY RECOVERY OF SOME FEES / CHAR GES, URBAN AUTHORITY IS REQUIRED TO USE ONLY FOR THE PURPOSE O F DEVELOPMENT IN THE URBAN DEVELOPMENT AREA AND NOT FOR ANY OTHER PU RPOSE. THE LEARNED TRIBUNAL HAS OBSERVED AND HELD THAT AS THE ASSESSEE IS SELLING THE PLOTS, TO THE EXTENT OF 15% OF TOTAL AR EA, BY PUBLIC AUCTION AND GETS MAXIMUM AMOUNT, IT AMOUNTS TO PROF ITEERING AND THEREFORE, THE ACTIVITIES OF THE -ASSESSES CAN BE S AID TO BE IN THE NATURE OF BUSINESS. HOWEVER, WHILE HOLDING SO, LEAR NED TRIBUNAL HAS NOT PROPERLY APPRECIATED THE OBJECT AND PURPOSE OF PERMITTING THE URBAN DEVELOPMENT AUTHORITY TO SALE THE PLOTS, MAXIMUM TO THE EXTENT OF 15% OF THE TOTAL AREA I.E. TO MEET WITH T HE EXPENDITURE FOR PROVIDING THEM INFRASTRUCTURAL FACILITIES LIKE GARD ENS, ROADS, LIGHTING, WATER SUPPLY, DRAINAGE SYSTEM ETC. THE LE ARNED TRIBUNAL HAS ALSO NOT PROPERLY APPRECIATED THE REASONS FOR S ELLING THE PLOT BY HOLDING PUBLIC AUCTION I.E.; (1) TO AVOID ANY FU RTHER ALLEGATION OF FAVORITISM AND NEPOTISM AND (2) SO THAT MAXIMUM MAR KET PRICE CAN BE FETCHED, WHICH CAN BE USED FOR THE DEVELOPMENT O F THE URBAN DEVELOPMENT AREA. 12.1. AT THIS STAGE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF AHMEDABAD GREEN BELT KHEDUT MANRIAL (SUPRA) ((2014) 7 SCO 357) IS REQUIRED TO BE REFERRED TO. BEFORE THE HON'BLE SUPREME COURT, IT WAS CONTENDED ON BEHALF OF ORIGINAL LAND OWNERS WHOSE LANDS WERE INCLUDED IN THE TP SCHEME THAT BY PERMIT TING THE AREA DEVELOPMENT AUTHORITY / URBAN DEVELOPMENT AUTHORITY TO SELL 15% OF THE TOTAL AREA, BY THAT THE URBAN DEVELOPMENT AU THORITY WILL BE MAKING PROFIT, THE HON'BLE SUPREME COURT HAS NEGATI VED THE AFORESAID AND HAS OBSERVED THAT THE ACTIVITIES OF T HE URBAN DEVELOPMENT AUTHORITY / AREA DEVELOPMENT AUTHORITY WHILE SELLING THE LAND TO THE EXTENT OF 15% TO THE TOTAL AREA COV ERED UNDER THE SCHEME CANNOT BE SAID TO BE PROFITEERING. IT IS OBS ERVED 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 G ENERATE FINANCIAL RESOURCES FOR THE DEVELOPMENT OF INFRASTRUCTURE, TH E 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 ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 12 - SECTION 40(3)(JJ)(A)(IV) FOR SALE IS TO BE IN CONSO NANCE / CONJOINTLY WITH OTHER STATUTORY PROVISIONS AND NOT IN ISOLATIO N. UNDER THE CIRCUMSTANCES, THE LEARNED TRIBUNAL HAS COMMITTED G ROSS ERROR IN CONSIDERING THE ACTIVITIES OF THE APPELLANT URBAN D EVELOPMENT AUTHORITY FOR PROFIT BY SELLING 15% OF THE TOTAL AR EA AND THEREBY HAS COMMITTED GROSS ERROR IN HOLDING THE ACTIVITIES OF THE ASSESSEE IN THE NATURE OF TRADE, COMMERCE OR BUSINESS. 12.2 WHETHER THE ACTIVITIES OF THE APPELLANT AUDA C AN BE SAID TO BE IN THE NATURE OF TRADE, COMMERCE OR BUSINESS AS OCCURRING IN THE FIRST PROVISO TO SECTION 2(15) OF THE ACT, FEW DECI SIONS OF THE HON'BLE SUPREME COURT AS WELL AS OTHER HIGH COURTS 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 574, THE HON'BLE SUPREME COURT HAD AN OCCASION TO CONSIDER THE WORD 'TRADE'. IN THE SAID DECISION, THE HON'BLE SUPREME COURT HAS HELD T HAT '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 TAXING STATUTE, IT IS USED IN SENSE OF AN OCCUPATION, OR PROFESSION WHICH OCCUPIES TIME, ATTENTION OR LABOUR OF A PERSON, AND IS CLEARLY ASS OCIATED 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 CONSI DERED 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 NOT BE DETERMINATIVE. NORMALLY, THE PROFIT MOTIVE TEST SHOULD BE SATISFIE D, BUT IN A GIVEN CASE ACTIVITY MAY BE REGARDED AS A BUSINESS EVEN WH EN PROFIT MOTIVE CANNOT BE ESTABLISHED / PROVED. IN SUCH CASE S, THERE SHOULD BE EVIDENCE AND MATERIAL TO SHOW THAT THE ACTIVITY HAS CONTINUED ON SOUND AND RECOGNIZED BUSINESS PRINCIPLES AND PURSUE D WITH REASONABLE CONTINUITY- THERE SHOULD BE FACTS AND OT HER CIRCUMSTANCES WHICH JUSTIFY AND SHOW THAT THE ACTIV ITY UNDERTAKEN IS IN FACT IN THE NATURE OF BUSINESS. ' ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 13 - 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 THE DOMINANT ACTIVITY OF THE ASSESSEE WAS NOT BUSINESS, THEN ANY INCIDENT AL OR ANCILLARY ACTIVITY WOULD ALSO NOT TALL WITHIN THE DEFINITION OF BUSINESS.' IN PARA 64, 67, 69, 70, 71 AND 72 THE DELHI HIGH COURT HAS OBSERVER 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 TH E INSTITUTION IS CHARITABLE, THE FACT THAT THE INSTITUTION COLLECTS CERTAIN CHARGES, DOES NOT ALTER THE CHARACTER OF THE INSTITUTION. 67. THE EXPRESSIONS TRADE, COMMERCE AND BUSINESS U S OCCURRING IN THE FIRST PROVISO IN SECTION 2(15) OF THE ACT MUST BE ROOD IN THE CONTEXT OF THE INTENT AND PURPORT OF SE CTION 2(15) OF THE ACT AND CANNOT BE INTERPRETED TO MEAN ANY ACTIVITY WHICH IS CARRIED ON IN AN ORGANIZED MANNER. THE PURPOSE AND THE DOMI NANT OBJECT FOR WHICH AN INSTITUTION CARRIES ON ITS ACTIVITIES IS MATERIAL IN DETERMINE WHETHER THE SAME IS BUSINESS OR NOT. THE PURPORT OF THE FIRST PROVISO TO SECTION 2(15) OF THE ACT IS NOT TO EXCLUDE ENTITIES WHICH ARE ESSENTIALLY FOR CHARITABLE PURPOSE BUT AR E CONDUCTING SOME ACTIVITIES FOR A CONSIDERATION OR A FEE. THE O BJECT OF INTRODUCING THE FIRST PROVISO IS TO EXCLUDE ORGANIZ ATIONS WHICH ARE CARRYING ON REGULAR BUSINESS FROM THE SCOPE OF CHAR ITABLE PURPOSE. THE PURPOSE OF INTRODUCING THE PROVISO TO SECTION 2 (15) OF THE ACT CAN BE UNDERSTOOD FROM THE BUDGET SPEECH OF THE FIN ANCE MINISTER WHILE INTRODUCING THE FINANCE BILL 2008. THE RELEVA NT EXTRACT TO THE SPEECH IS AS UNDER: CHARITABLE PURPOSE INCLUDES RELIEF OF THE POOR, EDU CATION, MEDICAL RELIEF AND ANY OTHER OBJECT OF GENERAL PUBLIC UTILI TY. THESE ACTIVITIES ARE TAX EXEMPT, AS THEY SHOULD BE. HOWEV ER, SOME ENTITIES CARRYING ON REGULAR TRADE, COMMERCE OR BUSINESS OR PROVIDING SERVICES IN RELATION TO ANY TRADE, COMMERCE OR BUSI NESS AND EARNING INCOMES HAVE SOUGHT TO CLAIM THAT THEIR PURPOSES WO ULD ALSO FALL UNDER CHARITABLE PURPOSE. OBVIOUSLY, THIS WAS NOT T HE INTENTION OF PARLIAMENT AND, HENCE, I PROPOSE TO AMEND THE LAW T O EXCLUDE THE AFORESAID CASES. GENUINE CHARITABLE ORGANIZATIONS W ILL NOT IN ANY WAY BE AFFECTED.' THE EXPRESSIONS BUSINESS, TRADE O R COMMERCE AS USED IN THE FIRST PROVISO MUST, THUS, BE INTERPRETE D RESTRICTIVELY AND WHERE THE DOMINANT OBJECT OF AN ORGANISATION IS CHA RITABLE ANY INCIDENTAL ACTIVITY FOR FURTHERANCE OF THE OBJECT W OULD NOT FALL WITHIN THE EXPRESSIONS BUSINESS, TRADE OR COMMERCE. 