Case Law Details

Case Name : PCIT (Exemptions) Vs Surat Urban Development Authority (SUDA) (Gujarat High Court)
Appeal Number : R/Tax Appeal No. 220 of 2020
Date of Judgement/Order : 21/09/2020
Related Assessment Year : 2011-12
Courts : All High Courts (6128) Gujarat High Court (610)

PCIT Vs Surat Urban Development Authority (Gujarat High Court)

The issue under consideration the activity of preparation of development plans and to execute works in connection with supply of water, disposal of sewerage and provisions of other services is considered as “charitable activities” and eligible for exemption u/s 11?

High Court states that profit making was neither the aim nor object of the Trust. It was not the principal activity. Merely because while carrying out the activities for the purpose of achieving the objects of the Trust, certain incidental surpluses were generated, would not render the activity in the nature of trade, commerce or business. As clarified by the CBDT in its Circular No. 11/2008 dated 19th December 2008 the proviso aims to attract those activities which are truly in the nature of trade, commerce or business but are carried out under the guise of activities in the nature of public utility. Applying the aforesaid decision to the facts of the case on hand and the object and purpose for which the assessee is established / constituted under the provisions of the Gujarat Town Planning Act and collection of fees and cess is incidental to the object and purpose of the Act, even the case would not fall under second part of proviso to Section 2(15) of the Act. Considering the aforesaid facts and circumstances of the case, HC are of opinion that the learned Tribunal has committed a grave error in holding the activities of the assessee in the nature of trade, commerce or business and consequently holding that the proviso to Section 2(15) of the Act shall be applicable and therefore, the assessee is not entitled to exemption under Section 11 of the Act. For the reasons stated above, it is held that the proviso to Section 2(15) of the Act shall not be applicable so far as assessee AUDA is concerned and as the activities of the assessee can be said to be 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.

charitable activities

FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT

1.0. Heard Mr. Manish Bhatt, learned Senior Advocate assisted by Mrs. Mauna Bhatt, learned advocate for the appellant –revenue.

2.0. By this appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as the “Act” for the sake of brevity) the appellant – Revenue has challenged the order dated 16.1.2020 passed by the Income Tax Appellate Tribunal, D Bench, Ahmedabad in ITA No.2431/AHD/2017 for AY 2011-12.

3.0. The following noteworthy facts emerge from the record of the appeal.

3.1. That the respondent –assessee filed it return of income for the Assessment Year 2011-12 on 12.09.2011 and declared total income as NIL. On assessment being made under Section 143(3) of the Act, the Assessing Officer by its order dated 23.12.2016 assessed the total income of the respondent –assessee at Rs.25,41,80,760/-. The AO came to the conclusion that assessee was engaged in the Area Development and Town Planning and carrying out the activity of general public utility. According to the AO, the 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 the Act and ultimately came to the conclusion that the respondent-assessee is not eligible for any of the exemption claimed under Section 11 and 12 of the Act and accordingly passed assessment order in question. The respondent –assessee filed an Appeal before the CIT(A), which came to be partly allowed vide order dated 28.8.2017 subject to directions contained in para 9 of the order. Being aggrieved and dissatisfied with the order dated 28.8.2017 passed by the CIT(A), the Revenue has preferred Appeal before the Income Tax Appellate Tribunal, which also came to be dismissed vide order dated 16.1.2020.

3.2. The Revenue in this appeal has raised the contention to the effect that the Tribunal as well as CIT(A) have committed an error in coming to the conclusion that activity carried on by the respondent –assessee are charitable in question and has raised the following substantial questions of law;

“A.Whether on facts and circumstances of the case and in law, the Hon’ble Tribunal was justified in holding that the re­assessment proceedings to be wrong and void ab initio whereas the proceedings for re-assessment for reopening of assessment was validly on the basis of information and after recording proper reason ?

