The Commissioner of Income-tax (Exemptions) v. Ahmedabad Urban Development Authority
[Citation -2020-LL-0921-38]

Citation 2020-LL-0921-38
Appellant Name The Commissioner of Income-tax (Exemptions)
Respondent Name Ahmedabad Urban Development Authority
Court HIGH COURT OF GUJARAT AT AHMEDABAD
Relevant Act Income-tax
Date of Order 21/09/2020
Assessment Year 2012-13
Judgment View Judgment
Keyword Tags substantial question of law • eligible for exemption • principle of mutuality • general public utility • charitable activities • expenditure incurred • acquisition of land • cost of acquisition • collection of fees • loans and advances • charitable purpose • national interest • assessment order • business income • local authority • public auction • sale of land • common fund • urban area • own fund • surplus
Bot Summary: 2(2A) The State Government may, by notification in the Official Gazette, include in or exclude any area from an urban development area, amalgamate two or more urban development areas into one urban development area, sub- divide any urban development area into different urban development areas and include such sub-divided urban development area in any other urban development area. Notwithstanding anything contained in sub-section, the State Government, to deal with the situation arising out of natural calamity or disaster or disaster, may by notification constitute the urban development authority or reconstitute any existing urban development authority constituted under sub-section,consisting of any urban development area declared as such under sub-section, consisting of such members as it deems fit. The provisions of sub-sections to of section 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 urban development authority. 2(2A) The State Government may, by notification in the Official Gazette, include 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 Page 8 of 19 Downloaded on : Sat Oct 31 10:46:52 IST 2020 C/TAXAP/214/2020 ORDER development area. The provisions of subsections to of section 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 urban development authority. Considering Section 40 of the Town Planning Act, the 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, recreation grounds, schools, markets, green- belts, dairies, transport facilities, public purposes of all kinds; drainage, inclusive of sewerage, surface or sub - soil drainage and sewage disposal; Lighting; Water supply etc. 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 permitting the Area Development Authority / Urban Development Authority to sell 15 of the total area, by that the Urban Development Authority will be making profit, the Hon'ble Supreme Court has negatived the aforesaid and has observed that the activities of the Urban Page 14 of 19 Downloaded on : Sat Oct 31 10:46:52 IST 2020 C/TAXAP/214/2020 ORDER Development Authority / Area Development Authority while selling the land to the extent of 15 to the total area covered under the scheme cannot be said to be profitering.


C/TAXAP/214/2020 ORDER IN HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 214 of 2020 COMMISSIONER OF INCOME TAX(EXEMPTIONS) Versus AHMEDABAD URBAN DEVELOPMENT AUTHORITY Appearance: MRS MAUNA M BHATT(174) for Appellant(s) No. 1 for Opponent(s) No. 1 CORAM:HONOURABLE MR. JUSTICE R.M.CHHAYA and HONOURABLE MR. JUSTICE ILESH J. VORA Date : 21/09/2020 ORAL ORDER (PER : HONOURABLE MR. JUSTICE R.M.CHHAYA) 1.0. Heard Mr. Manish Bhatt, learned Senior Advocate assisted by Mrs. Mauna Bhatt, learned advocate for appellant revenue. 2.0. By this appeal under Section 260-A of Income Tax Act, 1961 (hereinafter referred to as Act for sake of brevity) appellant Revenue has challenged order dated 16.12.2019 passed by Income Tax Appellate Tribunal, C Bench, Ahmedabad in ITA No.978/AHD/2017 for AY 2012-13. 3.0. following noteworthy facts emerge from record of appeal. 3.1. That respondent assessee filed it return of income for Assessment Year 2012-13 on 18.09.2012 and Page 1 of 19 Downloaded on : Sat Oct 31 10:46:52 IST 2020 C/TAXAP/214/2020 ORDER declared total income as NIL. On assessment being made under Section 143(3) of Act, Assessing Officer by its order dated 16.3.2015 assessed total income of respondent assessee at Rs.198,48,79,000/-. AO came to conclusion that income of assessee is business income since such receipts were in nature of trade or commerce and it exceeds Rs.25 lakh. According to AO, respondent assessee was not carrying out any charitable activities and was squarely covered by proviso 1 & 2 to Section 2(15) r/w Section 13(8) of Act and ultimately came to conclusion that respondent-assessee is not eligible for any of exemption claimed under Section 11 and 12 of Act and accordingly passed assessment order in question. respondent assessee filed Appeal before CIT(A), which came to be dismissed, against which, respondent assessee filed Appeal before Tribunal being ITA No.1422/AHD/2017. 