69. IN THE CASE OF ADDL. COMMISSIONER OF INCOME TAN V. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION: [1980] 12 1 ITR 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 ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 14 - OBJECT OF THE ACTIVITY, THE PURPOSE, THOUGH AN OBJE CT OF GENERAL PUBLIC UTILITY WOULD CEASE TO BE A CHARITABLE PURPO SE. BUT WHERE THE PREDOMINANT OBJECT OF THE ACTIVITY IS TO ANY OUT TH E CHARITABLE/E PURPOSE AND NOT TO EARN PROFIT, IT WOULD NOT LOSE I TS CHARACTER OF A CHARITABLE PURPOSE MERELY BECAUSE SOME PROFIT ARISE S 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 RELEVANT CONSIDERAT ION IN VIEW OF THE EXPRESS WORDS OF THE FIRST PROVISO TO SECTION 2 (15) OF THE ACT, NONETHELESS THE TEST OF DOMINANT OBJECT OF AN ENTIT Y WOULD BE RELEVANT TO DETERMINE WHETHER THE ENTITY IS CARRYIN G ON BUSINESS OR NOT. IN THE PRESENT CASE, THERE IS LITTLE DOUBT THA T THE OBJECTS OF THE ACTIVITIES OF THE PETITIONER ARE ENTIRELY FOR CHARI TABLE PURPOSES. WP(C) 1872/13 PAGE 48 OF 55 FINALLY IN ICAI(II) (SU PRA), THIS COURT, WITH REFERENCE TO H. ABDUL BAKHI AND BROS (S UPRA) 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 DETERMI NING WHETHER AN ORGANISATION IS CARRYING ON BUSINESS OR NOT. IN THE PRESENT CASE, THE PETITIONER HAS SUBMITTED FIGURES TO INDICATE THAT E XPENDITURE ON SALARIES AND DEPRECIATION EXCEEDS THE SURPLUS AS GE NERATED FROM HOLDING COACHING CLASSES. IN ADDITION, THE PETITION ER INSTITUTE PROVIDES STUDY MATERIAL AND OTHER ACADEMIC SUPPORT SUCH AS FACILITIES OF A LIBRARY WITHOUT ANY MATERIAL ADDITI ONAL COSTS. THE SUPREME COURT IN THE CASE OF STATE OF ANDHRA PRADE SH V. 11. 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 CON TINUED WITH A PROFIT MOTIVE, AND NOT FOR SPORT OR PLEASURE. (UNDE RLINING ADDED) 72. THERE IS NOTHING ON RECORD TO 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, DOCS INDICATE THAT THE PETITIONER IS NOT CARRYING ON ANY BUSINESS ' 12.7. IDENTICAL QUESTION CAME TO BE CONSIDERED BY T HE DELHI HIGH COURT, IN THE CASE OF BUREAU OF INDIA STANDARD VS. DIRECTOR GENERAL OF INCOME TAX (EXEMPTIONS) REPORTED IN (2013) 212 T AXMAN 210 (DELHI). IN THE SAID DECISION, THE DELHI HIGH COURT WAS CONSIDERING WHETHER THE ACTIVITIES OF THE BUREAU OF INDIAN STAN DARDS (SUPRA) IN GRANTING LICENSES AND TRADING CERTIFICATES AND CHAR GING AMOUNTED TO CARRYING ON BUSINESS, TRADE OR COMMERCE AND WHIL E CONSIDERING THE SAID QUESTION, IT 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 ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 15 - SUCH A WIDE CONSTRUCTION AS TO ENFOLD REGULATORY AN D SOVEREIGN AUTHORITIES, SET UP UNDER STATUTORY ENACTMENTS, AND TASKED TO ACT AS AGENCIES OF THE STATE IN PUBLIC DUTIES WHICH CANNOT BE DISCHARGED BY PRIVATE BODIES. OFTEN, APART FROM THE CONTROLLIN G OR PARENT STATUTES, LIKE THE BIS ACT, THESE STATUTORY BODIES (INCLUDING BIS) ARE EMPOWERED TO FRAME RULES OR REGULATIONS, EXERCISE C OERCIVE POWERS, INCLUDING INSPECTION, RAIDS; THEY POSSESS SEARCH AN D SEIZURE POWERS AND ARE INVARIABLY SUBJECTED TO PARLIAMENTARY OR LE GISLATIVE OVERSIGHT. THE PRIMARY OBJECT FOR SETTING UP SUCH R EGULATORY BODIES WOULD BE TO ENSURE GENERAL PUBLIC UTILITY. THE PRES CRIBING OF STANDARDS, AND ENFORCING THOSE STANDARDS, THROUGH A CCREDITATION AND CONTINUING SUPERVISION THROUGH INSPECTION ETC.. CANNOT BE CONSIDERED AS TRADE, BUSINESS OR COMMERCIAL ACTIVIT Y, MERELY BECAUSE THE TESTING PROCEDURES, OR ACCREDITATION IN VOLVES CHARGING OF SUCH FEES, IT CANNOT BE SAID THAT THE PUBLIC UTI LITY ACTIVITY OF EVOLVING, PRESCRIBING AND ENFORCING STANDARDS, INVO LVES THE CARRYING ON OF TRADE OR COMMERCIAL ACTIVITY.' 12.8. CIRCULAR NO. 11 OF 2008 ISSUED BY THE CBDT FE LT 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 T AXMAN 205. IT IS HELD THAT EVEN AS PER THE SAID CIRCULAR, PROV ISO TO SECTION 2(15) OF THE ACT IS APPLICABLE TO ASSESSEE, WHO ARE ENGAGED IN COMMERCIAL ACTIVITIES I.E. CARRYING ON BUSINESS, TR ADE OR COMMERCE, IN THE GARB OF 'PUBLIC UTILITIES' TO AVOID TAX LIAB ILITY AS IT WAS NOTICED THAT THE OBJECT 'GENERAL PUBLIC UTILITY' WA S SOMETIMES USED AS A MASK OR DEVICE TO HIDE THE TRUE PURPOSE, WHICH WAS 'TRADE, COMMERCE OR BUSINESS'. THUS, IT IS EVIDENT THAT INT RODUCTION OF PROVISO TO SECTION 2(15) BY VIRTUE OF THE FINANCE A CT. 2008 WAS DIRECTED TO PREVENT THE UNHOLY PRACTICE OF PURE TRA DE, COMMERCE AND BUSINESS ENTITIES FROM MASKING THEIR ACTIVITIES AND PORTRAYING THEM IN THE GARB OF AN ACTIVITY WITH THE OBJECT OF A GENERAL PUBLIC UTILITY. IT IS NOT DESIGNED TO HIT AT THOSE INSTITU TIONS, WHICH HAD THE ADVANCEMENT OF THE OBJECTS OF GENERAL PUBLIC UTILIT Y AT THEIR HEARTS AND WERE CHARITY INSTITUTIONS. THE ATTEMPT WAS TO R EMOVE THE MASKS FROM THE ENTITIES, WHICH WERE PURELY TRADE, COMMERC E OR BUSINESS 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 DETERMINATIVE AND. A CRITICAL FACTOR TO DISCERN WHETHER AN ACTIVITY IS BUSINESS, 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 ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 16 - BUT IT IS NOT EQUIVALENT TO SELF SACRIFICE AND ABNE GATION. THE ANTIQUATED DEFINITION OF CHARITY, WHICH ENTAILS GIV ING AND RECEIVING NOTHING IN RETURN IS OUTDATED. A MANDATORY FEATURE WOULD BE; CHARITABLE ACTIVITY SHOULD BE DEVOID OF SELFISHNESS OR ILLIBERAL SPIRIT. ENRICHMENT OF ONESELF OR SELF GAIN SHOULD B E MISSING AND THE PREDOMINANT PURPOSE OF THE ACTIVITY WP(C) 1872/13 P AGE 52 OF 55 SHOULD BE TO SERVE AND BENEFIT OTHERS. A SMALL CONT RIBUTION BY WAY OF FEE THAT THE BENEFICIARY PAYS WOULD NOT CONVERT CHARITABLE ACTIVITY INTO BUSINESS, COMMERCE OR TRADE IN THE AB SENCE OF CONTRARY EVIDENCE. QUANTUM OF FEE CHARGED, ECONOMIC STATUS O F THE BENEFICIARIES WHO PAY, COMMERCIAL VALUE OF BENEFITS IN COMPARISON TO THE FEE. 