B. Whether on facts and circumstances of the case and in law, the Hon’ble Tribunal was justified in holding that the activities of the assessee are not in the nature of commerce /trade without considering the fact that the assessee is involved in widespread commercial activities which is covered under first and second proviso to section 2(15) of the Act without considering the merit of the issue ?

C. Whether on facts and circumstances of the case and in law, the Hon’ble Tribunal was justified considering the activity of the assessee as engaged in the development of urban area which is in the nature of advancement of general public utility not hit by the newly introduced first and second proviso to Section 2 (15) of the Act without considering the merit of the issue ?

D. Whether on facts and circumstances of the case and in law, the Hon’ble Tribunal was justified in deleting the addition of Rs.39,600/- by not appreciating the fact that the addition to fixed assets has already been allowed in earlier years as application of income which amounts to double deduction without considering the merit of the issue ?

E. Whether on facts and circumstances of the case and in law, the Hon’ble Tribunal was justified in deleting the addition of General Development Expenditure Fund of Rs.6,34,81,654/-considering that a capital expenditure by a person need not be a capital receipt of the person receiving that amount which is assessee has received for the discharge of its objects without considering the merit of the issue ?

F. Whether on facts and circumstances of the case and in law, the Hon’ble Tribunal was justified  in allowing accumulation of Rs.20,00,00,000/- u/s 11(2) of the Act and accumulation @ 15% of Rs.6,37m77m889/- u/s 11(1)(a) of the Act without appreciating the fact that once the proviso of Section 2 (15) is applicable, the benefit of section 11(12) cannot be allowed further ?

G Whether on facts and circumstances of the case and in law, the Hon’ble Tribunal was justified in deleting the addition of Rs.5,92,358/- on account of expenditure on housing project considering the that a capital expenditure by a person need not to be a capital receipt of the person receiving that amount which the assessee has received from discharge of its objects without considering the merit of the issue ?

H. Whether on facts and circumstances of the case and in law, the Hon’ble Tribunal was justified in allowing carry forward of surplus of Rs.18,82,29,775/- against its future income in absence of any express provision in the Act regarding the same without considering the merit of the issue?

4. The case put forward and substantial questions of law raised in this appeal are squarely covered by the judgment in case of Ahmedabad Urban Development Authority vs. Assistant Commissioner of Income Tax (Exemptions) reported in 396 ITR 323 (Guj). Before adverting to the substantial question of law raised in this appeal, it would be appropriate to refer to relevant provisions of the Gujarat Town Planning and Urban Development Act, 1976 (hereinafter referred to as the “Town Planning Act”). The respondent-assessee is an Urban Development Authority constituted under Section 22 of the Town Planning Act, which reads as under:

22. Declaration Of Urban Development Area And Constitution Of Urban Development Authority:

(1) Where the State Government is of opinion that the object of proper development or redevelopment of any urban area or group of urban areas in the State together with such adjacent areas as may be considered necessary, whether covered under a development area already declared as such under section 3 or not, will be best served by entrusting the work of development or redevelopment thereof to a special authority, instead of to an area development authority, the State Government may, by notification, declare such area to be an urban development area and constitute an authority for such area to be called the urban development authority of that area, and thereupon all the powers and functions of an area development authority relating to the development or redevelopment of a 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 the limits of the area to which it relates. 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 sub-divided urban development area in any other urban development area.]

(3) Every urban development authority constituted under sub-section (1) shall be a body corporate by the name 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 sue and be sued.

(4) The urban development authority shall consist of the following members namely:-

(i) a Chairman to be appointed by the State Government;

(ii) such persons, not exceeding3[four in number] who are members of the local authority or authorities functioning in the urban development area, as may be nominated by the State Government;

(iii)4[Three officials] of the State Government, to be nominated by that Government, ex-officio;

(iv) the Presidents of the district panchayats functioning in the urban development area, or, as the case may be, part thereof, ex-officio;  the Chief Town planner or his representative, ex-officio;

(v) 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, ex-officio; 5[(vi-a) the Municipal Commissioner of the Municipal Corporation, if any, functioning in the urban development area, ex-officio;]

(vi) a member secretary to be appointed by the State Government who shall also be designated as the Chief Executive Authority of the Urban Development Authority.