3.1. record indicates that during course of revision proceedings under Section 263 of Act, CIT(A) observed that respondent assessee has claimed total deduction at Rs.272,24,44,078/-. CIT(A) came to conclusion that while making computation of income, carry forward of loss of Rs.42,77,29,078/- remained to be added back to total income of assessee and relying upon judgment of Hon ble Page 2 of 19 Downloaded on : Sat Oct 31 10:46:52 IST 2020 C/TAXAP/214/2020 ORDER Delhi High Court in case of Pushpawati Singhania Research Institute for Liver, Renal and Digestive Diseases vs. Deputy Director of Income Tax (Exemptions), Investigation, Circle-II, New Delhi (2009) 29 SOT 316 (Delhi) came to be conclusion that assessment order dated 16.3.2015 passed by AO was erroneous insofar as it is prejudicial to interest of Revenue under Section 263 of Act and by order dated 10.3.2017 set aside assessment order and directed to make de novo assessment for AY 2012- 13. Appellate Tribunal under order dated 9.10.2017 passed in ITA No.1422/AHD/2017 allowed appeal of respondent-assessee and restore matter back to file of AO for re-adjudication following judgment of this Court reported in 396 ITR 323. appellant-Revenue has further contended that SLP against said judgment is pending before Hon ble Supreme Court and on such premise following substantial of questions of law have been raised in this appeal. A. Whether on facts and circumstances of case and in law, Hon ble Tribunal was justified in allowing benefit of exemptions under Section 11 & 12 of Act without considering fact that assessee is involved in widespread commercial activities in nature of business and activity of assessee is covered under provisions to Section 2(15) of Act? Page 3 of 19 Downloaded on : Sat Oct 31 10:46:52 IST 2020 C/TAXAP/214/2020 ORDER B. Whether on facts and circumstances of case and in law, Hon ble ITAT is correct in quashing order under Section 263 of Act without appreciating that order passed by AO was erroneous so far as it is prejudicial to interest of Revenue? C. Whether on facts and circumstances of case and in law, Hon ble ITAT is justified in allowing benefit of exemptions u/s. 11 and 12 of Act without appreciating that in quantum appeal decision of Hon ble High Court in T.A. No. 300 of 2018 which has not been accepted and further SLP has been preferred before Hon ble Supreme Court which is pending ? 4. case put forward and substantial questions of law raised in this appeal are squarely covered by judgment of this Court in case of respondent- assessee itself for AY 2009-10 reported in 396 ITR 323 (Guj). Before adverting to substantial question of law raised in this appeal, it would be appropriate to refer to relevant provisions of Gujarat Town Planning and Urban Development Act, 1976 (hereinafter referred to as Town Planning Act ). respondent-assessee is Urban Development Authority constituted under Section 22 of Town Planning Act, which reads as under: 22. Declaration Of Urban Development Area And Constitution Of Urban Development Authority: Page 4 of 19 Downloaded on : Sat Oct 31 10:46:52 IST 2020 C/TAXAP/214/2020 ORDER (1) Where State Government is of opinion that object of proper development or redevelopment of any urban area or group of urban areas in State together with such adjacent areas as may be considered necessary, whether covered under development area already declared as such under section 3 or not, will be best served by entrusting work of development or redevelopment thereof to special authority, instead of to area development authority, State Government may, by notification, declare such area to be urban development area and constitute authority for such area to be called urban development authority of that area, and thereupon all powers and functions of area development authority relating to development or redevelopment of development area under this Act shall, in relation to such urban development area, be exercised and performed by such urban development authority1***. (2) Every notification issued under sub-section (1) shall define limits of area to which it relates. 2[(2A) State Government may, by notification in Official Gazette, include in or exclude any area from urban development area, amalgamate two or more urban development areas into one urban development area, sub- divide any urban development area into different urban development areas and include such sub-divided urban development area in any other urban development area.] (3) Every urban development authority constituted under sub-section (1) shall be body corporate by name aforesaid, having perpetual succession and common seal, with power to acquire, hold and dispose of property, both movable and immovable, and to contract, and by said name sue and be sued. (4) urban development authority shall consist of following members namely:- (i) Chairman to be appointed by State Government; (ii) such persons, not exceeding3[four in number] who are members of local authority or authorities functioning in urban development area, as may be nominated by State Government; (iii)4[Three officials] of State Government, to be nominated by that Government, ex-officio; (iv) Presidents of district panchayats functioning in urban development area, or, as case may be, part thereof, ex-officio; (v) Chief Town planner or his representative, ex-officio; (vi) Chief Engineer or Engineers (Public Health) of local authority or authorities functioning in urban development area or his or their nominee or nominees, ex- officio; 5[(vi-a) Municipal Commissioner of Municipal Page 5 of 19 Downloaded on : Sat Oct 31 10:46:52 IST 2020 C/TAXAP/214/2020 ORDER Corporation, if any, functioning in urban development area, ex-officio;] (vii) member secretary to be appointed by State Government who shall also be designated as Chief Executive Authority of Urban Development Authority. (4A) Notwithstanding anything contained in sub-section (4), State Government, to deal with situation arising out of natural calamity or disaster or disaster, may by notification constitute urban development authority or reconstitute any existing urban development authority constituted under sub-section (1),consisting of any urban development area declared as such under sub-section (1), consisting of such members as it deems fit. (5) provisions of sub-sections (5) to (12) of section 5 shall apply in relation to urban development authority as they apply in relation to area development authority, with modification that references to area development authority in said subsection shall be construed as references to urban development authority.. 