Karnataka Industrial Area Development Board v. The Additional Director of Income-tax (Exemptions), Range 17, Bengaluru
[Citation -2020-LL-0930-82]

Citation 2020-LL-0930-82
Appellant Name Karnataka Industrial Area Development Board
Respondent Name The Additional Director of Income-tax (Exemptions), Range 17, Bengaluru
Court HIGH COURT OF KARNATAKA
Relevant Act Income-tax
Date of Order 30/09/2020
Assessment Year 2009-10
Judgment View Judgment
Keyword Tags repairs and maintenance • educational institution • industrial development • general public utility • development authority • commercial in nature • chamber of commerce • industrial purpose • charitable purpose • prescribed limit • dominant object • town planning • sale of land • net profit
Bot Summary: The assessing officer denied the exemption to the assessee by invoking the provisions of Section 2(15) of the Act and concluded the assessment. The Tribunal vide order dated 04.09.2015 allowed the appeal preferred by the assessee and inter alia held that the Proviso to Section 2(15) of the Act is not applicable to 5 the assessee. Assessee cannot claim deduction under Section 11 of the Act. Our attention is also been invited to paragraph Nos.44 to 49 of the order of the Tribunal 9 and has submitted that the Tribunal on the basis of the meticulous appreciation of the material on record has recorded a finding and has held that the Proviso to Section 2(15) of the Act is not applicable to the case of the assessee. Admittedly, the assessee is a statutory body, which is established and incorporated under Section 5 of the KIAD Act. The Tribunal, inter alia by taking into account the provisions of the Act, has held that the primary and dominant object of the assessee is not profit making. The Tribunal has therefore, recorded the conclusion that the assessee is engaged in the charitable 15 activity through advancement of an object of general public utility and therefore, has concluded that the Proviso to Section 2(15) of the Act is not applicable to the case of the assessee and has further held that the assessee is entitled to benefit of Section 11 of the Act.


1 IN HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS 30th DAY OF SEPTEMBER 2020 PRESENT HON BLE MR. JUSTICE ALOK ARADHE AND HON BLE MR. JUSTICE M.I. ARUN I.T.A. NO.205 OF 2016 BETWEEN: M/S. KARNATAKA INDUSTRIAL AREA DEVELOPMENT BOARD, NO.14/3, 2ND FLOOR, R.P. BUILDING, NRUPATHUNGA ROAD, BENGALURU-560 001. PAN: AAATK 1350J. ... APPELLANT (BY SRI. SANMATHI E.I., ADVOCATE APPEARED THROUGH PHYSICAL HEARING) AND: ADDITIONAL DIRECTOR OF INCOME TAX (EXEMPTIONS), RANGE 17, BENGALURU. ... RESPONDENT (BY SRI. CHYTHANYA K.K., ADVOCATE APPEARED THROUGH PHYSICAL HEARING) --- THIS I.T.A. IS FILED UNDER SECTION 260-A OF I.T.ACT, 1961, ARISING OUT OF ORDER DATED 04.09.2015 2 PASSED IN ITA NO.378/BANG/2013 FOR ASSESSMENT YEAR 2009-2010, PRAYING TO 1. DECIDE FOREGOING QUESTION OF LAW AND OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY HON BLE COURT AS DEEMED FIT. 2. SET ASIDE APPELLATE ORDER DATED 04.09.2015 PASSED BY ITAT, B BENCH, BENGALURU, IN APPEAL PROCEEDINGS IN ITA NO.378/BANG/2013 FOR ASSESSMENT YEAR 2009-2010, AS SOUGHT FOR IN THIS APPEAL; AND TO GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN INTEREST OF JUSTICE. THIS I.T.A. COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED FOLLOWING: JUDGMENT Mr.Sanmathi E.I, learned counsel for appellant. Mr.Chythanya K.K., learned counsel for respondent. 2. This appeal under Section 260-A of Income Tax Act, 1961 (hereinafter referred to as Act , for short) has been preferred by revenue. subject matter of appeal pertains to Assessment year 2009-10. appeal was admitted by Bench of this Court vide order dated 09.08.2017 on following substantial question of law: 3 Whether, on facts of case, Tribunal is right in law in holding that proviso to Section 2(15) of Income Tax Act, 1961 is not applicable to assessee? 3. facts leading to filing of this appeal briefly stated are that assessee, namely, Karnataka Industrial Area Development Board is statutory body constituted under Section 5 of Karnataka Industrial Area Development Act, 1966 (hereinafter referred to as KIAD Act for short). assessee filed returns of income on 24.02.2010 for assessment year 2009-10. assessing officer by order dated 23.11.2011, inter alia held that assessee had earned profit of Rs.155,76,64,004/- for year ending 31.03.2009 and aforesaid profit was 80% of total income. It was held that assessee has earned profits systematically over last few years and activity of assessee amounts to commercial in nature as it is engaged in sale of land and in 4 providing services. It was further held that Director of Income Tax has cancelled registration granted under Section 12A of Act vide order dated 28.10.2011 and therefore, income of assessee can be computed under normal provisions of Act. assessing officer denied exemption to assessee by invoking provisions of Section 2(15) of Act and concluded assessment. Being aggrieved, assessee has filed appeal before Commissioner of Income Tax (Appeals). Commissioner of Income Tax (Appeals), vide order dated 16.02.2015 has dismissed appeal preferred by assessee. assessee thereupon, approached Income Tax Appellate Tribunal (hereinafter referred to as Tribunal for short) by filing appeal. Tribunal vide order dated 04.09.2015 allowed appeal preferred by assessee and inter alia held that Proviso to Section 2(15) of Act is not applicable to 5 assessee. In aforesaid factual background, Revenue has filed this appeal. 