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 FAD THAT THE PERSON IS CAR RYING ON BUSINESS OR COMMERCE AND NOT CHARITY, BUT WE MUST KEEP IN MI ND THAT CHARITABLE ACTIVITIES REQUIRE OPERATIONAL/RUNNING E XPENSES AS WELL AS CAPITAL EXPENSES TO BE ABLE TO SUSTAIN AND CONTI NUE IN LONG RUN. THE PETITIONER HAS TO BE SUBSTANTIALLY SELL SUSTAIN ING IN LONG TERM AND SHOULD NOT DEPEND UPON GOVERNMENT, IN OTHER WOR DS TAXPAYERS SHOULD NOT SUBSIDIZE THE SAID ACTIVITIES, WHICH NEV ERTHELESS ARE CHARITABLE AND FALL UNDER WP(C) 1872/13 PAGE 53 OF 55 THE RESIDUARY CLAUSE GENERAL PUBLIC UTILITY. THE IMPUGN ED ORDER DOES NOT REFER OF ANY STATUTORY MANDATE THAT A CHARITABL E INSTITUTION FALLING UNDER THE LAST CLAUSE SHOULD BE WHOLLY, SUB STANTIALLY OR IN PART MUST BE FUNDED BY VOLUNTARY CONTRIBUTIONS. NO SUCH REQUIREMENT HAS BEEN POINTED OUT OR ARGUED. A PRACT ICAL AND PRAGMATIC VIEW IS REQUIRED WHEN WE EXAMINE THE DATA , WHICH SHOULD BE ANALYZED OBJECTIVELY AND A NARROW AND COLOURED V IEW WILL BE COUNTERPRODUCTIVE AND CONTRARY TO THE LANGUAGE OF S ECTION 2(15) OF THE ACT.' 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 PROVI SO 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 O F THE CONSTITUTION INDIA. IN ORDER TO SAVE THE CONSTITUTIONAL VALIDITY OF THE PROVISO, THE SAME WOULD HAVE TO BE READ DOWN AND INTERPRETED IN THE CONTEXT OF SECTION 10(23C)(IV) BECAUSE, IN OUR VIEW, THE CO NTEXT REQUIRES SUCH AN INTERPRETATION. THE CORRECT INTERPRETATION OF THE PROVISO TO SECTION 2(15) OF THE SAID ACT WOULD BE THAT IT CARV ES OUT AN EXCEPTION FROM THE CHARITABLE PURPOSES OF ADVANCEME NT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY AND THAT EXCEPTION IS LIMITED TO ACTIVITIES IN THE NATURE OF TRADE, COMMERCE OR BUSI NESS OR ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO AN Y TRADE, COMMERCE OR BUSINESS FOR A CESS OR FEE OR ANY OTHER CONSIDER ATION. IN BOTH THE ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 17 - ACTIVITIES, IN THE NATURE OF TRADE, COMMERCE OR BUS INESS OR THE ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO AN Y TRADE, COMMERCE OR BUSINESS, THE DOMINANT AND THE PRIME OBJECTIVE H AS 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 ESTABLISH ED FOR CHARITABLE PURPOSES, IS PROFIT MAKING, WHETHER ITS ACTIVITIES ARE DIRECTLY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR INDIRECTLY IN THE RENDERING OF ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, THEN IT WOULD NOT BE ENTITLED TO CLAIM IT S OBJECT TO BE A 'CHARITABLE PURPOSE'. ON THE FLIP SIDE, WHERE AN IN STITUTION IS NOT DRIVEN PRIMARILY BY A DESIRE OR MOTIVE TO EARN PROF ITS, BUT TO DO CHARITY THROUGH THE ADVANCEMENT OF AN OBJECT OF GEN ERAL PUBLIC UTILITY, IT CANNOT BUT BE REGARDED AS AN INSTITUTIO N 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 IMAGINATION, IT CAN BE SAID THAT THE ACTIVITIES OF THE ASSESSES (AUDA) CAN BE SAID T O BE IN THE NATURE OF TRADE, COMMERCE OR BUSINESS AND / OR ITS OBJECT AND PURPOSE IS PROFITEERING. MERELY BECAUSE UNDER THE S TATUTORY PROVISIONS AND TO MEET WITH THE EXPENDITURE OF TOWN PLANNING SCHEME AND / OR PROVIDING VARIOUS SERVICES UNDER TH E TOWN PLANNING SCHEME, SUCH AS ROAD, DRAINAGE, ELECTRICIT Y, WATER SUPPLY ETC. IF THE ASSESSEE IS PERMITTED TO SALE THE PLOTS (LAND) TO THE EXTENT OF 15% OF THE TOTAL AREA UNDER THE TOWN PLANNING SC HEME AND WHILE SELLING THE SAID PLOTS THEY ARE SOLD BY HOLDING THE PUBLIC AUCTION, IT CANNOT BE SAID THAT ACTIVITIES OF THE ASSESSEE IS P ROFITEERING, TO BE IN THE NATURE OF TRADE, COMMERCE AND BUSINESS. 13.1. IN THE CASE OF LUCKNOW DEVELOPMENT AUTHORITY, GOMTI NAGAR (SUPRA), IT IS HELD BY THE ALLAHABAD HIGH COURT THA T THE ACTIVITIES OF THE AUTHORITY CANNOT BE SAID TO BE IN THE NATURE OF TRADE, COMMERCE OR BUSINESS AND / OR PROFITEERING AND THEREFORE, PR OVISO TO SECTION 2(15) OF THE ACT SHALL NOT BE APPLICABLE. 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 S 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 REGULATORY FEES FOR THE O BJECT OF THE ACTS; NO SERVICES ARE RENDERED TO ANY PARTICULAR TRADE, C OMMERCE OR BUSINESS; WHATEVER THE INCOME IS EARNED / RECEIVED BY THE ASSESSES EVEN WHILE SELLING THE PLOTS (TO THE EXTENT OF 15% OF THE TOTAL AREA COVERED UNDER THE TOWN PLANNING SCHEME) IS REQUIRED TO BE USED ONLY FOR THE PURPOSE TO CARRY OUT THE OBJECT AND PU RPOSE OF TOWN PLANNING ACT AND TO MEET WITH EXPENDITURE WHILE PRO VIDING GENERAL UTILITY SERVICE TO THE PUBLIC SUCH AS ELECTRICITY, ROAD, DRAINAGE, WATER ETC. AND EVEN THE ENTIRE CONTROL IS WITH STAT E GOVERNMENT AND ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 18 - EVEN ACCOUNTS ARE ALSO SUBJECTED TO AUDIT AND THERE IS NO ELEMENT OF PROFITEERING AT ALL, THE ACTIVITIES OF THE ASSESSES CANNOT BE SAID TO BE IN THE NATURE OF TRADE, COMMERCE AND BUSINESS AN D THEREFORE, PROVISO TO SECTION 2(15)OF THE ACT SHALL NOT BE APP LICABLE SO FAR AS ASSESSEE IS CONCERNED AND THEREFORE, THE ASSESSES I S ENTITLED TO EXEMPTION UNDER SECTION 11 OF THE INCOME TAX ACT. T HEREFORE, THE QUESTION NO.1 IS TO BE HELD IN FAVOUR OF THE ASSESS EE AND AGAINST 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 ASSESSEE IS COLLECTING CESS OR FEES WHICH IS REGULA TORY IN NATURE, THE PROVISO TO SECTION 2(15)OF THE ACT SHALL NOT BE APP LICABLE AS OBSERVED HEREIN ABOVE NEITHER THERE IS ELEMENT OF P ROFITEERING NOR THE SAME CAN BE SAID TO BE IN THE NATURE OF TRADE, COMMERCE OR BUSINESS. AT THIS STAGE, DECISION OF THE DIVISION B ENCH OF THIS COURT IN THE CASE OF SABARMATI ASHRAM GAUSHALA TRUST (SUP RA) 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 TH E QUALITY OF COWS AND OXEN AND OTHER RELATED ACTIVITIES. THE ASSESSIN G OFFICER DENIED THE EXEMPTION TO THE TRUST UNDER SECTION 11 OF THE ACT ON THE GROUND THAT CONSIDERABLE INCOME WAS GENERATED FROM THE ACT IVITIES OF MILK PRODUCTION AND SALE AND THEREFORE, CONSIDERING THE PROVISO TO SECTION 2(15) OF THE ACT, THE SAID TRUST ASSESSEE W AS DENIED THE EXEMPTION UNDER SECTION 11 OF THE ACT WHILE HOLDING THAT THE ACTIVITIES OF THE ASSESSEE TRUST STILL CAN BE SAID TO BE FOR CHARITABLE PURPOSE WITHIN THE MEANING OF SECTION 2(15) OF THE ACT AND SAME CANNOT BE SAID TO BE IN THE NATURE OF TRADE, COMMER CE OR BUSINESS FOR WHICH PROVISO TO SECTION 2(15) OF THE ACT IS RE QUIRED TO BE APPLIED, IN PARA 6, 7, 8 AND 12, IT IS OBSERVED AND HELD AS UNDER: 6. THE LEGAL CONTROVERSY IN THE PRESENT TAX APPEAL CENTERS AROUND THE FIRST PROVISO IN THE PLAIN TERMS, THE PR OVISO PROVIDES FOR EXCLUSION FROM THE MAIN OBJECT OF THE DEFINITION 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 IF INVO LVED IN ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC U TILITY BY VIRTUE TO PROVISO, WOULD BE EXCLUDED FROM THE DEFINITION O F CHARITABLE TRUST. HOWEVER, FOR THE APPLICATION OF THE PROVISO, WHAT IS NECESSARY IS THAT THE ENTITY SHOULD BE