(4A) Notwithstanding anything contained in sub-section (4), 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 (1),consisting of any urban development area declared as such under sub-section (1), consisting of such members as it deems fit.

(5) The provisions of sub-sections (5) to (12) 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..

4.1. Section 23 of the 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] an urban development authority shall be:-

(i) To undertake the preparation of development plans under the provisions of this Act, for the urban development area;

(ii) To undertake the preparation 2 [and execution] of town planning schemes under the provisions of this Act, if so di­rected by the State Government;

(iii) To carry out surveys in the urban development area for the preparation of development plans or town planning schemes;

(iv) To guide, direct and assist the local authority or author­ities and other statutory authorities functioning in the ur­ban development area in matters pertaining to the plan­ning, development and use of urban land;

(v) To control the development activities in accordance with the development plan in the urban development area; 3 [(v-a) to levy and collect such security fees for secrutiny 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 amenities; 4 [(vi-a) 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 it may deem necessary;

(viii) To enter into contracts, agreements or arrangements, with any local authority, person or organisation as the ur­ban development authority may consider necessary for per­forming its functions;

(ix) To carry any development works in the urban develop­ment area as may be assigned to it by the State Govern­ment from time to time;

(x) To exercise such other powers and perform such other func­tions as are supplemental, incidental or consequential to any of the foregoing powers and functions or as may be di­rected by the State Government.

(2) The urban development authority may, with the approval of the State Government, delegate 5 [any of its powers and functions] to the local authority or authorities functioning in the urban development area.

(3) The urban development authority shall have its office at such place as the State Government may specify in this behalf.

5.0. It also deserves to be noted that the assessee also undertakes task of framing and implementing the Town Planning Scheme in the area which is do not fall within any other local authority as defined under the Town Planning Act. In the present appeal also, the same question which arise for consideration of this Court as observed by the Division Bench in the case of Ahmedabad Urban Development Authority (supra) is whether activity of assessee –respondent, AUDA can be said to be in the 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 the case of Ahmedabad Urban Development Authority (supra) has extensively considered the provisions of the Town Planning Act and has observed thus:

11. While considering the aforesaid questions, the relevant provisions of the Gujarat Town Planning Act, under which, the Assessee has been constituted as Urban Development Authority and powers and functions of the Assessee as an Urban Development Authority are required to be considered, so as to appreciate whether the activities of the Assessee being Urban Development Authority can be said to be in the nature of trade, commerce or business ?

The relevant provisions of the Gujarat Town Planning Act,under which, the 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 the carrying out of any building, engineering, mining, or other operations in, or over, or under land or the making of any material change in any building or land or in the use of any building or land, and includes layout and subdivision of any land; Section 2(xxviii):”Urban development authority” means an urban development authority constituted under section 22; Section 2(xxix):”Urban development area” means an area declared to be an urban development area under section 22. Section 22: Declaration Of Urban Development Area And Constitution Of Urban Development Authority :(1) Where the State Government is of opinion that the object of proper development or redevelopment of any urban area or group of urban areas in the State together with such adjacent areas as may be considered necessary, whether covered under a development area already declared as such under section 3 or not, will be best served by entrusting the work of development or redevelopment thereof  to a special authority, instead of to an area development authority, the State Government may, by notification, declare such area to be an urban development area and constitute an authority for such area to be called the urban development authority of that area, and thereupon all the powers and functions of an area development authority relating to the development or redevelopment of a 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 the limits of the area to which it relates. 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 development area.]

(3) Every urban development authority constituted under sub­section (1) shall be a body corporate by the name 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 sue and be sued.

