1. These appeals by two assessees are directed against two different orders of CIT(A), Mangaluru dated 28.2.2019 one assessee is for the assessment year 2013-14 and 2016-17 and another assessee for assessment years 2010-11 to 2013-14 & 2016-17.

2. The assessees raise the main grounds in all these appeals in different way. However, the crux of the grounds is with regard to denying of exemption u/s. 11 of the Income-tax Act, 1961 [' the' for short] by invoking the first proviso to section 2(15) of the.

3. The assessees have raised following common additional ground in all the appeals:-

"The lower authorities have failed to appreciate that the assessee being a State under Article 12 of the Constitution, is exempted from the levy of Union Tax under Article 289 of the Constitution."

4. In both the cases, the assessee filed petition for admission of additional grounds on the reason that these grounds are inadvertently missed out while filing the appeals before this Tribunal. In our opinion, these grounds are legal grounds and these grounds are very much necessary to adjudicate in the interest of justice. Accordingly, these grounds are admitted by placing reliance on the judgment of Hon'ble Supreme Court in the case of NTPC Vs. CIT 229 ITR 383 as there is no necessity of investigation of any fresh facts otherwise on record in all assessment years for adjudication.

5. In ITA No. 948/Bang/2019 for the AY 2016-17, the assessee has raised a ground that AO erred in issuing notice u/s. 143(2) of the Income-tax Act, 1961 [' the' for short] dated 4.7.2017 without affixing the digital signature or manual signature and seal on the notice and thus rendering the said notice non-est and consequent assessment invalid. At the time of hearing, the Ld. A.R. not put any argument on this issue and more so, there is no necessity of affixing the digital signature or manual signature or seal on the notice when the notice was issued digitally. Accordingly, this ground of assessee is dismissed.

6. Next common ground in all these appeals is with regard to denying of exemption u/s. 11 of the Income-tax Act, 1961 [' the' for short] by invoking the first proviso to section 2(15) of the.

6.1. Ld. A.R. submitted as follows through his written submissions:-

3. As regards the Assessee does not fall within the mischief of 1st proviso to section 2(15) of the: [Ground No. 2.2]

3.1 A reference may be made to section 2(15) existed prior to Amendment by Finance Act, 1983, which reads as follows:

"charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit"

3.2 The phrase "not involving the carrying on of any activity for profit" coming after the phrase 'advancement of any other object of general public utility' was omitted by the Finance Act, 1983, w.e.f. 01.04.1984. The profit making or profit motive was a cause to deny the exemption to concerned entity.

3.3 Subsequently, proviso was inserted to section 2(15) by Finance Act, 2008.

3.4 It may be noted that by Finance Act 2008, the Legislature inserted a proviso to section 2(15) of IT Act, which came into effect from 01.04.2009. By Finance Act, 2010, the Legislature inserted second proviso to section 2(15) of IT Act, which came into effect retrospectively from 01.04.2009. Further, it was amended by Finance Act, 2011, which came into effect from 01.04.2012.

3.5 A reference may be made to Memorandum to Finance Bill' 2008, the relevant extract reads as follows:

It has been noticed that a number of entities operating on commercial lines are claiming exemption on their income either under section 10(23C) or section 11 of theon the ground that they are charitable institutions. This is based on the argument that they are engaged in the "advancement of an object of general public utility" as is included in the fourth limb of the current definition of "charitable purpose". Such a claim, when made in respect of an activity carried out on commercial lines, is contrary to the intention of the provision.

With a view to limiting the scope of the phrase "advancement of any other object of general public utility", it is proposed to amend section 2(15) so as to provide that "the advancement of any other object of general public utility" shall not be a charitable purpose if it involves the carrying on of-

(a) any activity in the nature of trade, commerce or business or,

(b) any activity of rendering of any service in relation to any trade, commerce or business,

for a fee or cess or any other consideration, irrespective of the nature of use or application of the income from such activity, or the retention of such income, by the concerned entity.