INVOLVED IN CARRYING ON ACTIVITIES IN THE NATURE OF TRADE, COMMERCE OR BUSI NESS, OR ANY ACTIVITY OF RENDERING SERVICES IN RELATION TO ANY T RADE, COMMERCE OR BUSINESS, FOR A CESS OR FEE OR ANY OTHER CONSIDERAT ION, IN SUCH A SITUATION, THE NATURE, USE OR APPLICATION, OR RETEN TION OF INCOME FROM SUCH ACTIVITIES WOULD NOT BE RELEVANT. UNDER T HE CIRCUMSTANCES, THE IMPORTANT ELEMENTS OF APPLICATIO N OF PROVISO ARE THAT THE ENTITY SHOULD BE INVOLVED IN CARRYING ON T HE ACTIVITIES OF ANY TRADE, COMMERCE OR BUSINESS OR ANY ACTIVITIES O F RENDERING SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSIN ESS, FOR A CESS OR FEE OR ANY OTHER CONSIDERATION. SUCH STATUTORY A MENDMENT WAS ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 19 - EXPLAINED BY THE FINANCE MINISTERS SPEECH IN THE PA RLIAMENT. RELEVANT 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 PURPOSE IS A CHARITABLE PURPOSE WILL DEPEND ON THE TOTALITY OF THE FACTS OF THE CASE. ORDINARILY, CHAMBERS OF COMMERCE AND SIMILAR ORGANI ZATIONS RENDERING SERVICES TO THEIR MEMBERS WOULD NOT BE AF FECTED BY THE AMENDMENT AND THEIR ACTIVITIES WOULD CONTINUE TO BE REGARDED US ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC U TILITY. 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 AME NDMENT AS UNDER: 3. THE NEWLY INSERTED PROVISO TO SECTION 2 (15) WIL L APPLY ONLY TO ENTITIES WHOSE PURPOSE IS ADVANCEMENT OF AN Y OTHER OBJECT OF GENERAL PUBLIC UTILITY IE.. THE FOURTH LI MB OF THE DEFINITION OF CHARITABLE PURPOSE CONTAINED IN SECTI ON 2 (15). HENCE, SUCH ENTITIES WILL NOT BE ELIGIBLE FOR EXEMP TION UNDER SECTION 11 OR UNDER SECTION 10 (23C) OF THE ACT IF THEY CARRY ON COMMERCIAL ACTIVITIES, WHETHER SUCH AN ENTITY IS CARRYING ON ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS IS A QUESTION OF FACT WHICH WILL BE DECIDED BASED O N THE NATURE, SCOPE, EXTENT AND FREQUENCY OF THE ACTIVITY . 3.1 THERE ORE 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. U NDER THE PRINCIPLE OF MUTUALITY, IF TRADING TAKES PLACE BETW EEN PERSONS WHO ARE ASSOCIATED TOGETHER AND CONTRIBUTE TO A COMMON FUND FOR THE FINANCING OF SOME VENTURE OR OB JECT AND IN THIS RESPECT HAVE NO DEALINGS OR RELATIONS WITH ANY OUTSIDE BODY, THEN ANY SURPLUS RETURNED TO THE PERSONS FORM ING SUCH ASSOCIATION IS NOT CHARGEABLE TO TAX. IN SUCH CASES , THERE MUST BE COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPANTS. THEREFORE, WHERE INDUSTRY OR TRADE AS SOCIATIONS CLAIM BOTH TO BE CHARITABLE INSTITUTIONS AS WELL AS MUTUAL ORGANIZATIONS AND THEIR ACTIVITIES ARE RESTRICTED T O CONTRIBUTIONS FROM AND PARTICIPATION OF ONLY THEIR MEMBERS, THESE WOULD NOT FALL UNDER THE PURVIEW OF THE PROVI SO TO SECTION 2 (15) OWING TO THE PRINCIPLE OF MUTUALITY. HOWEVER, IF SUCH ORGANIZATIONS HAVE DEALINGS WITH NONMEMBERS , THEIR CLAIM TO BE CHARGEABLE ORGANIZATIONS WOULD NOW BE G OVERNED BY THE ADDITIONAL CONDITIONS STIPULATED IN THE PROV ISO TO SECTION 2 (15). ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 20 - 3.2 IN THE FINAL ANALYSIS, HOWEVER, WHETHER THE ASS ESSEE HAS FOR ITS OBJECT THE ADVANCEMENT OF ANY OTHER OBJ ECT OF GENERAL PUBLIC UTILITY IS A QUESTION OF FACT. IF SU CH ASSESSES IS ENGAGED IN ANY ACTIVITY IN THE NATURE OF TRADE, COM MERCE OR BUSINESS OR RENDERS ANY SERVICE IN RELATION TO TRAD E, COMMERCE OR BUSINESS, IT WOULD NOT BE ENTITLED TO C LAIM THAT ITS OBJECT IS CHARITABLE PURPOSE. IN SUCH A CASE, T HE OBJECT OF GENERAL PUBLIC UTILITY WILL BE ONLY A MASK OR A DEV ICE TO HIDE THE TRUE PURPOSE WHICH IS TRADE, COMMERCE OR BUSINE SS OR THE RENDERING OF ANY SERVICE IN RELATION TO TRADE, COMM ERCE OR BUSINESS. EACH CASE WOULD, THEREFORE, BE DECIDED ON ITS OWN FACTS AND NO GENERALIZATION IS POSSIBLE. ASSESSEES, WHO CLAIM THAT THEIR OBJECT IS CHARITABLE 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 BUSINE SS OR THE RENDERING OF ANY SERVICE IN RELATION 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 CIRCULAR, IS THAT THE ACTIVITY OF A TRUST WOULD BE EXCLUDED FROM THE TERM CHARITABLE PURPOSE IF IT IS ENGAGED IN ANY ACT IVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR RENDERS AN Y SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS FOR A CESS, FEE AND/OR ANY OTHER CONSIDERATION. IT IS NOT AIMED AT EXCLUDING T HE GENUINE CHARITABLE TRUSTS OF GENERAL PUBLIC UTILITY BUT IS AIMED AT EXCLUDING ACTIVITIES IN THE NATURE OF TRADE, COMMERCE OR BUSI NESS 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 CARRYING OUT THE ACT IVITIES FOR THE PURPOSE OF ACHIEVING THE OBJECTS OF THE TRUST, CERT AIN INCIDENTAL SURPLUSES WERE GENERATED, WOULD NOT RENDER THE ACTI VITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS. AS CLARIFIED BY THE CBDT IN ITS CIRCULAR NO. 11/2008 DATED 19TH DECEMBER 2008 T HE PROVISO AIMS TO ATTRACT THOSE ACTIVITIES WHICH ARE TRULY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS BUT ARE CARRIED OUT UND ER THE GUISE OF ACTIVITIES IN THE NATURE 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 IS INC IDENTAL TO THE OBJECT AND PURPOSE OF THE ACT, EVEN THE CASE WOULD NOT FALL UNDER SECOND PART OF PROVISO TO SECTION 2(15) OF THE 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 ASSESS EE IN THE NATURE OF TRADE, COMMERCE OR BUSINESS AND CONSEQUENTLY HO/DIN G THAT THE PROVISO TO SECTION 2(15) OF THE ACT SHALL BE APPLIC ABLE AND THEREFORE, THE ASSESSEE IS NOT ENTITLED TO EXEMPTIO N UNDER SECTION 11 OF THE ACT. FOR THE MASONS STATED ABOVE, IT IS H ELD THAT THE ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 21 - PROVISO TO SECTION 2(15) OF THE ACT SHALL NOT BE AP PLICABLE SO FAR AS ASSESSEE AUDA IS CONCERNED AND AS THE ACTIVITIES OF THE ASSESSEE CAN BE SAID TO BE PROVIDING GENERAL PUBLIC UTILITY SERVICES, THE ASSESSEE IS ENTITLED TO EXEMPTION UNDER SECTION 11 OF THE ACT BOTH THE QUESTIONS ARE THEREFORE, ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 5.3 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 HAVE B EEN LAID DOWN UNDER THE SAID ACT AND ARE IDENTICAL IN NATURE. NOWHERE I N THE ORDER OF ASSESSMENT THE AO POINTED OUT THAT THE APPELLANT HA S UNDERTAKEN FUNCTIONS BEYOND THE MANDATE OF GUJARAT TOWN PLANNING AND URB AN DEVELOPMENT ACT. THE APPELLANT IS A REGISTERED U/S 12A OF THE I T ACT. THEREFORE AS HELD BY HON'BLE GUJARAT H.C. IN DECISION QUOTED ABOVE, T HE APPELLANT CANNOT BE