4.1. Section 23 of Town Planning Act provides for powers and functions of urban development authority. Section 23 reads as under: 23. Powers And Function Of Urban Development Authority :- (1) 1 [The powers and functions of] urban development authority shall be:- (i) To undertake preparation of development plans under provisions of this Act, for urban development area; (ii) (ii) To undertake preparation 2 [and execution] of town planning schemes under provisions of this Act, if so di- rected by State Government; (iii) (iii) To carry out surveys in urban development area for preparation of development plans or town planning schemes; (iv) (iv) To guide, direct and assist local authority or author- ities and other statutory authorities functioning in ur- ban development area in matters pertaining to plan- ning, development and use of urban land; (v) (v) To control development activities in accordance with development plan in urban development area; 3 [(v- a) to levy and collect such security fees for secrutiny of doc- uments submitted to appropriate authority for permis- sion for development as may be prescribed by regulations;] (vi) (vi) To execute works in connection with supply of water, disposal of sewerage and provision of other services and amenities; 4 [(vi-a) to levy and collect such fees for exe- Page 6 of 19 Downloaded on : Sat Oct 31 10:46:52 IST 2020 C/TAXAP/214/2020 ORDER cution of works referred to in clause (vi) and for provision of other services and amenities as may be prescribed by regu- lations;] (vii) (vii) To acquire, hold, manage and dispose of property, mov- able or immovable, as it may deem necessary; (viii) (viii) To enter into contracts, agreements or arrangements, with any local authority, person or organisation as ur- ban development authority may consider necessary for per- forming its functions; (ix) (ix) To carry any development works in urban develop- ment area as may be assigned to it by State Govern- ment from time to time; (x) To exercise such other powers and perform such other func- tions as are supplemental, incidental or consequential to any of foregoing powers and functions or as may be di- rected by State Government. (2) urban development authority may, with approval of State Government, delegate 5 [any of its powers and functions] to local authority or authorities functioning in urban development area. (3) urban development authority shall have its office at such place as State Government may specify in this behalf. 6.0. It also deserves to be noted that assessee also undertakes task of framing and implementing Town Planning Scheme in area which is do not fall within any other local authority as defined under Town Planning Act. In present appeal also, same question which arise for consideration of this Court as observed by Division Bench in case of Ahmedabad Urban Development Authority (supra) is whether activity of assessee respondent, AUDA can be said to be in nature of trade, commerce and business and hence it could not be regarded as activity for charitable purpose in view of proviso to Section 2(15). This Court in case of Ahmedabad Urban Development Authority (supra) has extensively considered provisions of Town Planning Act and has Page 7 of 19 Downloaded on : Sat Oct 31 10:46:52 IST 2020 C/TAXAP/214/2020 ORDER observed thus: 11. While considering aforesaid questions, relevant provisions of Gujarat Town Planning Act, under which, Assessee has been constituted as Urban Development Authority and powers and functions of Assessee as Urban Development Authority are required to be considered, so as to appreciate whether activities of Assessee being Urban Development Authority can be said to be in nature of trade, commerce or business ?? relevant provisions of Gujarat Town Planning Act,under which, Assessee AUDA has been constituted as Urban Development Authority are as under: Section 2(viii): "Development", with all its grammatical variations and cognate expressions, means carrying out of any building, engineering, mining, or other operations in, or over, or under land or making of any material change in any building or land or in use of any building or land, and includes layout and subdivision of any land; Section 2(xxviii):"Urban development authority" means urban development authority constituted under section 22; Section 2(xxix):"Urban development area" means area declared to be urban development area under section 22. Section 22: Declaration Of Urban Development Area And Constitution Of Urban Development Authority : (1) Where State Government is of opinion that object of proper development or redevelopment of any urban area or group of urban areas in State together with such adjacent areas as may be considered necessary, whether covered under development area already declared as such under section 3 or not, will be best served by entrusting work of development or redevelopment thereof to special authority, instead of to area development authority, State Government may, by notification, declare such area to be urban development area and constitute authority for such area to be called urban development authority of that area, and thereupon all powers and functions of area development authority relating to development or redevelopment of development area under this Act shall, in relation to such urban development area, be exercised and performed by such urban development authority1*** (2) Every notification issued under subsection (1) shall define limits of area to which it relates. 