3.6 A reference may be made to Budget Speech of the Finance Minister on 29.02.2008, which reads as follows:

180. "Charitable purpose" includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under "charitable purpose". Obviously, this was not the intention of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organisations will not in any way be affected.

3.7 A reference may also be made to the Board Circular No. 1/2009 dated 27.03.2009, explaining the provisions of the Finance Act, 2008. The relevant extract reads as under:

"5. Streamlining the definition of "charitable purpose"

5.1 Sub-section (15) of section 2 of thedefines "charitable purpose" to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility. It has been noticed that a number of entities operating on commercial lines are claiming exemption on their income either under sub-section (23C) of section 10 or section 11 of theon the ground that they are charitable institutions. This is based on the argument that they are engaged in the "advancement of an object of general public utility" as is included in the fourth limb of the current definition of "charitable purpose". Such a claim, when made in respect of an activity carried out on commercial lines, is contrary to the intention of the provision.

5.2 With a view to limiting the scope of the phrase "advancement of any other object of general public utility", sub-section (15) of section 2 has been amended to provide that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of 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, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. Scope of this amendment has further been explained by the CBDT vide its Circular No. 11/2008 : , dated 19th December, 2008.

5.3 Applicability - This amendment has been made applicable with effect from 1st April, 2009 and shall accordingly apply for assessment year 2009-10 and subsequent assessment years."

3.8 The Finance Minister, while piloting the Finance Bill, 2008 in Lok Sabha, on the insertion of clause (26AAB) in section 10 to except Agricultural Produce Marketing Committee and State Agricultural Marketing Boards, had occasion to comment on the criticism levelled against the amendment to section 2(15) in following words:

'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".'.........

3.9 A reference may be made to Circular No. 11/2008 :  dated 19.12.2008, the CBDT has clarified as under:

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.

3.10 The relevant extract from the Circular No. 19/2015 , dated 27.11.2015, reads as follows:

4.4 In order to ensure appropriate balance between the object of preventing business activity in the garb of charity and at the same time protecting the activities undertaken by the genuine organization as part of actual carrying out of the primary purpose of the trust or institution, the definition of 'charitable purpose' in the Income-tax Act has been amended to provide that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of 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, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless,-

(i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and

(ii) the aggregate receipts from such activity or activities, during the previous year, do not exceed twenty percent, of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year.

3.11 It is submitted that phrase "trade, commerce or business" as used in the 1st proviso to section 2(15) of thehas to be read contextually keeping in mind the intent and purport of section 2(15) of the. The object of introducing the 1st proviso is to exclude organizations which are carrying on regular business from the scope of "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.

3.12 A reference may made to relevant extracts from Principles of Statutory Interpretation, 10th Edition, authored by Justice G.P. Singh, which read as follows:

When the material words are capable of bearing two or more constructions the most firmly established rule for construction of such words "of all statutes in general (be they penal or beneficial, restrictive or enlarging of the common law)" is the rule laid down in Heydon's case : (1584) 3 Co. Rep. 71, p. 7b : 76 ER 637] which has "now attained the status of a classic [Kanailal Sur v. Paramnidhi Sadhukhan  AIR 1957 SC 907]. The rule which is also known as 'purposive construction' or 'mischief rule' [Anderton v. Ryan, : (1985) 2 All ER 355, p. 359 (HL)], enables consideration of four matters in construing an Act: (i) What was the law before the making of the, (ii) What was the mischief or defect for which the law did not provide, (iii) What is the remedy that the has provided, and (iv) What is the reason of the remedy. The rule then directs that the courts must adopt that construction which "shall suppress the mischief and advance the remedy". The rule was explained in the Bengal Immunity Co. v. State of Bihar  AIR 1955 SC 661 by S.R. Das, CJI as follows: "It is a sound rule of construction of statute firmly established in England as far as back as 1584 when Heydon's case was decided that for the sure and true interpretation of all Statues in general (be they penal or beneficial, restrictive or enlarging of the common law) four things are to be discerned and considered:

1st - What was the common law before the making of the,

2nd - What was the mischief and defect for which the common law did not provide,

3rd - What remedy the Parliament hath resolved and appointed to cure the disease of the commonwealth, and

4th - The true reason of the remedy;

and then the office of all the judges is always to make such constructions as shall suppress the mischief, and advance the remedy, and to suppress subtle inventions and evasions for continuance of the mischief, and pro private commondo, and to add force and life to the cure and remedy, according to the true intent of the makers of the, pro bono publico. - Bengal Immunity Co. v. State of Bihar  AIR 1955 SC 661.

In the above mentioned formulations of the rule, as pointed out by Lord Reid, "the word mischief is tradition". He expanded it to include "the facts presumed to be known to Parliament when the Bill which became the in question was before it" and "the unsatisfactory state of affairs" disclosed by these facts "which Parliament can properly be supposed to have intended to remedy by the". [Black-Clawson International Ltd. Papierwerke Waldh of Ascheffenbur  (1975) 1 All ER 810]. The rule is more briefly stated by Lord Roskill: 'Statutes should be given what has become known as a purposive construction, that is to say that the courts should identify the 'mischief which existed before passing of the statute and then if more than one construction is possible, favour that which will eliminate the mischief so identified" [Anderton v. Ryan,  (1985) 2 All ER 355, p. 359 (HL)]. In the words of Lord Griffith: "The courts now adopt a purposive approach which seeks to give effect to the true purpose of legislation and are prepared to look at much extraneous material that bears on the background against which the Legislation was enacted [Pepper v. Hart, 1993) 1 AL ER 42, p. 50 (HL)].

.............. Similarly, in another case Kanailal Sur v. Paramnidhi Sadhukhan AIR 1957 SC 907, Gajendragadkar, J. stated that the recourse to object and policy of the or consideration of the mischief and defect which the purports to remedy is only permissible when the language is capable of two constructions. But it has already been seen that for deciding whether the language used by the Legislature is plain or ambiguous it has to be studied in its context, and 'context' embraces previous state of the law and the mischief which the statute was intended to remedy. Therefore, it is not really correct to say that the rule in Hey don's case is not applicable when the language is not ambiguous. The correct principle is that after the words have been construed in their context and it is found that the language is capable of bearing only one construction, the rule in Hey don's case ceases to be controlling and gives way to the plain meaning rule.

3.13 In K.P. Varghese vs. ITO  [1981] 131 ITR 597 (SC), it was held as follows:

................. This becomes clear if we have regard to the object and purpose of the introduction of sub-section (2) as appearing from travaux preparatoire relating to the enactment of that provision. It is a sound rule of construction of a statute firmly established in England as far back as 1584 when Heydon's case  [1584] 3 Co. Rep. 7a was decided that

"... for the sure and true interpretation of all statutes in general ... four things are to be discerned and considered: (1) What was the common law before the making of the, (2) What was the mischief, and defect for which the common law did not provide, (3) What remedy the Parliament hath resolved and appointed to cure the disease of the Commonwealth and (4) The true reason of the remedy; and then the office of all the Judges is always to make such construction as shall suppress the mischief, and advance the remedy'".

In In re. Mayfair Property Co. LR [1898] 2 Ch. 28, Lindley, MR in 1898 found the rule "as necessary now as it was when Lord Coke reported Heydon's case". The rule was reaffirmed by Earl of Halsbury in Eastman Photographic Material Co. v. Comptroller General of Patents, Designs & Trade Marks [1898] AC 571 in the following words:

"My Lords, it appears to me that to construe the statute in question, it is not only legitimate but highly convenient to refer both to the former Act and to the ascertained evils to which the former Act had given rise, and to the later Act which provided the remedy. These three being compared I cannot doubt the conclusion."