CONSIDERED TO COVERED BY THE PROVISO TO SECTION 2(15) OF THE ACT. THUS AO CANNOT WITHDRAW THE CLAIM OF EXEMPTION BY INVOKI NG PROVISO TO SECTION 2(15) R W.S. 13(8) OF THE ACT. THE COROLLARY IS THA T THE APPELLANT CANNOT BE ASSESSED U/S 28 TO 44 OF THE ACT. 5.4 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 OF T HE APPELLANT. THERE ARE ISSUES WITH REGARD TO MAINTENANCE OF ACCOUNTS A ND THE APPELLANT HAS TREATED THE VARIOUS GRANTS RECEIVED BY IT. THERE AR E ISSUES WITH REGARD (A) TO CLAIM OF ACCUMULATION@ 15% U/S 11(1)(A) OF THE A CT; (B) TO CLAIM U/S 11(1)(D) OF THE ACT; (C) TO CLAIM OF CORRECT RATE O F DEPRECIATION; (D) TO CLAIM OF INCOME RECEIPTS BEING REFLECTED IN THE BAL ANCE SHEET; (E) TO CLAIM OF APPLICATION OF INCOME FROM PROJECT SPECIFIC GRAN TS, (F) TO CLAIM OF CAPITAL EXPENSES AS APPLICATION OF INCOME ETC. AS C ERTAIN GROUNDS OF APPEAL PERTAIN TO THESE ISSUES, THE RELEVANT DISCUS SION IN SUBSEQUENT PARAS HAS BEEN MADE. 5.5 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 GRANTS WILL HAVE TO BE SPENT AS PER THE CONDITIONS AND PURPOSE LAID DOWN BY THE DONOR. AS PER SEC.12(1) ANY VOLUNTARY CONTRIBUTION RECEIVED BY 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 HEL D BY SAID TRUST/INSTITUTIONS AND SEC.13 SHALL APPLY ACCORDING LY. HOWEVER SEC.12(1) HAS MADE AN EXCEPTION TO THE VOLUNTARY CONTRIBUTION S AS DEEMED INCOME OF THE TRUST OR INSTITUTION IF SUCH CONTRIBUTION HAS B EEN MADE WITH A SPECIFIC DIRECTION FURTHER SEC.11(1)(A) STATES: '(A) INCOME DERIVED FROM PROPERLY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSE, TO THE EXTENT TO WHICH SUCH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA AND WHOM &NY SUCH INCOME IS ACCUMULATED OR SET APART FOR APPLICA TION TO SUCH PURPOSE IN INDIA, TO THE EXTENT TO WHICH THE INCOME SO ACCU MULATED OR SET APART IS NOT IN EXCESS OF 15% OF THE INCOME FROM SUCH PROPER TY.' FURTHER SEC.11(1)(D) STATES THAT '(D) INCOME IN THE FORM OF VOLUNTARY CONTRIBUTIONS MADE WITH A SPECIFIC DIRECTION THAT THEY SHALL FORM PART OF THE CORPUS OF THE TRUST 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 SPECIFIC PURPOSE CANNOT BE CONSIDERED AS INCOME IN THE FORM OF VOLUNTARY ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 22 - DONATION AND ARE ELIGIBLE FOR DEDUCTION U/S,11(1)(D ). THUS, SUCH SPECIFIC PROJECT GRANTS CANNOT BE CONSIDERED AS INCOME DERIV ED FROM THE PROPERTY HELD UNDER THE TRUST U/S.11(1)(A). SUCH PROJECTS SP ECIFIC GRANTS CANNOT BE USED BY THE TRUST/INSTITUTION FREELY TOWARDS THE OB JECTS OF THE TRUST SUCH TRUSTS/INSTITUTIONS HAVE TO ACT AS A TRUSTEE OF A S PECIAL FUND GRANTED BY THE DONOR AND HENCE IT CANNOT BE POOLED OR INTEGRATED W ITH ITS NORMAL INCOME OR THE CORPUS CREATED BY THE TRUSTS. (NIRMAL AGRICU LTURAL SOCIETY VS ITO 71 ITD 152 (HYD.). THE INCOMING AND OUTGOING FROM S UCH TIED UP GRANTS CANNOT BE REFLECTED IN THE INCOME AND EXPENDITURE A CCOUNT OF TRUSTS/INSTITUTIONS. IN THE CASE OF CIT VS STHANAKW ASI VARDHMAN VANIK JAIN SANGH 151 TAXMAN 270 HON'BLE GUJARAT HIGH COUR T HAS HELD THAT CONTRIBUTION RECEIVED BY THE ASSESSEE TRUST TOWARDS CONSTRUCTION OF WADI FOR CASTE PEOPLE WOULD FORM PART OF CORPUS OF TRUST AND THEREFORE WOULD NOT BE TREATED AS INCOME OF ASSESSEE TRUST. IT FURT HER HELD THAT ON THE PLAIN READING OF SEC.12, ANY VOLUNTARY CONTRIBUTION MADE WITH A SPECIFIC DIRECTION WOULD NOT BE DEEMED TO BE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURP OSE. IN THE CASE OF DIT VS SRI RAMAKRISHNA SEVA ASHRAM 18 TAXMAN.COM 37 (KA R.) IT WAS HELD THAT DONATION FOR SPECIFIC PROJECT SHALL BE TREATED AS CORPUS 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, IT 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. 5.6 IT WOULD BE PERTINENT HERE TO REFER TO ACCOUNTI NG 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 ENTERPRISE IS SIGNIFICANT TOR PREPARATION OF THE FINANCIAL STATEMENTS FOR TWO REA SONS. FIRSTLY, IF THE GOVT. GRANT HAS BEEN RECEIVED AN APPROPRIATE METHOD OF ACCOUNTING THEREFORE IS NECESSARY. SECONDLY, IT IS DESIRABLE T O GIVE AN INDICATION TO THE EXTENT TO WHICH THE ENTERPRISE HAS BENEFITTED F ROM SUCH GRANT DURING THE REPORTING PERIOD. PARA-5 OF AS-12 DEALS WITH TH E TREATMENT OF GOVT. GRANTS, IT IS REPRODUCED BELOW FOR THE SAKE OF CONV ENIENCE :- 'ACCOUNTING TREATMENT OF GOVERNMENT GRANTS 5. CAPITAL APPROACH VERSUS INCOME APPROACH 5.1 TWO BROAD APPROACHES MAY BE FOLLOWED FOR THE A CCOUNTING 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 PROMOTE RS' 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 ORDINARILY EXPECTED IN THE CASE OF SUCH GRANTS. THESE SHOULD, THEREFORE, BE CR EDITED DIRECTLY TO SHAREHOLDERS' FUNDS, (II) IT IS INAPPROPRIATE TO RE COGNISE GOVERNMENT GRANTS IN THE PROFIT AND LOSS STATEMENT, SINCE THEY ARE NOT EARNED BUT REPRESENT AN INCENTIVE PROVIDED BY G OVERNMENT WITHOUT RELATED COSTS. ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 23 - 5.3 ARGUMENTS IN SUPPORT OF THE 'INCOME APPROACH' A RE AS FOLLOWS: (I) GOVERNMENT GRANTS ARE RARELY GRATUITOUS. THE EN TERPRISE EARNS THEM THROUGH COMPLIANCE WITH THEIR CONDITIONS AND M EETING THE ENVISAGED OBLIGATIONS. THEY SHOULD THEREFORE BE TAK EN TO INCOME AND MATCHED WITH THE ASSOCIATED COSTS WHICH THE GRA NT IS INTENDED TO COMPENSATE, (II) AS INCOME TAX AND OTHER FAXES A RE CHARGES AGAINST INCOME, IT IS LOGICAL TO DEAL ALSO WITH GOV ERNMENT GRANTS, WHICH ARE AN EXTENSION OF FISCAL POLICIES, IN THE P ROFIT AND LOSS STATEMENT (HI) IN R.NSE GRANTS ARE CREDITED TO SHAR EHOLDERS' FUNDS, NO CORRELATION IS DONE BETWEEN THE ACCOUNTING TREAT MENT OF THE GRANT AND THE ACCOUNTING TREATMENT OF THE EXPENDITU RE 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 APPROPRIATE IN T HE 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 RECOGNITION OF GOVERNMENT GRANTS ON A RECEIPTS BASIS IS NOT IN ACCORDANCE WIT H THE ACCRUAL ACCOUNTING ASSUMPTION (SEE ACCOUNTING STANDARD (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 GOVERNMENT GRANT ARE READILY ASCERTAIN ABLE AND THUS GRANTS IN RECOGNITION OF SP ECIFIC EXPENSES ARE TAKEN TO INCOME IN THE SAME PERIOD AS THE RELEV ANT EXPENSES. 6. FURTHER PARA-8 DEALS WITH THE PRESENTATION OF GR ANTS RELATED TO SPECIFIC FIXED ASSETS THE RNLNVNNT PNRNR, I.E. PNRA 8.1 TO 8.3 ARE REPRODUCED BELOW FUI 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 NCQUITV SUR /J ASSE/S. OTHER CONDITIONS MAY ALSO BE ATTACHED RESTRICTING THE TYP E 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) RELATED TO SPECIFIC FIXED ASSETS ARE REGARDED AS ACCEPTABLE ALTERNATIVES. 