The Commissioner Of Income Tax ... vs Gujarat Industrial Development ...
2023 Latest Caselaw 46 Guj

     C/TAXAP/500/2022                             ORDER DATED: 03/01/2023




             IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

                        R/TAX APPEAL NO. 500 of 2022

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          THE COMMISSIONER OF INCOME TAX (EXEMPTIONS)
                              Versus
          GUJARAT INDUSTRIAL DEVELOPMENT CORPORATION
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Appearance:
MS MAITHILI D MEHTA(3206) for the Appellant(s) No. 1
for the Opponent(s) No. 1
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 CORAM:HONOURABLE MS. JUSTICE SONIA GOKANI
       and
       HONOURABLE MR. JUSTICE SANDEEP N. BHATT

                              Date : 03/01/2023

                            ORAL ORDER

(PER : HONOURABLE MS. JUSTICE SONIA GOKANI)

1. Being aggrieved by the order of the Income Tax Appellate

Tribunal (for short "ITAT"), Ahmedabad passed in ITA No.

329/Ahd/2019 for the assessment year 2015-16, the following are

the substantial questions of law raised for determination of this

Court by the Revenue:

[A] "Whether, on the facts and circumstances of the case

and in law, the Appellate Tribunal is justified in allowing

the assessee's appeal, negating the finding of the Assessing

Officer denying the benefits of section 11 and 12 of the

C/TAXAP/500/2022 ORDER DATED: 03/01/2023

Act ?

[B] Whether, on the facts and circumstances of the case,

and in law, the Appellate Tribunal is justified in giving the

benefit of Section 11 and 12 which the Assessing Officer

disallowed by invoking the provision of Section 2(15) r.w.s.

13(8) of the Act ?

[C] Whether, on the facts and circumstances of the case,

and in law, the Appellate Tribunal is justified in setting

aside the issue of addition of Rs.703,30,00,837/- made on

account of premium on land and shades back to the

Assessing Officer in view of the applicability of Section

2(15) of the Act in place of upholding the decision of

Assessing Officer on merits?

[D] Whether, on the facts and circumstances of the case,

and in law, the Appellate Tribunal is justified in setting

aside the issue of depreciation allowance and set-off of

brought forward deficit for re-examination at the end of

Assessing Officer in view of the applicability of Section

2(15) of the Act in place of upholding the decision of

C/TAXAP/500/2022 ORDER DATED: 03/01/2023

Assessing Officer on merits ?

[E] Whether on the facts and circumstances of the case,

and in law, the Appellate Tribunal is justified in setting

aside the issue of deemed rent amounting to Rs.8,02,879/-

in view of the applicability of Section 2(15) of the Act in

place of upholding the decision of Assessing Officer on

merits ?

2. We have heard Ms. Maithili Mehta, learned Sr. Standing

Counsel appearing for the Revenue who has fairly submitted that the

decision of Civil Appeal No. 21762 of 2017 rendered by the Apex

Court in case of Assistant Commissioner of Income Tax

(Exemptions) Vs. Ahmedabad Urban Development Authority,

would govern the case of assessee. In the instant case, though the

various questions are raised essentially challenge is of giving

benefit of Section 11 and 12, disallowed by the Assessing Officer by

invoking of provision of Section 2(15) read with Section 13 (8) of

the Income Tax Act, 1961 (for short "ITAT" )

3. Tribunal on the ground that the issue is covered in assessee's

own case by the order of the Coordinate Bench of Tribunal and

C/TAXAP/500/2022 ORDER DATED: 03/01/2023

affirmed by this Court in the case of CIT Vs. Gujarat Industrial

Development Corporation [(2017) 80 taxman.com 366 (Guj)]

has chosen to address the issue. The Assessee -Corporation was

constituted under the Gujarat Industrial Development Act, 1962 for

the purpose of securing and assisting rapid and orderly

establishment and organization of Industrial areas and Industrial

estates in the State of Gujarat and for the purpose of establishing the

commercial centers in connection with establishment and

organization of such industries. It is also held that it could not be

said that the activities carried out by the Assessee were either in

nature of trade, commerce or business, for Cess or Fee or any other

consideration so as to attract the proviso to Section 2(15) and the

same could be said to be for charitable purpose and consequently,

the exemption under Section 11 was permitted. The Tribunal

allowed the exemption under Section 11 and 12. The revenue's

appeal on this ground had not been entertained.