4. Learned counsel for revenue submitted that Assessing Authority by detailed order had inter alia found that assessee was systematically involved in commercial activities by buying and selling of plots for industrial purpose, more over most of which was done through open auctions. It was also argued that assessee has earned profit more than 18 crores from sale of land, which is significantly more than prescribed limit of Rs.10 lakhs and therefore, same is hit by Proviso to Section 2(15) of Act. It is also argued that Assessing Officer has rightly held that net profit of assessee was Rs.155,76,64,004/-, which works out to 80% of turn over and which is more than even private builder or developer could earn. It was further pointed out that Assessing Officer held that site/lands which were purchased at lower rates are developed and sold to private industries 6 at higher rate through auctions generating huge profits. Hence, assessee cannot claim deduction under Section 11 of Act. It was also pointed out that Assessing Authority has rightly held that benefit of Section 10(20A) is not available to assessee as same has been deleted w.e.f. 01.04.2003. 5. learned counsel for revenue has also invited attention of this Court to Circular No.11 of 2008 dated 19.12.2008, which came into force w.e.f., 01.04.2009 and in particular has invited our attention to paragraph 3.2 of aforesaid Circular to point out that assessee, who claim that their object is charitable purpose within meaning of Section 2(15), would be 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. It is further submitted that Tribunal by misinterpreting ratio of decision rendered by Honb le High Court of Delhi in India Trade Promotion 7 Organization vs. Director General of Income-tax (Exemptions) ,(2015) 371 ITR 333, has wrongly held that activities of assessee are charitable in nature and Proviso to Section 2(15) of Act is not applicable in case of assessee. It is also urged that while passing impugned order, Tribunal has misinterpreted ratio of decision rendered by Hon ble High Court of Delhi in aforesaid decision and has not met with findings recorded by Assessing Officer and therefore, matter in any case deserves to be remitted for consideration afresh before Income Tax Appellate Tribunal. In support of submissions, learned counsel for revenue has placed reliance on decisions of Hon ble Apex Court in cases of Aditanar Educational Institution etc., vs. Additional Commissioner of Income Tax , (1997) 224 ITR 0310 and Indian Chamber of Commerce vs. Commissioner of Income Tax , (1975) 101 ITR 0796. 8 6. On other hand, learned counsel for assessee, at outset submitted that no substantial question of law is involved in appeal. In this connection, learned counsel for assessee has invited attention of this Court to two circulars No.11 of 2008 dated 19.02.2008 of Board and has submitted that whether entity is carrying on activity in nature of trade, commerce or business is question of fact which has to be decided on nature, scope, extent and frequency of activity. It is further submitted that aforesaid question has to be decided in facts of each case and Tribunal on basis of meticulous appreciation of materials placed before it, has recorded finding that activities of appellant are charitable in nature and assessee is not engaged in profit making. aforesaid finding is pure finding of fact which has not even been stated to be perverse on behalf of revenue. Our attention is also been invited to paragraph Nos.44 to 49 of order of Tribunal 9 and has submitted that Tribunal on basis of meticulous appreciation of material on record has recorded finding and has held that Proviso to Section 2(15) of Act is not applicable to case of assessee. contention that Tribunal has misinterpreted ratio of decision of Hon ble High Court of Delhi in case of India Trade Promotion Organization (Supra) is misconceived. It is also submitted that substantial question of law involved in this appeal is no longer res integra and is squarely covered by decisions of various High Courts. In this connection, learned counsel for assessee has invited our attention to following decisions rendered by different High Courts: (a) Commissioner of Income Tax vs. Gujarat Industrial Development Corporation, (2017) 83 taxmann.com 366 (Gujarat); 10 (b) Greater Noida Industrial Development Authority vs. Union of India , (2018) 406 ITR 418 (Delhi); (c) Commissioner of Income-tax-I, Luknow vs. Lucknow Development Authority, Gomti Nagar , (2014) 265 CTR 433 (Allahabad); (d) Commissioner of Income-tax-I, Jodhpur vs. Jodhpur Development Authority , (2016) 287 CTR 473 (Rajasthan); (e) Commissioner of Income-tax, (Exemption), Lucknow vs. Yamuna Expressway Industrial Development Authority , (2017) 81 taxmann.com 