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 AND LOSS STATEMENT OVER THE USEFUL LIFE OF A DEPRECIABLE ASSET BY WAY OF A REDUCED DEPRECIATION CHARGE. WHERE THE WHOLE, OR VIRTUALLY THE WHOLE, OF THE COST OF THE ASSET, THE ASSET IS SHOWN IN THE BALANC E SHEET AT A NOMINAL VALUE.' ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 24 - 7. FINALLY PARA-13, 14, 15 ARE THE MAIN PARAS 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 THE GRANT AS A DEDUCTION FROM THE GROSS VALUE OF THE ASSETS CONCERNED IN ARR IVING AT THEIR BOOK VALUE. WHERE THE GRANT RELATED TO A SPECIFIC F IXED ASSET EQUALS THE WHOLE, OR VIRTUALLY THE WHOLE, OF THE COST OF T HE ASSET, THE ASSET SHOULD BE SHOWN IN THE BALANCE SHEET AT A NOMINAL V ALUE. ALTERNATIVELY, GOVERNMENT GRANTS RELATED TO DEPRECI ABLE FIXED ASSETS MAY BE TREATED AS DEFERRED INCOME WHICH SHOULD BE R ECOGNISED IN THE PROFIT AND LOSS STATEMENT ON A SYSTEMATIC AND R ATIONAL BASIS OVER THE USEFUL LIFE OF THE ASSET, I.E., SUCH GRANT S SHOULD BE ALLOCATED TO INCOME OVER THE PERIODS AND IN THE PRO PORTIONS IN WHICH DEPRECIATION ON THOSE ASSETS IS CHARGED. GRAN TS RELATED TO NON-DEPRECIABLE ASSETS SHOULD BE CREDITED TO CAPITA L RESERVE UNDER THIS METHOD. HOWEVER, IF A GRANT RELATED TO A NONDE PRECIABLE ASSET REQUIRES THE FULFILLMENT OF CERTAIN OBLIGATIONS, TH E GRANT SHOULD 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 THE FINAN CIAL 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 EITH ER BE SHOWN SEPARATELY UNDER 'OTHER INCOME' OR DEDUCTED IN REPO RTING THE RELATED EXPENSE' 8. THUS, IT IS SEEN FROM THE AS-12 AS QUOTED ABOVE THAT AS PER AS-12 THE GRANTS RECEIVED WITH SPECIFIC DIRECTION ESPECIA LLY 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 WHOL E 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 FI XED 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 USEFUL LIFE OF THE ASSET. 9. 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 GENERIC PUR POSE. THE DONOR ALLOWS APPELLANT TO APPLY THESE FUNDS FOR ANY OF IT S OBJECTS. IF SUCH GRANTS ARE RECEIVED BY THE APPELLANT WHICH DOES NOT HAVE ANY SPECIFIC DIRECTION FOR THE PURPOSE, THEN IT WILL HA VE TO BE CONSIDERED AS VOLUNTARY DONATION AND WILL BE INCLUD ED AS THE INCOME OF THE APPELLANT U/S.12(1) OF THE ACT. EVEN IF APPELLANT HAS ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 25 - SHOWN SUCH GRANTS IN THE BALANCE SHEET THEN THE APP ELLANT (A) WOULD BE ELIGIBLE TO CLAIM EXPENSES OUT OF THEM AS APPLIC ATION OF INCOME AND IF THE APPELLANT CREATES FIXED ASSETS OUT OF SU CH GRANTS, APPELLANT (B) WOULD BE ELIGIBLE TO CLAIM CAPITAL EX PENDITURE AS APPLICATION OF ITS INCOME AND (C) WOULD BE ELIGIBLE TO CLAIM DEPRECIATION ON SUCH FIXED ASSETS AS APPLICATION OF INCOME. RELIANCE PLACED ON THE JUDGMENT OF HON'BLE HIGH COU RT OF GUJARAT IN THE CASE OF CIT VS SHETH MANILAL RANCHHODDAS VIS HRAM BHAWAN TRUST, 198 ITR 598. A.O. IS DIRECTED TO CALCULATE T HE INCOME OF THE APPELLANT FROM THE PROPERTY HELD BY IT ACCORDINGLY. (II) FURTHER, THE APPELLANT MIGHT HAVE RECEIVED CER TAIN FUNDS IN THE FORM OF GRANTS, FOR A SPECIFIC PURPOSE OR FOR A SPE CIFIC PROJECT THAT IS CAPITAL IN NATURE. THE SANCTION LETTER FROM THE INSTITUTION/AUTHORITIES GIVING GRANT TO THE APPELLA NT CATEGORICALLY MENTIONS THAT FUNDS RECEIVED UNDER THESE GRANTS CAN NOT BE UTILIZED FOR ANY OTHER PURPOSE EXCEPT FOR THE PURPOSE FOR WH ICH THE GRANT IS GIVEN. AS THE APPELLANT HAS RECEIVED SUCH KIND OF G RANTS WITH A SPECIFIC DIRECTION, ALL SUCH GRANTS ARE REQUIRED TO BE CONSIDERED AS CAPITAL RECEIPTS. SUCH CAPITAL RECEIPTS WOULD BE PA RT OF BALANCE SHEET AND NOT ITS INCOME. THE APPELLANT WOULD BE EL IGIBLE TO CLAIM DEDUCTION U/S 11(1)(D) OF THE ACT ON SUCH CAPITAL R ECEIPTS. BUT SINCE 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 ASSETS CREATION MADE OUT OF THESE GRANTS WOULD BE REFLECTED IN THE BALANCE SHEET AND THE APP ELLANT (B) CANNOT CLAIM CAPITAL EXPENDITURE OUT OF THESE GRANT S AS THE MONEY APPLIED TOWARDS ITS OBJECTS AS APPLICATION OF INCOM E. FINALLY, THE APPELLANT (C) CANNOT CLAIM DEPRECIATION ON FIXED AS SETS CREATED OUT OF GRANTS GIVEN FOR SPECIFIC PURPOSE, AS APPLICATIO N OF INCOME. (III) (A) DURING THE APPELLATE PROCEEDINGS IT IS SE EN FROM THE BALANCE SHEET AND INCOME AND EXPENDITURE ACCOUNT OF THE APP ELLANT THAT CERTAIN RECEIPTS HAVE BEEN TAKEN BY THE APPELLANT D IRECTLY TO THE BALANCE SHEET, THE AG. AUDIT HAD BEEN RAISING AUDIT OBJECTION FOR TREATING THEM AS REVENUE RECEIPTS AND HENCE THE SAI D RECEIPTS HAVE BEEN CONSIDERED AS CAPITAL RECEIPTS. ACCORDING TO T HESE AUDIT OBJECTIONS FOR E.G. RECEIPT FROM 'BETTERMENT CHARGE S' ARE REQUIRED TO BE SHOWN AS LIABILITIES IN BALANCE SHEET BECAUSE THEY SHOULD BE ADJUSTED AGAINST THE NET AMOUNT TO BE PAID BY THE O WNERS. SIMILARLY AS PER THE FORM Q UNDER GTPUD RULES, 1979, 'DEVELOP MENT CHARGES' ARE REQUIRED TO BE SHOWN IN THE BALANCE SH EET UNDER THE HEAD OF 'CAPITAL RECEIPTS'. AUDIT DEPARTMENT ALSO W ANTS THE PART PLAN FEES, ADDITIONAL FSI CHARGES ETC. TO BE REFLEC TED AS 'CAPITAL RECEIPTS' AS PER THE REQUIREMENT OF FORMAT OF ANNUA L ACCOUNTS. THERE ARE MANY OTHER ISSUES ON WHICH 'AUDIT' WING H AD BEEN RAISING AUDIT OBJECTION WITH REGARD TO CLASSIFICATION OF RE CEIPTS. BE AS IT MAY, AS FAR AS AUDIT OBJECTIONS ARE CONCERNED. HERE , WE ARE CONCERNED WITH COMPUTATION OF INCOME UNDER THE INCO ME TAX ACT. B) IT IS A MATTER OF FACT THAT APPELLANT HAS RECEIV ED THESE FUNDS AS PER THE PROVISIONS OF GTPUD ACT. THE GTPUD ACT A UTHORIZES THE APPELLANT TO RECEIVE FUNDS UNDER VARIOUS CATEGO RIES SUCH AS DEVELOPMENT CHARGES, BETTERMENT CHARGES, IMPACT FEE S, AMENITIES FEES, SCRUTINY FEES, ZONING FEES 'ETC. THESE FEES/F UNDS OR THE ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 26 - SOURCES OF RECEIPTS HAVE BEEN RECEIVED BY THE APPEL LANT DURING THE DISCHARGE OF ITS FUNCTIONS. THESE ARE RECURRING AND OPERATIONAL RECEIPTS OF THE APPELLANT. THE APPELLANT IS REQUIRE D TO APPLY THESE RECEIPTS TOWARDS ITS OBJECTS. I AM OF THE CONSIDERE D OPINION THAT A CAPITAL EXPENDITURE BY A PERSON NEED NOT BE A CAPIT AL RECEIPT OF THE PERSON RECEIVING THAT AMOUNT. THEREFORE, A.O. IS