(4) The urban development authority shall consist of the following members namely: (i) a Chairman to be appointed by the State Government; (ii) such persons, not exceeding3[four in number] who are members of the local authority or authorities functioning in the urban development area, as may be nominated by the State Government; (iii)4[Three officials] of the State Government, to be nominated by that Government, exofficio; (iv) the Presidents of the district panchayats functioning in the urban development area, or, as the case may be, part thereof, exofficio; (v) the Chief Town planner or his representative,  exofficio; (vi) the Chief Engineer or Engineers (Public Health) of the local authority or authorities functioning in the urban development area or his or their nominee or nominees, exofficio; 5[(via) the Municipal Commissioner of the Municipal Corporation, if any, functioning in the urban development area, exofficio;] (vii) a member secretary to be appointed by the State Government who shall also bedesignated as the Chief Executive Authority of the Urban Development Authority.

(5) The provisions of subsections (5) to (12) 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. Section 23: Powers And Function Of Urban Development Authority :(1) [The powers and functions of] an urban development authority shall be: (i) To undertake the preparation of development plans under the provisions of this Act, for the urban development area; (ii) To undertake the preparation [and execution] of town planning schemes under the provisions of this Act, if so directed by the State Government; (iii) To carry out surveys in the urban development area for the preparation of development plans or town planning schemes; (iv) To guide, direct and assist the local authority or authorities and other statutory authorities functioning in the urban development area in matters pertaining to the planning, development and use of urban land; (v) To control the development activities in accordance with the development plan in the urban development area; 3 [(va) to levy and collect such security fees for secutiny 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 amenities; 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 it may deem necessary; (viii) To enter into contracts, agreements or arrangements, with any local authority, person or organisation as the urban development authority may consider necessary for performing its functions; (ix) To carry any development works in the urban development area as may be assigned to it by the State Government from time to time; (x) To exercise such other powers and perform such other functions as are supplemental, incidental or consequential to any of the foregoing powers and functions or as may be directed by the State Government.

(2) The urban development authority may, with the approval of the State Government, delegate 5 [any of its powers and functions] to the local authority or authorities functioning in the urban development area.

(3) The urban development authority shall have its office at such place as the State Government may specify in this behalf. Section 40. Making And Contents Of A Town Planning Scheme : (1) Subject to the provision of this Act or any other law for the time being in force, the appropriate authority may make one or more town planning schemes for the development area or any part thereof, regard being had to the proposals in the final development plan, if any.

(2)  town planning scheme may be made in accordance 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 for residential or commercial or industrial or for building purposes; or] (iii) Already built upon. Explanation: For the purpose of this subsection the expression “land likely to be used for building purposes” shall include any land likely to be used as, or for the purpose of providing, open spaces, roads, streets, parks, pleasure or recreation grounds, parking spaces or for the purpose of executing any work upon or under the land incidental to a town planning scheme, whether in the nature of a building work or not.

(3) A town planning scheme may make provision for any of the following matters, namely: (a) The laying out or relaying out of land, either vacant or already built upon; (b) The 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 up of streets and roads and discontinuance of communications; (d) The construction, alteration and removal of buildings, bridges and other structures; (e) The 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) The preservation of objects of historical or national 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 the total area covered under the scheme, for the purpose of providing housing accommodation to the members of socially and 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 percent for social infrastructure such as school, dispensary, fire brigade, public utility place as earmarked in the Draft Town Planning Scheme, and (iv) fifteen per cent. for sale by appropriate authority for residential, commercial or industrial use depending upon the nature of development:

Provided that the percentage of the allotment of land specified in paragraphs (i) to (iii) may be altered depending upon the nature of development and for the reasons to be recorded in writing; (b) the proceeds from the sale of land referred to in para (iv) of subclause (a) shall be used for the purpose of providing infrastructural facilities; (c) the land allotted for the purposes referred to in paragraphs (ii) and (iii) of subclause (a) shall not be changed by variation of schemes for the purposes other than public purpose;]] (k) the imposition of conditions and restrictions in regard to the open space to be maintained around buildings, the percentage of building area for a plot, the number, size, height and character of building allowed in specified areas, the purposes to which buildings or specified areas may or may not be appropriated, the subdivision of plots, the discontinuance of objectionable uses of lands in any area in specified periods, parkings space and loading and unloading space for any building and the sizes or locations of projections and advertisement signs; (l) the suspension, so far as may be necessary, for the proper carrying out of the scheme, of any rule, byelaw, regulation, notification or order made or issued under any Act of the State Legislature or any of the Acts which the State Legislature is competent to amend: Provided that any suspension under this clause shall cease to operate in the event of the State Government refusing to sanction the preliminary scheme, or in the event of the withdrawal of the scheme under section 66, or on the coming into force of the final scheme; (m) such other matters not inconsistent with the objects of this Act as may be prescribed.

Section 91: Fund Of The Appropriate Authority :(1) An appropriate authority shall have and maintain its own fund to which shall be credited (a) All moneys received by the 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 the State government may specify from time to time to be credited to the fund of the authority. (2) The fund of an appropriate authority shall be applied towards meeting (a) Expenditure incurred in the administration of this Act; (b) Cost of acquisition of land for the purposes of this Act; (c) Expenditure for any 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 with the State Bank” of India or any other bank approved by the State 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 State Government. (4) The State Government may, make such grants, advances and loans to an appropriate authority as the State Government may deem necessary for the performance of its functions under this Act and all grants, loans and advances so made shall be made on such terms and conditions as the State Government may determine.

Section 95:Accounts And Audit : (1) An appropriate authority shall maintain proper accounts and other relevant records and prepare an annual statement of accounts including the balance sheet in such form as the State Government may prescribe. (2) The accounts of an appropriate authority shall be subject to audit annually by the Accountant General of the State and any expenditure incurred by him in connection with such audit shall be payable by the authority to the Accountant General. (3) The Accountant General or any person appointed by him in connection with the audit of accounts of an appropriate authority shall have the same rights, privileges and authority in connection with such audit as the Accountant General has in connection with Government accounts and in particular shall have the right to demand the production of books, accounts, connected vouchers and other documents and papers and to inspect the office of the appropriate authority. (4) The accounts of an authority as certified by the Accountant General or any other person authorised by him in this behalf, together with the audit report thereon, shall be forwarded annually to the State Government.