2[(2A) State Government may, by notification in Official Gazette, include in or exclude any area from 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 Page 8 of 19 Downloaded on : Sat Oct 31 10:46:52 IST 2020 C/TAXAP/214/2020 ORDER development area.] (3) Every urban development authority constituted under sub- section (1) shall be body corporate by name aforesaid, having perpetual succession and common seal, with power to acquire, hold and dispose of property, both movable and immovable, and to contract, and by said name sue and be sued. (4) urban development authority shall consist of following members namely: (i) Chairman to be appointed by State Government; (ii) such persons, not exceeding3[four in number] who are members of local authority or authorities functioning in urban development area, as may be nominated by State Government; (iii)4[Three officials] of State Government, to be nominated by that Government, exofficio; (iv) Presidents of district panchayats functioning in urban development area, or, as case may be, part thereof, exofficio; (v) Chief Town planner or his representative, exofficio; (vi) Chief Engineer or Engineers (Public Health) of local authority or authorities functioning in urban development area or his or their nominee or nominees, exofficio; 5[(via) Municipal Commissioner of Municipal Corporation, if any, functioning in urban development area, exofficio;] (vii) member secretary to be appointed by State Government who shall also bedesignated as Chief Executive Authority of Urban Development Authority. (5) provisions of subsections (5) to (12) of section 5 shall apply in relation to urban development authority as they apply in relation to area development authority, with modification that references to area development authority in said subsection shall be construed as references to urban development authority. Section 23: Powers And Function Of Urban Development Authority :(1) [The powers and functions of] urban development authority shall be: (i) To undertake preparation of development plans under provisions of this Act, for urban development area; (ii) To undertake preparation [and execution] of town planning schemes under provisions of this Act, if so directed by State Government; (iii) To carry out surveys in urban development area for preparation of development plans or town planning schemes; (iv) To guide, direct and assist local authority or authorities and other statutory authorities functioning in urban development area in matters pertaining to planning, development and use of urban land; (v) To control development activities in accordance with development plan in urban development area; 3 [(va) to levy and collect such security Page 9 of 19 Downloaded on : Sat Oct 31 10:46:52 IST 2020 C/TAXAP/214/2020 ORDER fees for scrutiny of documents submitted to 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 amenities; 4 [(via) to levy and collect such fees for 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 it may deem necessary; (viii) To enter into contracts, agreements or arrangements, with any local authority, person or organisation as urban development authority may consider necessary for performing its functions; (ix) To carry any development works in urban development area as may be assigned to it by State Government from time to time; (x) To exercise such other powers and perform such other functions as are supplemental, incidental or consequential to any of foregoing powers and functions or as may be directed by State Government. (2) urban development authority may, with approval of State Government, delegate 5 [any of its powers and functions] to local authority or authorities functioning in urban development area. (3) urban development authority shall have its office at such place as State Government may specify in this behalf. Section 40. Making And Contents Of Town Planning Scheme : (1) Subject to provision of this Act or any other law for time being in force, appropriate authority may make one or more town planning schemes for development area or any part thereof, regard being had to proposals in final development plan, if any. (2) town planning scheme may be made in accordance with provisions of this Act in respect of any land which is (i) In course of development; 1 [(ii) likely to be used for residential or commercial or industrial or for building purposes; or] (iii) Already built upon. Explanation: For purpose of this subsection expression "land likely to be used for building purposes" shall include any land likely to be used as, or for purpose of providing, open spaces, roads, streets, parks, pleasure or recreation grounds, parking spaces or for purpose of executing any work upon or under land incidental to town planning scheme, whether in nature of building work or not. (3) town planning scheme may make provision for any of following matters, namely: (a) laying out or relaying out of land, either vacant or already built upon; (b) filling up or reclamation of lowlying, swampy or unhealthy areas, or levelling up of land; (c) Layout of new streets or roads, construction, diversion, extension, alteration, improvement and closing Page 10 of 19 Downloaded on : Sat Oct 31 