DI RECTED 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 ARE CONSIDERED AS CAPITAL RECEIPTS AS A BALANCE SHEET I TEM THEN APPELLANT WOULD BE ELIGIBLE TO CLAIM DEDUCTION U/S 11(1)(D) OF THE ACT ON SUCH CAPITAL RECEIPTS. BUT SINCE THESE CANNO T BE A PART OF THE INCOME OF THE APPELLANT, THE APPELLANT (A) CANNOT C LAIM ACCUMULATION @ 15% U/S 11(1)(A) OF THE ACT ON SUCH CAPITAL RECEIPTS. THE ASSETS CREATION MADE OUT OF THESE REC EIPTS WOULD BE REFLECTED IN THE BALANCE SHEET AND THE APPELLANT (B ) CANNOT CLAIM CAPITAL EXPENDITURE OUT OF THESE RECEIPTS AS THE MO NEY APPLIED TOWARDS ITS OBJECTS AS APPLICATION OF INCOME. FINAL LY, THE APPELLANT (C) CANNOT CLAIM DEPRECIATION ON FIXED ASSETS CREAT ED OUT OF RECEIPTS, AS APPLICATION OF INCOME. (IV) FURTHER, AO IS DIRECTED TO VERIFY THE RATE OF DEPRECIATION CLAIMED BY THE APPELLANT. SECTION 32 OF THE ACT IS NOT APPL ICABLE TO THE EXEMPT PERSON. THE INCOME OF EXEMPT PERSON HAS TO B E CALCULATED ON THE BASIS OF NORMAL COMMERCIAL PRINCIPLES AND BY RULE OF ACCOUNTANCY. ACCORDINGLY THE RATE OF DEPRECIATION W OULD APPLY AND NOT THE RATES OF DEPRECIATION AS PER SECTION 32 OF THE ACT. (V) A.O. IS DIRECTED TO CALCULATE THE EXPENDITURE I NCURRED OR AMOUNT TOWARDS THE OBJECTS OF THE APPELLANT. THE AMOUNT AP PLIED WOULD ALSO INCLUDE THE CAPITAL EXPENDITURE AS PER THE DIR ECTION GIVEN ABOVE (RELIANCE PLACED ON THE JUDGMENT OF GUJARAT H IGH COURT IN THE CASE OF SATYAVIJAY PATEL HINDU DHARMASHALA TRUS T VS CIT 86 ITR 683, HON'BLE SUPREME COURT IN THE CASE OF SRM C TM TIRUPANNI TRUST, 230 ITR 636, HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS MOOLCHAND SHARBATI DEVI HOSPITAL TRUST 190 T AXMAN 338). (VI) AFTER THE CALCULATION OF EXPENSES OR AMOUNT AP PLIED FOR THE OBJECTS OF THE APPELLANT, A.O. WILL ALLOW THE ACCUMULATION U/S 11(1)(A)OF THE ACT TO THE EXTENT OF 15% OF INCOME. IF THE EXCE SS OF INCOME OVER THE EXPENDITURE IS LESS THAN 15% OF THE INCOME, THE N A.O. SHALL ALLOW ACCUMULATION TO THE EXTENT OF 15% U/S.11(1)(A ) OF THE ACT. (FOR EXAMPLE: IF APPELLANT EARNS RS. 100 AND APPLIE S RS 90 THEN ONLY RS. 10 WOULD BE ALLOWED TO BE ACCUMULATED U/S 11(1)(A) OF THE ACT.) (VII) IF THE APPELLANT HAS APPLIED MORE THAN THE IN COME DURING THE YEAR THEN A.O. IS DIRECTED TO ALLOW CARRY FORWARD OF DEF ICIT OF THAT YEAR TO BE SET OFF AGAINST FUTURE INCOME OF THE APPELLAN T (RELIANCE PLACED ON THE JUDGMENT OF HON'BLE GUJARAT HIGH COUR T IN THE CASE OF CIT VS SRI PLOT SWETAMBER MURTIPUJAK JAIN MANDAL 211 ITR 293). IN THAT YEAR, THE AO SHALL NOT ALLOW ANY ACCU MULATION U/S.11(1)(A) OF THE ACT @ 15%. (FOR EXAMPLE; IF APP ELLANT EARNS RS. ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 27 - 100 AND APPLIES RS. 110 THEN RS. 10 WOULD BE ALLOWE D TO BE CARRIED FORWARD AS DEFICIT AND THERE WILL BE NO ACCUMULATIO N U/S.11(1)(A).) IN AN IMMEDIATE SUBSEQUENT YEAR, AO WILL ALLOW, FIR STLY, THE SET OFF OF THE DEFICIT CARRIED FORWARD FROM EARLIER YEAR. T HEN, AO SHALL REDUCE THE AMOUNT APPLIED DURING THE YEAR. IF, AFTE R THE ADJUSTMENTS OF CARRIED FORWARD DEFICIT AND APPLICATION OF INCOM E, THE APPELLANT HAS ANY SURPLUS OF INCOME OVER THE EXPENDITURE THEN THE APPELLANT WOULD BE ELIGIBLE TO ACCUMULATE TO THE EXTENT OF 15 % U/S.11(1)(A) FROM THE INCOME. (FOR EXAMPLE: IF APPELLANT EARNS R S. 100 IN IMMEDIATE SUCCEEDING YEAR AND APPLIES RS. 80 THEN R S. 90, I.E. RS. 10 AS EARLIER YEAR DEFICIT AND RS. 80 BEING 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 AMOUNT SHALL BE ALLOWED BY THE A.O. TO BE ACCUMULATED U/S. 11 (2) OF THE ACT AND ACCORDING TO THE STIPULA TIONS MENTIONED THEREIN I.E. FILING OF FORM 10 AND PURPOSE FOR WHIC H ACCUMULATION U/S.11(2) HAS BEEN MADE ETC. IN SHORT, THE AO WILL NOT ALLOW ACCUMULATION OF INCOME EITHER U/S 11(1)(A) @15% OR U/S 11(2) OF THE ACT ALONG WITH CARRY FORWARD OF DEFICIT. APPLIC ATION OF INCOME SHALL PRECEDE ACCUMULATION. (VIII) IF THE APPELLANT INCURS ANY EXPENDITURE OUT OF THE ACCUMULATED AMOUNT U/S. 11 (2) OF THE ACT, THEN THE SAID EXPEND ITURE WILL NOT BE ALLOWED AS APPLICATION AGAINST THE CURRENT YEAR'S I NCOME OF THE APPELLANT. IT WILL HAVE TO BE SET OFF FROM THE ACCU MULATED FUNDS U/S 11 (2) OF THE ACT. A.O. IS ACCORDINGLY DIRECTED TO CALCULATE THE INCOM E OF THE APPELLANT AS PER THE DIRECTIONS GIVEN ABOVE. 10. AS FAR AS VARIOUS GROUNDS OF APPEAL FILED BY TH E APPELLANT ARE CONCERNED ALL OF THEM HAVE ALREADY BEEN ADDRESSED I N ABOVE PARAS AND THE DIRECTIONS HAVE BEEN GIVEN AT PARA-5.3 TO PARA-9 AB OVE. ACCORDINGLY, GROUND OF APPEAL NOS.2 & 3 ARE THE GROUNDS WHICH AR E DIRECTLY COVERED BY THE JUDGMENT OF HON'BLE GUJARAT HIGH COURT IN THE C ASE OF ADDA DATED 2/5/2017. THEREFORE, ALL THESE GROUNDS OF APPEAL AR E HEREBY ALLOWED. 10.1 VIDE GROUND OF APPEAL NO 4, THE APPELLANT HAS RAISED THE ISSUE OF CONSIDERING RECEIPT OF INFRASTRUCTURE FUND AS INCOM E BY THE A O. IT IS ALREADY HELD THAT THE APPELLANT IS AN EXEMPT ENTITY . I HAVE DISCUSSED THE ISSUE OF RECEIPT OF EXEMPT ENTITY UNDER VARIOUS CAT EGORIES AT PARA 9(I), (II) AND (III) ABOVE. THE TREATMENT FOR RECEIPTS FROM GE NERIC GRANTS, PROJECT SPECIFIC GRANTS AND OPERATIONAL AND RECURRING INCOM E HAS BEEN DISCUSSED AT THESE PARAS AND A.O HAS BEEN GIVEN SPECIFIC DIRE CTIONS FOR COMPUTING THE INCOME OF APPELLANT. THE A.O IS DIRECTED TO VER IFY AND RECOMPUTED THE INCOME ACCORDINGLY. THIS GROUND IS ALLOWED SUBJECT TO THESE DIRECTIONS. 10.2 VIDE GROUND OF APPEAL NOS.5 & 8, THE APPELLANT HAS RAISED THE ISSUE OF DENIAL OF EXPENDITURE INCURRED ON ADDITION TO FI XED ASSETS AND ON CAPITAL EXPENDITURE BY THE A.O. AT PARA-9(I), 9(II) AND 9(V) HAVE ALREADY GIVEN DIRECTIONS TO THE A.O TO ALLOW SUCH EXPENSES SUBJECT TO CERTAIN CONDITIONS. IF THE ADDITION TO FIXED ASSETS HAS BEE N MADE FROM THE PROJECT SPECIFIED GRANTS THEN THAT EXPENDITURE WILL NOT BE ALLOWABLE TO THE ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 28 - APPELLANT AS APPLICATION OF INCOME OR IF THE PROJEC T 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 CAPITAL EXPENSES HAVE BEEN INCURRED FROM THE OPERATIONAL INCOME OR T HE GENERIC GRANTS RECEIVED BY THE APPELLANT, THEN ONLY A.O IS DIRECTE D TO ALLOW THE EXPENDITURE ON ADDITION TO FIXED ASSETS AND PROJECT EXPENSES AS APPLICATION OF INCOME. THEREFORE, SUBJECT TO THE VE RIFICATION OF FACTS BY THE A.O, THE GROUND OF APPEAL IS ALLOWED FOR STATIS TICAL PURPOSE. 