4. When this issue was taken up before the Apex Court by way of

Civil Appeal No. 21762 of 2017 in case of Assistant Commissioner

of Income Tax (Exemptions) (Supra), The Apex Court summarily in

C/TAXAP/500/2022 ORDER DATED: 03/01/2023

relation to the statutory authority has held as under:-

190. In light of the above discussion, this court is of the opinion that:

(i) The fact that bodies which carry on statutory functions whose income was eligible to be considered for exemption under Section 10(20A) ceased to enjoy that benefit after deletion of that provision w.e.f. 01.04.2003, does not ipso facto preclude their claim for consideration for benefit as GPU category charities, under Section 11 read with Section 2(15) of the Act.

(ii) Statutory Corporations, Boards, Authorities, Commissions, etc. (by whatsoever names called) in the housing development, town planning, industrial development sectors are involved in the advancement of objects of general public utility, therefore are entitled to be considered as charities in the GPU categories.

(iii) Such statutory corporations, boards, trusts authorities, etc. may be involved in promoting public objects and also in the course of their pursuing their objects, involved or engaged in activities in the nature of trade, commerce or business.

(iv) The determinative tests to consider when determining whether such statutory bodies, boards, authorities, corporations, autonomous or self- governing government sponsored bodies, are GPU category charities:

(a) Does the state or central law, or the memorandum of association, constitution, etc. advance any GPU object, such as development of housing, town planning, development of industrial areas, or regulation of any activity in the general public interest, supply of essential goods or services - such as water supply, sewage service, distributing medicines, of food grains (PDS entities), etc.;

C/TAXAP/500/2022 ORDER DATED: 03/01/2023

(b) While carrying on of such activities to achieve such objects (which are to be discerned from the objects and policy of the enactment; or in terms of the controlling instrument, such as memorandum of association etc.), the purpose for which such public GPU charity, is set-up - whether for furthering the development or a charitable object or for carrying on trade, business or commerce or service in relation to such trade, etc.;

(c) Rendition of service or providing any article or goods, by such boards, authority, corporation, etc., on cost or nominal mark-up basis would ipso facto not be activities in the nature of business, trade or commerce or service in relation to such business, trade or commerce;

(d) where the controlling instrument, particularly a statute imposes certain responsibilities or duties upon the concerned body, such as fixation of rates on pre-determined statutory basis, or based on formulae regulated by law, or rules having the force of law, setting apart amenities for the purposes of development, charging fixed rates towards supply of water, providing sewage services, providing food- grains, medicines, and/or retaining monies in deposits or government securities and drawing interest therefrom or charging lease rent, ground rent, etc., per se, recovery of such charges, fee, interest, etc. cannot be characterized as "fee, cess or other consideration" for engaging in activities in the nature of trade, commerce, or business, or for providing service in relation in relation thereto;

(e) Does the statute or controlling instrument set out the policy or scheme, for how the goods and services are to be distributed; in what proportion the surpluses, or profits, can be permissively garnered; are there are limits within which plots, rates or costs are to be worked out; whether the function in which the body is engaged in, is normally something a government or state is expected to engage in, having regard to provisions of the Constitution and the

C/TAXAP/500/2022 ORDER DATED: 03/01/2023

enacted laws, and the observations of this court in NDMC; whether in case surplus or gains accrue, the corporation, body or authority is permitted to distribute it, and if so, only to the government or state; the extent to which the state or its instrumentalities have control over the corporation or its bodies, and whether it is subject to directions by the concerned government, etc.;

(f) As long as the concerned statutory body, corporation, authority, etc. while actually furthering a GPU object, carries out activities that entail some trade, commerce or business, which generates profit (i.e., amounts that are significantly higher than the cost), and the quantum of such receipts are within the prescribed limit (20% as mandated by the second proviso to Section 2(15)) - the concerned statutory or government organisations can be characterized as GPU charities. It goes without saying that the other conditions imposed by the seventh proviso to Section 10(23C) and by Section 11 have to necessarily be fulfilled.