10:46:52 IST 2020 C/TAXAP/214/2020 ORDER up of streets and roads and discontinuance of communications; (d) construction, alteration and removal of buildings, bridges and other structures; (e) allotment or reservation of land for roads, open spaces, gardens, recreation grounds,schools, markets, greenbelts, dairies, 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) preservation of objects of historical or national interest or natural beauty, and of buildings actually used for religious purposes; (j) reservation of land to extent of ten per cent. or such percentage as near thereto as possible of total area covered under scheme, for purpose of providing housing accommodation to members of socially and economically backward classes of people; 2 [3 [(jj) (a) allotment of land from total area covered under scheme, to extent of. (i) Fifteen per cent. for roads, (ii) five per cent. for parks, play grounds, gardens and open space, (iii) five percent for social infrastructure such as school, dispensary, fire brigade, public utility place as earmarked in Draft Town Planning Scheme, and (iv) fifteen per cent. for sale by appropriate authority for residential, commercial or industrial use depending upon nature of development: Provided that percentage of allotment of land specified in paragraphs (i) to (iii) may be altered depending upon nature of development and for reasons to be recorded in writing; (b) proceeds from sale of land referred to in para (iv) of subclause (a) shall be used for purpose of providing infrastructural facilities; (c) land allotted for purposes referred to in paragraphs (ii) and (iii) of subclause (a) shall not be changed by variation of schemes for purposes other than public purpose;]] (k) imposition of conditions and restrictions in regard to open space to be maintained around buildings, percentage of building area for plot, number, size, height and character of building allowed in specified areas, purposes to which buildings or specified areas may or may not be appropriated, subdivision of plots, discontinuance of objectionable uses of lands in any area in specified periods, parkings space and loading and unloading space for any building and sizes or locations of projections and advertisement signs; (l) suspension, so far as may be necessary, for proper carrying out of scheme, of any rule, byelaw, regulation, notification or order made or issued under any Act of State Legislature or any of Acts which State Legislature is competent to amend: Provided that any suspension under this clause shall cease to operate in event of State Government refusing to Page 11 of 19 Downloaded on : Sat Oct 31 10:46:52 IST 2020 C/TAXAP/214/2020 ORDER sanction preliminary scheme, or in event of withdrawal of scheme under section 66, or on coming into force of final scheme; (m) such other matters not inconsistent with objects of this Act as may be prescribed. Section 91: Fund Of Appropriate Authority :(1) appropriate authority shall have and maintain its own fund to which shall be credited (a) All moneys received by authority by way of grants, loans,1[advances, fees, development charges or otherwise;] (b) All moneys derived from its undertakings, projections and other sources; (c) Such amount of contributions from local authorities as State government may specify from time to time to be credited to fund of authority. (2) fund of appropriate authority shall be applied towards meeting (a) Expenditure incurred in administration of this Act; (b) Cost of acquisition of land for purposes of this Act; (c) Expenditure for any development of land in development area; (d) Expenditure for such other purposes as State Government may direct. (3) appropriate authority may keep in current account with State Bank" of India or any other bank approved by State Government in this behalf, such sums of money out of its fund as may be prescribed and any money in excess of said sum shall be invested in such manner as may be approved by State Government. (4) State Government may, make such grants, advances and loans to appropriate authority as State Government may deem necessary for performance of its functions under this Act and all grants, loans and advances so made shall be made on such terms and conditions as State Government may determine. Section 95:Accounts And Audit : (1) appropriate authority shall maintain proper accounts and other relevant records and prepare annual statement of accounts including balance sheet in such form as State Government may prescribe. (2) accounts of appropriate authority shall be subject to audit annually by Accountant General of State and any expenditure incurred by him in connection with such audit shall be payable by authority to Accountant General. (3) Accountant General or any person appointed by him in connection with audit of accounts of appropriate authority shall have same rights, privileges and authority in connection with such audit as Accountant General has in connection with Government accounts and in particular shall have right to demand production of books, accounts, connected vouchers and other documents and papers and to inspect office of appropriate authority. (4) accounts of authority as certified by Accountant General or any Page 12 of 19 Downloaded on : Sat Oct 31 10:46:52 IST 2020 C/TAXAP/214/2020 ORDER other person authorised by him in this behalf, together with audit report thereon, shall be forwarded annually to State Government. 