12. From the aforesaid provisions of the Town Planning Act, it can be gathered that Assessee has been constituted as Urban Development Authority under the provisions of Section 22 of the Town Planning Act. The purpose and object of constitution of the Urban Development Authority is proper development or redevelopment of urban area. Even Urban Development Authority consists of (i) a Chairman to be appointed by the State Government; (ii) such persons, not exceeding [four in number] who are members of the local authority or authorities functioning in the urban development area, as may be nominated by the State Government; (iii) Three officials of the State Government, to be nominated by that Government, exofficio; (iv) the Presidents of the district panchayats functioning in the urban development area, or, as the case may be, part thereof, exofficio; (v) the Chief Town planner or his representative, exofficio; (vi) the Chief Engineer or Engineers (Public Health) of the local authority or authorities functioning in the urban development area or his or their nominee or nominees, exofficio; 5[(via) the Municipal Commissioner of the Municipal Corporation, if any functioning in the urban development area, exofficio;] (vii) a member secretary to be appointed by the State Government who shall also be designated as the Chief Executive Authority of the Urban Development Authority. Thus,    the constitution of the Urban Development Authority is subject to the control of the State Government. The powers and functions of the Urban Development Authority as contained in Section 23 are reproduced herein above. 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, green­belts, dairies, transport facilities, public purposes of all kinds; drainage, inclusive of sewerage, surface or sub­soil drainage and sewage disposal; Lighting; Water supply etc. The Town Planning Scheme also provide for historical or national interest or natural beauty, and of buildings actually used for religious purposes. The Scheme are also provide for reservation of land to the extent of ten percent, or such percentage as near thereto as possible of the total area covered under the scheme, for the purpose of providing housing accommodation to the members of socially and economically backward classes of people. As per Section 40(i)(jj) for the aforesaid purposes certain percentage of total area covered under the scheme are allotted earmarked. Fifteen percent of total area is llotted for the 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 the Draft Town Planning Scheme and Fifteen percent for sale by appropriate authority for residential, commercial or industrial use depending upon the nature of development. Last Fifteen percent is earmarked under the Town Planning Scheme for sale, by appropriate authority for residential, commercial or industrial use. The appropriate authority / Urban Development Authority is permitted to sale the said plots / lands to the extent of 15% of the total area to meet with the expenditure towards drainage, roads, gardens, schools, markets, water supply etc. So that maximum price can be fetched and the same can be utilized for the development of the Urban Development Area and so as to avoid any allegation of favoritism and nepotism, the plots are sold by public auction. It is required to be noted the entire amount realized by the assessee being Urban Development Authority either by selling plots or by recovery of some fees / charges, Urban Authority is required to use only for the purpose of development in the Urban Development Area and not for any other purpose. The learned Tribunal has observed and held that as the assessee is selling the plots, to the extent of 15% of total area, by public auction and gets maximum amount, it amounts to profitering and therefore, the activities of the Assessee can be said to be in the nature of business. However, while holding so, learned 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 the expenditure for    providing them infrastructural facilities like gardens, roads, lighting, water supply, drainage system etc. The learned Tribunal has also not properly appreciated the reasons for selling the 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 the development of the Urban Development Area.

12.1. At this stage decision of the Hon’ble Supreme Court in the case of Ahmedabad Green Belt Khedut Mandal (supra) ((2014) 7 SCC 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 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 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. It is observed and held that sale upto 15% is from total area covered under the scheme and not in respect of every plot of land. In order to generate financial resources for the development of infrastructure, the salable plot for residential, commercial and industrial use are allotted by the appropriate authority. It is further observed that the provision of the Act have to be read as a whole and therefore, the 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 the circumstances, the learned Tribunal has committed gross error in considering the activities of the appellant Urban Development Authority for profiter by selling 15% of the total area 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 can 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 decisions of the Hon’ble Supreme Court as well as other High Courts are required to be referred to at this stage.

6.1. The Division Bench after considering the catena of decisions on the subject, has further observed thus:

14. Considering the aforesaid facts and circumstances and more particularly, considering the fact that the assessee 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 object of the Acts; no services are rendered to any particular trade, commerce or business; whatever the income is earned / received by the assessee even while selling the 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 purpose of Town Planning Act and to meet with expenditure while providing general utility service to the public such as electricity, road, drainage, water etc. and even the entire control is with State Government and even accounts are also subjected to audit and there is no element of profiteering at all, the activities of the assessee cannot be said to be in the nature of trade, commerce and business and therefore, proviso to Section 2(15)of the Act shall not be applicable so far as assessee is concerned and therefore, the assessee is entitled to exemption under Section 11 of the Income Tax Act. Therefore, the question no.1 is to be held in favour of the assessee and against the revenue.

15. Now, so far as another question which is posed for the consideration of this Court i.e. whether while collecting the cess or fees, activities of the assessee can be said to be rendering any services in relation to any trade, commerce or business is concerned, for the reasons stated above, merely because the assessee is collecting cess or fees which is regulatory in nature, the proviso to Section 2(15)of the Act shall not be applicable. As observed herein above neither there is element of profiteering nor the same can be said to be in the nature of trade, commerce or business. At this stage, decision of the Division Bench of this Court in the case of Sabarmati Ashram Gaushala Trust (supra) is required to be referred to. In the case before the Division Bench, the assessee Trust Sabarmati Ashram Gaushala Trust was engaged in the activity of breeding milk cattle; to improve the quality of cows and oxen and other related activities. The Assessing Officer denied the exemption to the trust under Section 11 of the Act on the ground that considerable income was generated from the activities of milk production and sale and therefore, considering the proviso to Section 2(15) of the Act, the said Trust assessee was 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, commerce or business for which proviso to Section 2(15) of the Act is required to be applied. In para 6, 7, 8 and 12, it is observed and held as under:

6.The legal controversy in the present Tax Appeal centers around the first proviso. In the plain terms, the proviso provides for exclusion from the main object of the definition of the term Charitable purposes and applies only to cases of advancement of any other of general general public utility. If the conditions provided under the 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 the definition of 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 business, or any activity of rendering services in relation to any trade, commerce or business, for a cess or fee or any other consideration. In such a situation, the nature, use or application, or retention of income from such activities would not be relevant. Under the circumstances, the important elements of application of proviso are that the entity should be involved in carrying on the activities of any trade, commerce or business or any activities of rendering service in relationto any trade, commerce or business, for a cess or fee or any other consideration. Such statutory amendment was explained by the Finance Ministers speech in the Parliament. Relevant portion of which reads as under :

I once again assure the House that genuine charitable 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 entity is carrying on any activity in the nature of trade, commerce or business or any activity of rendering any service in 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 organizations rendering services to their members would not be affected by the 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 the Finance Minister on the floor of the House, CBDT issued a Circular No. 11 of 2008 dated 19th December 2008 explaining the amendment as under :

3. The 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., the 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 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 on the nature, scope, extent and frequency of the activity.

3.1 There are industry and trade associations who claim exemption from tax under section 11 on the ground that their objects are for charitable purpose as these are covered under any other object of general public utility. Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between the contributors and the participants. Therefore, here          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 the purview of the proviso 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 governed by the additional conditions stipulated in the proviso to section 2 (15).

3.2 In the final analysis, however, whether the assessee has for its object the advancement of any other object of general public utility is a question of fact. If such assessee is engaged in any activity in the 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 a case, the object of general public utility will be only a mask or a device to hide the true purpose which is trade, commerce or business or the 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 the meaning of section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in 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 activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business for a cess, fee and/or any other consideration. It is not aimed at excluding the genuine charitable trusts of general public utility but is aimed at excluding activities in the nature of trade, commerce or business which are masked as charitable purpose.

12.All these were the objects of the general public 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 activities for the purpose of achieving the objects of the Trust, certain incidental surpluses were generated, would not render the activity in the nature of trade, commerce or business. As clarified by the CBDT in its Circular No. 11/2008 dated 19th December 2008 the proviso aims to attract those activities which are truly in the nature of trade, commerce or business but are carried out under 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 assessee is established / constituted under the provisions of the Gujarat Town Planning Act and collection of fees and cess is incidental to the object and purpose of the Act, even the case would not fall under second part of proviso to Section 2(15) of the Act.

15.2. Considering the aforesaid facts and circumstances of the case, we are of opinion that the learned Tribunal has committed a grave error in holding the activities of the assessee in the nature of trade, commerce or business and consequently holding that the proviso to Section 2(15) of the Act shall be applicable and therefore, the assessee is not entitled to exemption under Section 11 of the Act. For the reasons stated above, it is held that the proviso to Section 2(15) of the Act shall not be applicable so far as assessee AUDA is concerned and as the activities of the assessee can be said to be 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..

After considering the aforesaid decision, the Division Bench was pleased to allow the appeal filed by the respondent –assessee.

7.0. Thus, the functions of the respondent assessee are for charitable purposes and for general public utility and therefore, the respondent assesseee is entitled to exemption under Section 11 of the Act. In view of the judgment of the Division Bench in the case of Ahmedabad Urban Development Authority (supra), no different view needs to be taken in this appeal. The larger question of reopening is however kept open. Appeal is dismissed. Substantial questions of law as framed are answered in favour of the assessee and against the Revenue. No costs.

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