208 (Allahabad); (f) Director of Income Tax, Exemption vs. Ahmedabad Urban Development Authority , 2017-TIOL-1036-HC-AHM- IT. 11 7. We have considered submissions made by learned counsel for parties and have perused records. Admittedly, assessee is statutory body, which is established and incorporated under Section 5 of KIAD Act. assessee has been constituted to make provision for orderly establishment and development of Industries in suitable areas in State of Karnataka. Section 6 of KIAD Act deals with constitution of Board of Assessee, which provides that officers of State Government, namely, Secretary to Government of Karnataka, Commerce and Industries, Department who shall ex- officio be Chairman of Board, Secretary to Government of Karnataka, Finance Department, Secretary to Government, Housing and Urban Development Department, Commissioner for Industrial Development and Director of Industries and Commerce, Chairman and Managing Director, Karnataka State Industrial Investment and Development 12 Corporation Limited, Chairman, Karnataka State Pollution Control Board, Director of Town Planning, Managing Director, Karnataka State Small Industries Development Corporation Limited, Managing Director, Karnataka State Financial Corporation, Executive Member of Board and two nominees of Industrial Development Bank of India shall be members of Board of assessee. Thus, assessee is virtually controlled by State Government. From perusal of Section 13 of Act, it is evident that function of Board is to promote and assist in rapid and orderly establishment, growth and development of Industries and to provide industrial infrastructural facilities and amenity in industrial areas. Board of assessee is also under obligation to undertake schemes or programmes jointly with Government or local or statutory authorities or on agency basis as it considers necessary. Section 17 of KIAD Act empowers State Government to 13 issue directions to Board for carrying out purposes of Act which are binding on Board. Section 18 of Act mandates that all property, fund and other assets vesting in Board shall be held and applied by it, subject to provisions and for purpose of Act. Thus, from provisions of Act, it is axiomatic that Board of assessee functions under all pervasive control of State Government. Board has been constituted to carry out activities towards public purpose, namely, orderly establishment and development of Industries in suitable areas in State. 8. Tribunal, inter alia by taking into account provisions of Act, has held that primary and dominant object of assessee is not profit making. It has further been held that income side of income and expenditure account shows that main component of income of assessee is derived in form of interest of Rs.131.17 crores and interest of fixed deposits is 14 Rs.120.90 crores. Therefore, there is no profit element in earning income as interest. It has also been noticed that income of assessee comprises of repairs and maintenance, administrative expenses, water and electricity charges, special and other charges, depreciation. It has also been held by Tribunal that assessee has been established to promote rapid and orderly development of industries in State and to assist in implementation of policy of Government within purview of KIAD Act, to facilitate in establishing infrastructure projects and to function on No Profit-No Loss basis. It has also been held that State Government acquires land for scheme of assessee and hand over same to assessee after acquisition for development of industrial area. Tribunal has further held that profit making is not driving force or objective of assessee. Tribunal has therefore, recorded conclusion that assessee is engaged in charitable 15 activity through advancement of object of general public utility and therefore, has concluded that Proviso to Section 2(15) of Act is not applicable to case of assessee and has further held that assessee is entitled to benefit of Section 11 of Act. It has also been noticed that Assessing officer has not disputed that assessee fulfills conditions, which is necessary for allowing exemption of deductions applicable under Act except Proviso to Section 2(15) of Act. Thus, Tribunal has held that Proviso to Section 2(15) of Act is not applicable to case of assessee. 9. order passed by Tribunal, in our considered opinion, is based on meticulous appreciation of materials on record and by no stretch of imagination can be said to be perverse. issue with regard to perversity is not raised on behalf of revenue. Besides that, in case of various statutory bodies, different High Courts have taken similar 16 view, namely, in cases (a) to (f) stated (supra) that which we respectfully agree. In view of said enunciation of law, substantial question of law, which has been framed by this Court, is answered in negative and against revenue. In result, we do not find any merit in this appeal. same fails and is hereby dismissed. Sd/- JUDGE Sd/- JUDGE Mds/- Karnataka Industrial Area Development Board v. Additional Director of Income-tax (Exemptions), Range 17, Bengaluru
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