12. From aforesaid provisions of Town Planning Act, it can be gathered that Assessee has been constituted as Urban Development Authority under provisions of Section 22 of Town Planning Act. purpose and object of constitution of Urban Development Authority is proper development or redevelopment of urban area. Even Urban Development Authority consists of (i) Chairman to be appointed by State Government; (ii) such persons, not exceeding [four in number] who are members of local authority or authorities functioning in urban development area, as may be nominated by State Government; (iii) Three officials of State Government, to be nominated by that Government, exofficio; (iv) Presidents of district panchayats functioning in urban development area, or, as case may be, part thereof, exofficio; (v) Chief Town planner or his representative, exofficio; (vi) Chief Engineer or Engineers (Public Health) of local authority or authorities functioning in urban development area or his or their nominee or nominees, exofficio; 5[(via) Municipal Commissioner of Municipal Corporation, if any, functioning in urban development area, exofficio;] (vii) member secretary to be appointed by State Government who shall also be designated as Chief Executive Authority of Urban Development Authority. Thus, constitution of Urban Development Authority is subject to control of State Government. powers and functions of Urban Development Authority as contained in Section 23 are reproduced herein above. Considering Section 40 of Town Planning Act, Town Planning Scheme prepared by Urban Development Authority which has been prepared subject to sanction by State Government for development of Urban Development Area, also provide for roads, open spaces, gardens, recreation grounds, schools, markets, green- belts, dairies, transport facilities, public purposes of all kinds; drainage, inclusive of sewerage, surface or sub - soil drainage and sewage disposal; Lighting; Water supply etc. Town Planning Scheme also provide for historical or national interest or natural beauty, and of buildings actually used for religious purposes. Scheme are also provide for reservation of land to extent of ten percent, or such percentage as near thereto as possible of total area covered under scheme, for purpose of providing housing accommodation to members of socially and economically backward classes of people. As per Section 40(i)(jj) for aforesaid purposes certain percentage of total area covered under scheme are allotted earmarked. Fifteen Page 13 of 19 Downloaded on : Sat Oct 31 10:46:52 IST 2020 C/TAXAP/214/2020 ORDER percent of total area is allotted for purpose of 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 Draft Town Planning Scheme and Fifteen percent for sale by appropriate authority for residential, commercial or industrial use depending upon nature of development. Last Fifteen percent is earmarked under Town Planning Scheme for sale, by appropriate authority for residential, commercial or industrial use. appropriate authority / Urban Development Authority is permitted to sale said plots / lands to extent of 15% of total area to meet with expenditure towards drainage, roads, gardens, schools, markets, water supply etc. So that maximum price can be fetched and same can be utilized for development of Urban Development Area and so as to avoid any allegation of favoritism and nepotism, plots are sold by public auction. It is required to be noted entire amount realized by assessee being Urban Development Authority either by selling plots or by recovery of some fees / charges, Urban Authority is required to use only for purpose of development in Urban Development Area and not for any other purpose. learned Tribunal has observed and held that as assessee is selling plots, to extent of 15% of total area, by public auction and gets maximum amount, it amounts to profitering and therefore, activities of Assessee can be said to be in nature of business. However, while holding so, learned Tribunal has not properly appreciated object and purpose of permitting Urban Development Authority to sale plots, maximum to extent of 15% of total area i.e. to meet with expenditure for providing them infrastructural facilities like gardens, roads, lighting, water supply, drainage system etc. learned Tribunal has also not properly appreciated reasons for selling plot by holding public auction i.e.; (1) to avoid any further allegation of favoritism and nepotism and (2) so that maximum market price can be fetched, which can be used for development of Urban Development Area. 12.1. At this stage decision of Hon'ble Supreme Court in case of Ahmedabad Green Belt Khedut Mandal (supra) ((2014) 7 SCC 357) is required to be referred to. Before Hon'ble Supreme Court, it was contended on behalf of original land owners whose lands were included in TP Scheme that by permitting Area Development Authority / Urban Development Authority to sell 15% of total area, by that Urban Development Authority will be making profit, Hon'ble Supreme Court has negatived aforesaid and has observed that activities of Urban Page 14 of 19 Downloaded on : Sat Oct 31 10:46:52 IST 2020 C/TAXAP/214/2020 ORDER Development Authority / Area Development Authority while selling land to extent of 15% to total area covered under scheme cannot be said to be profitering. It is observed and held that sale upto 15% is from total area covered under scheme and not in respect of every plot of land. In order to generate financial resources for development of infrastructure, salable plot for residential, commercial and industrial use are allotted by appropriate authority. It is further observed that provision of Act have to be read as whole and therefore, provision of Section 40(3)(jj)(a)(iv) for sale is to be in consonance / conjointly with other statutory provisions and not in isolation.Under circumstances, learned Tribunal has committed gross error in considering activities of appellant Urban Development Authority for profiter by selling 15% of total area and thereby has committed gross error in holding activities of assessee in nature of trade, commerce or business. 