10.3 GROUND OF APPEAL NOS.6, 7 & 9 RELATES TO CLAIM OF ACCUMULATION AT THE RATE OF 15% U/S.11(1)(A) AND U/S.11(2). THE APP ELLANT WOULD BE ELIGIBLE TO CLAIM THE BENEFIT U/S.11 OF THE ACT. A. O IS DIRECTED 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-9(I) TO PARA -9(VIII) AND ACCORDINGLY ALLOW THE QUANTUM OF ACCUMULATION U/S.11(1)(A) AND 11(2) OF THE ACT. THE APPELLANT HAS BEEN CLAIMING THE VARIOUS OPERATIONAL RECEIPTS AS CAPITAL RECEIPTS IN THE BALANCE SHEET. HOWEVER, AS MENTIONE D AT PARA-9(III), I AM OF THE CONSIDERED OPINION THAT THESE CANNOT BE THE CAPITAL RECEIPT BUT WILL HAVE TO BE CONSIDERED AS INCOME FROM THE PROPERTY H ELD BY THE TRUST. THE A.O IS DIRECTED TO COMPUTE THE INCOME AND ALLOW THE ACCUMULATIONS U/S.11(1)(A) OF THE ACT AND U/S.11(2) OF THE ACT AC CORDINGLY. SUBJECT TO THESE REMARKS THE GROUND OF APPEAL NO.9 IS ALLOWED FOR STATISTICAL PURPOSE. 11. IN THE RESULT, THE APPEAL IS PARTLY ALLOWE D. 7. AGGRIEVED BY RELIEF GRANTED BY THE CIT(A), THE R EVENUE HAS PREFERRED APPEAL BEFORE THE TRIBUNAL. 8. WHEN THE MATTER WAS CALLED FOR HEARING, THE LEAR NED DR FOR THE REVENUE, RELIED UPON THE ACTION OF THE AO AND SOUGH T REVERSAL OF THE RELIEFS GRANTED BY THE CIT(A). 9. THE LEARNED AR FOR THE ASSESSE, ON THE OTHER HAN D, SUBMITTED AT THE OUTSET THAT THE ISSUE IS NO LONGER RES INTEGRA . THE ACTIVITY OF THE ASSESSEE WAS FOUND TO BE COVERED BY THE MAIN PROVIS ION OF SECTION 2(15) OF THE ACT IN THE MATTERS CONCERNING SUBSEQUENT ASS ESSMENT YEARS AND IT HAS HELD BY THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO.102/RJT/2016 CONCERNING AY 2012-13 THAT THE ACTI VITIES CARRIED OUT BY THE ASSESSEE DOES NOT FALL WITHIN THE SCOPE OF P ROVISO TO SECTION 2(15) OF THE ACT. IT WAS FURTHER POINTED OUT ON BEHALF O F THE ASSESSEE THAT THE RATIO OF THE DECISION IN AY 2012-13 WAS APPLIED BY THE TRIBUNAL IN AY ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 29 - 2013-14 IN ITA NO. 435/AHD/2018 CONCERNING AY 2013- 14 AS WELL. THE LEARNED AR ACCORDINGLY SUBMITTED THAT THE GRIEVANCE OF THE REVENUE AS TAKEN IN GROUND NOS. 1 & 2 IS NOT JUSTIFIED. IT WA S FURTHER SUBMITTED THAT GROUND NO.5 IS CONSEQUENTIAL ONCE THE ACTIVITY OF THE ASSESSEE IS CONSIDERED TO BE CHARITABLE IN NATURE FOR AVAILING BENEFIT OF EXEMPTION UNDER S.11 OF THE ACT. AS REGARDS GROUND NOS. 3 & 4 OF THE REVENUES APPEAL, THE LEARNED AR FOR THE ASSESSEE SUBMITTED T HAT IT IS INCORRECT TO SAY THAT THE CIT(A) HAS DELETED THE ADDITIONS PER SE BUT HAS DIRECTED THE AO TO MAKE SUITABLE VERIFICATIONS AND ASCERTAIN THE ISSUES IN THE LIGHT OF FACTS THAT MAY EMERGE. THE LEARNED AR THUS SUBMITT ED THAT THE REVENUE OUGHT NOT TO BE AGGRIEVED FOR SUCH OBSERVATIONS RAI SED IN GROUND NOS. 2 & 3 OF THE REVENUES APPEAL. IN THE REJOINDER, THE LEARNED DR FOR THE REVENUE DID NOT OFFER ANY COMMENT IN REBUTTAL. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. 10.1 GROUND NOS. 1 & 2 CONCERN AS TO WHETHER THE AC TIVITY OF THE ASSESSEE COMPANY IS IN THE NATURE OF ADVANCEMENT O F ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY AND WHETHER THE NATURE OF A CTIVITY IS COMMERCIAL AND AKIN TO TRADE, COMMERCE OR BUSINESS ETC. TH E FIRST ISSUE THAT THE OBJECT OF THE ASSESSEE AUTHORITY IS TO ENGAGE IN AD VANCING OF OBJECTS OF PUBLIC UTILITY IS NOT IN DISPUTE. THE DISPUTE RELA TES TO THE SECOND LIMB I.E. WHETHER SUCH OBJECT OF ADVANCEMENT OF GENERAL PUBLIC UTILITY ALSO ACQUIRES THE CHARACTER OF TRADE, COMMERCE OR BUSINE SS WITH COMMERCIAL INTENT OR WHETHER THE AUTHORITY EXISTS SOLELY FOR A DVANCEMENT OF OBJECT OF PUBLIC UTILITY AND DO NOT EXIST WITH A MOTIVE TO MA KE PROFIT IN A COMMERCIAL SPIRIT. AS OBSERVED, THE ASSESSEE IS A GOVERNMENT AGENCY AND IS ENGAGED IN CO-ORDINATE AND PLANNED DEVELOPME NT OF JAMNAGAR REGION WHICH IS PRE-DOMINANT OBJECT OF THE AUTHORIT Y. THE AUTHORITY HAS BEEN GRANTED REGISTRATION UNDER S.12A OF THE ACT FO R CLAIMING DEDUCTION/EXEMPTION UNDER S.11 OF THE ACT. ON SIMI LAR FACTS, THE HONBLE GUJARAT HIGH COURT IN AHMEDABAD URBAN DEVELOPMENT AUTHORITY ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 30 - VS. ACIT (2017) 83 TAXMANN.COM 78 (GUJ) HELD THAT GENERAL PUBLIC UTILITY SERVICES AND AMENITIES PROVIDED BY SUCH AUTHORITIE S WOULD FALL WITHIN THE MEANING OF CHARITABLE PURPOSES AS CONTEMPLATE D UNDER S.2(15) OF THE ACT AND CONSEQUENTLY, THE ASSESSEE IS ENTITLED TO CLAIM EXEMPTION OF INCOME UNDER S.11 OF THE ACT. THE ISSUE HAS ALREAD Y BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE IN OTHER ASSESSMENT YEARS BY THE CO-ORDINATE BENCH AS NOTED ABOVE. WE THUS SEE NO ERROR IN THE CONCLU SION DRAWN BY THE CIT(A) IN FAVOUR OF THE ASSESSEE. WE THUS DECLINE TO INTERFERE. 10.2 GROUND NOS. 1 & 2 OF THE REVENUES APPEAL ARE ACCORDINGLY DISMISSED. 10.3 ONCE THE ACTIVITY IS CONSIDERED TO BE CHARITAB LE IN NATURE, THE ASSESSEE WOULD BE ENTITLED TO ALL CONSEQUENTIAL BEN EFITS FLOWING TO INCOME GENERATED FROM SUCH ACTIVITY INCLUDING THE B ENEFITS PROVIDED UNDER S.11(2) OF THE ACT AND 11(1)(A) OF THE ACT T OWARDS ACCUMULATION OF PROFITS WITHOUT ANY DEMUR. THUS, GROUND NO.5 OF THE REVENUES APPEAL IS ALSO BEREFT OF ANY MERIT. 10.4 GROUND NO.5 OF THE REVENUES APPEAL IS ACCORDI NGLY DISMISSED. 10.5 AS POINTED OUT ON BEHALF OF THE ASSESSEE, GROU ND NOS. 3 & 4 HAS BEEN ADDRESSED BY THE CIT(A) AND CERTAIN DIRECTIONS HAVE BEEN GIVEN TO THE AO IN THIS REGARD. WE HAVE PURSUED THE DIRECTI ON OF THE CIT(A) AND WE FIND THE APPROACH ADOPTED TO BE JUST AND REASONA BLE. THE REVENUE HAS FAILED TO DEMONSTRATE THE GRIEVANCE ARISING FROM SU CH DIRECTIONS OF CIT(A) AS RAISED IN GROUND NOS. 3 & 4 OF ITS APPEAL . WE ARE THUS INCLINED TO UPHOLD THE FINDINGS OF THE CIT(A) IN TH IS REGARD. 10.6 GROUND NOS. 4 & 5 OF THE REVENUES APPEAL IS D ISMISSED. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ITA NOS. 2425 TO 2428/AHD/17 [JAMNAGAR AREA DEVELOPMENT AUTHORITY] - 31 - 12. THE ISSUES INVOLVED IN ITA NOS.2426 TO 2428/AHD /2017 ARE IDENTICAL. IN PARITY WITH THE CONCLUSION DRAWN IN ITA NO. 2425/AHD/2017 CONCERNING AY 2009-10, APPEAL OF THE REVENUE IN AY 2010-11, 2011-12 & 2014-15 ARE ALSO DISMISSED. 13. IN THE COMBINED RESULT, ALL APPEALS FILED BY TH E REVENUE ARE DISMISSED. SD/- SD/- (MADHUMITA ROY) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 15/11/2019 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 15/11/2019