(v) As a consequence, it is necessary in each case, having regard to the first proviso and seventeenth proviso (the latter introduced in 2012, w.r.e.f 01.04.2009) to Section 10(23C), that the authority considering granting exemption, takes into account the objects of the enactment or instrument concerned, its underlying policy, and the nature of the functions, and activities, of the entity claiming to be a GPU charity. If in the course of its functioning it collects fees, or any consideration that merely cover its expenditure (including administrative and other costs plus a small proportion for provision) - such amounts are not consideration towards trade, commerce or business, or service in relation thereto. However, amounts which are significantly higher than recovery of costs, have to be treated as receipts from trade, commerce or business. It is for those amounts, that the quantitative limit in proviso (ii) to Section 2(15) applies, and for which separate books of account will have to be maintained under other provisions of the IT Act.

(ii) Statutory regulatory bodies/authorities

C/TAXAP/500/2022 ORDER DATED: 03/01/2023

5. Hon'ble Apex Court has elaborately dealt with these very issues thus:-

253. A. General test under Section 2(15) A.1. It is clarified that an assessee advancing general public utility cannot engage itself in any trade, commerce or business, or provide service in relation thereto for any consideration ("cess, or fee, or any other consideration");

A.2. However, in the course of achieving the object of general public utility, the concerned trust, society, or other such organization, can carry on trade, commerce or business or provide services in relation thereto for consideration, provided that

(i) the activities of trade, commerce or business are connected ("actual carrying out..." inserted w.e.f. 01.04.2016) to the achievement of its objects of GPU; and

(ii) the receipt from such business or commercial activity or service in relation thereto, does not exceed the quantified limit, as amended over the years (Rs. 10 lakhs w.e.f. 01.04.2009; then Rs. 25 lakhs w.e.f. 01.04.2012; and now 20% of total receipts of the previous year, w.e.f. 01.04.2016);

A.3. Generally, the charging of any amount towards consideration for such an activity (advancing general public utility), which is on cost-basis or nominally above cost, cannot be considered to be "trade, commerce, or business" or any services in relation thereto. It is only when the charges are markedly or significantly above the cost incurred by the assessee in question, that they would fall within the mischief of "cess, or fee, or any other consideration" towards "trade, commerce or business". In this regard, the Court has clarified through illustrations what kind of services or goods provided on cost or nominal basis would normally be excluded from the mischief of trade, commerce, or business, in the body of the judgment.

C/TAXAP/500/2022 ORDER DATED: 03/01/2023

A.4. Section 11(4A) must be interpreted harmoniously with Section 2(15), with which there is no conflict. Carrying out activity in the nature of trade, commerce or business, or service in relation to such activities, should be conducted in the course of achieving the GPU object, and the income, profit or surplus or gains must, therefore, be incidental. The requirement in Section 11(4A) of maintaining separate books of account is also in line with the necessity of demonstrating that the quantitative limit prescribed in the proviso to Section 2(15), has not been breached. Similarly, the insertion of Section 13(8), seventeenth proviso to Section 10(23C) and third proviso to Section 143(3) (all w.r.e.f. 01.04.2009), reaffirm this interpretation and bring uniformity across the statutory provisions.

6. The issue is squarely covered and no question of law, much

less substantial question of law has arisen.

7. Hence, present appeal stands disposed of accordingly.

(SONIA GOKANI, J)

(SANDEEP N. BHATT,J) BEENA SHAH