12.2. Whether activities of appellant AUDA can be said to be in nature of trade, commerce or business as occurring in first proviso to Section 2(15) of Act, few decisions of Hon'ble Supreme Court as well as other High Courts are required to be referred to at this stage. 5.1. Division Bench after considering catena of decision on subject, has further observed thus: 14. Considering aforesaid facts and circumstances and more particularly, considering fact that assessee is statutory body Urban Development Authority constituted under provisions of Act, constituted to carry out object and purpose of Town Planning Act and collects regulatory fees for object of Acts; no services are rendered to any particular trade, commerce or business; whatever income is earned / received by assessee even while selling plots (to extent of 15% of total area covered under Town Planning Scheme) is required to be used only for purpose to carry out object and purpose of Town Planning Act and to meet with expenditure while providing general utility service to public such as electricity, road, drainage, water etc. and even entire control is with State Government and even accounts are also subjected to audit and there is no element of profiteering at all, activities of assessee cannot be said to be in nature of trade, commerce and business and therefore, proviso to Section 2(15)of Act shall not be applicable so far as assessee is concerned and therefore, assessee is entitled to exemption under Section 11 of Income Tax Act. Page 15 of 19 Downloaded on : Sat Oct 31 10:46:52 IST 2020 C/TAXAP/214/2020 ORDER Therefore, question no.1 is to be held in favour of assessee and against revenue. 15. Now, so far as another question which is posed for consideration of this Court i.e. whether while collecting cess or fees, activities of assessee can be said to be rendering any services in relation to any trade, commerce or business is concerned, for reasons stated above, merely because assessee is collecting cess or fees which is regulatory in nature, proviso to Section 2(15)of Act shall not be applicable. As observed herein above neither there is element of profiteering nor same can be said to be in nature of trade, commerce or business. At this stage, decision of Division Bench of this Court in case of Sabarmati Ashram Gaushala Trust (supra) is required to be referred to. In case before Division Bench, assessee Trust Sabarmati Ashram Gaushala Trust was engaged in activity of breeding milk cattle; to improve quality of cows and oxen and other related activities. Assessing Officer denied exemption to trust under Section 11 of Act on ground that considerable income was generated from activities of milk production and sale and therefore, considering proviso to Section 2(15) of Act, said Trust assessee was denied exemption under Section 11 of Act. While holding that activities of assessee trust still can be said to be for charitable purpose within meaning of Section 2(15) of Act and same cannot be said to be in nature of trade, commerce or business for which proviso to Section 2(15) of Act is required to be applied. In para 6, 7, 8 and 12, it is observed and held as under: 6.The legal controversy in present Tax Appeal centers around first proviso. In plain terms, proviso provides for exclusion from main object of definition of term Charitable purposes and applies only to cases of advancement of any other of general general public utility. If conditions provided under proviso are satisfied, any entity, even if involved in advancement of any other object of general public utility by virtue to proviso, would be excluded from definition of charitable trust. However, for application of proviso, what is necessary is that entity should be involved in carrying on activities in nature of trade, commerce or business, or any activity of rendering services in relation to any trade, commerce or business, for cess or fee or any other consideration. In such situation, nature, use or application, or retention of income from such activities would not be relevant. Under circumstances, important elements of application of proviso are that entity should be involved in carrying on activities of any trade, commerce or business or any Page 16 of 19 Downloaded on : Sat Oct 31 10:46:52 IST 2020 C/TAXAP/214/2020 ORDER activities of rendering service in relationto any trade, commerce or business, for cess or fee or any other consideration. Such statutory amendment was explained by Finance Ministers speech in Parliament. Relevant portion of which reads as under : I once again assure House that genuine charitable organizations will not in any way be affected. CBDT will, following usual practice, issue explanatory circular containing guidelines for determining whether any entity is carrying on any activity in nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business. Whether purpose is charitable purpose will depend on totality of facts of case. Ordinarily, Chambers of Commerce and similar organizations rendering services to their members would not be affected by amendment and their activities would continue to be regarded as advancement of any other object of general public utility. 7.In consonance with such assurance given by Finance Minister on floor of House, CBDT issued Circular No. 11 of 2008 dated 19th December 2008 explaining amendment as under : 3. newly inserted proviso to section 2 (15) will apply only to entities whose purpose is advancement of any other object of general public utility ie., fourth limb ofthe definition of charitable purpose contained in section 2 (15). Hence, such entities will not be eligible for exemption under section 11 or under section 10 (23C) of Act if they carry on commercial activities. Whether such entity is carrying on any activity in nature of trade, commerce or business is question of fact which will be decided based on nature, scope, extent and frequency of activity. 3.1 There are industry and trade associations who claim exemption from tax under section 11 on ground that their objects are for charitable purpose as these are covered under any other object of general public utility. Under principle of mutuality, if trading takes place between persons who are associated together and contribute to common fund for financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to persons forming such association is not chargeable to tax. In such cases, there must be complete identity between contributors and participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under purview Page 17 of 19 Downloaded on : Sat Oct 31 10:46:52 IST 2020 C/TAXAP/214/2020 ORDER of proviso to section 2 (15) owing to principle of mutuality. However, if such organizations have dealings with nonmembers, their claim to be chargeable organizations would now be governed by additional conditions stipulated in proviso to section 2 (15). 3.2 In final analysis, however, whether assessee has for its object advancement of any other object of general public utility is question of fact. If such assessee is engaged in any activity in nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such case, object of general public utility will be only mask or device to hide true purpose which is trade, commerce or business or rendering of any service in relation to trade, commerce 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 meaning of section 2(15), would be well advised to eschew any activity which is in nature of trade, commerce or business or rendering of any service in relation to any trade, commerce or business. 8.What thus emerges from statutory provisions, as explained in speech of Finance Minister and CBDT Circular, is that activity of trust would be excluded from term charitable purpose if it is engaged in any activity in nature of trade, commerce or business or renders any service in relation to trade, commerce or business for cess, fee and/or any other consideration. It is not aimed at excluding genuine charitable trusts of general public utility but is aimed at excluding activities in nature of trade, commerce or business which are masked as charitable purpose. 12.All these were objects of general public utility and would squarely fall under section 2 (15) of Act. Profit making was neither aim nor object of Trust. It was not principal activity. Merely because while carrying out activities for purpose of achieving objects of Trust, certain incidental surpluses were generated, would not render activity in nature of trade, commerce or business. As clarified by CBDT in its Circular No. 11/2008 dated 19th December 2008 proviso aims to attract those activities which are truly in nature of trade, commerce or business but are carried out under guise of activities in nature of public utility. 15.1. Applying aforesaid decision to facts of case on hand and object and purpose for which assessee is established / constituted under provisions of Gujarat Town Planning Act and collection of fees and cess is incidental to object Page 18 of 19 Downloaded on : Sat Oct 31 10:46:52 IST 2020 C/TAXAP/214/2020 ORDER and purpose of Act, even case would not fall under second part of proviso to Section 2(15) of Act. 15.2. Considering aforesaid facts and circumstances of case, we are of opinion that learned Tribunal has committed grave error in holding activities of assessee in nature of trade, commerce or business and consequently holding that proviso to Section 2(15) of Act shall be applicable and therefore, assessee is not entitled to exemption under Section 11 of Act. For reasons stated above, it is held that proviso to Section 2(15) of Act shall not be applicable so far as assessee AUDA is concerned and as activities of assessee can be said to be providing general public utility services, assessee is entitled to exemption under Section 11 of Act. Both questions are therefore, answered in favour of assessee and against revenue.. After considering aforesaid decision, Division Bench was pleased to allow appeal filed by respondent assessee. 6.0. Thus, functions of respondent assessee are for charitable purposes and for general public utility and therefore, respondent assesseee is entitled to exemption under Section 11 of Act. Following judgment of this Court in case of Ahmedabad Urban Development Authority (supra), present appeal fails and is hereby dismissed. Substantial questions of law as framed are answered in favour of assessee and against Revenue. No costs. (R.M.CHHAYA, J) (ILESH J. VORA,J) DRASHTI K. SHUKLA/kaushik Page 19 of 19 Downloaded on : Sat Oct 31 10:46:52 IST 2020 Commissioner of Income-tax (Exemptions) v. Ahmedabad Urban Development Authority
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