This rule being a rule of construction has been repeatably applied in India in interpreting statutory provisions. It would, therefore, be legitimate in interpreting sub-section (2) to consider what was the mischief and defect for which section 52 as it then stood did not provide and which was sought to be remedied by the enactment of sub-section (2) or in other words, what was the object and purpose of enacting that sub-section. Now in this connection the speech made by the Finance Minister while moving the amendment introducing sub-section (2) is extremely relevant, as it throws considerable light on the object and purpose of the enactment of sub-section (2). The Finance Minister explained the reason for introducing sub-section (2) in the following words:

"Today, particularly every transaction of the sale of property is for a much lower figure than what is actually received. The deed of registration mentions a particular amount; the actual money that passes is considerably more. It is to deal with these classes of sales that this amendment has been drafted. It does not aim at perfectly bona fide transactions ... but essentially relates to the day-to-day occurrences that are happening before our eyes in regard to the transfer of property. I think, this is one of the key sections that should help us to defeat the free play of unaccounted money and cheating of the Government."

Now it is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted. This is an accord with the recent trend in juristic thought not only in western countries but also in India that interpretation of a statute being an exercise in the ascertainment of meaning, everything which is logically relevant should be admissible................ The object and purpose of sub-section (2), as explicated from the speech of the Finance Minister, was not to strike at honest and bona fide transactions where the consideration for the transfer was correctly disclosed by the assessee but to bring within the net of taxation those transactions where the consideration in respect of the transfer was shown at a lesser figure than that actually received by the assessee, so that they do not escape the charge of tax on capital gains by understatement of the consideration. This was real object and purpose of the enactment of sub-section (2) and the interpretation of this sub-section must fall in line with the advancement of that object and purpose. We must, therefore, accept as the underlying assumption of sub-section (2) that there is understatement of consideration in respect of the transfer and sub-section (2) applies only where the actual consideration received by the assessee is not disclosed and the consideration declared in respect of the transfer is shown at a lesser figure than that actually received.

3.14 Hence, it is submitted that the 1st proviso to section 2(15) can be invoked only if, under the specific facts and circumstances, the case falls within the mischief as envisaged by the Legislature.

3.15 It is submitted that the Learned Commissioner (Appeals) has failed to appreciate that the Assessee does not fall within the mischief of 1st proviso to section 2(15) of thefor the following reasons:

a) The Department of Rural Development & Panchayath Raj for Government of Karnataka issued Directive dated 14.11.1995 by which Nirmithi Kendras would be entrusted with government infrastructure development work. KARNIK was entrusted with the objective of sanctioning the proposals to Nirmithi Kendras, which are required to be carried out using low cost technology, environmental friendly and pre-case technologies;

b) The activities of the Assessee fall within the domain of the State list [List II of 7th Schedule to the Constitution];

c) The Assessee is a State as already submitted in paragraph 2 (2.1 to 2.34). In Waman Rao Deshpande vs. Chairmen, Nirmithi Kendra & Others, in WP No. 11674/2005 (S-DIS), dated 17.03.2010, the Hon'ble Karnataka High Court held that the Nirmithi Kendra is a State;

d) When the Assessee functions as a State, it cannot be conceivably carrying the avowed mischief i.e. carrying on business under the mask of charity;

e) The close control over the affairs of the Assessee by the officers of the Government will obviate even the remotest chance of occurrence of aforesaid mischief; Ld. A.R. relied on the decision in India Trade Promotion Organization vs. DGIT (Exemptions)  [2015] 371 ITR 333 (Delhi) [Para 10];

f) The Commissioner has recognized the activity of the Assessee to be charitable after being satisfied with its objects and issued a registration certificate;

3.16 In the instant case, the State has a complete control over the activities of the Assessee with a view to see that there is no waste or misuse of public funds. The procedures adopted in allotment of work are explained as follows:

3.16.1 It is submitted that when project is undertaken at the instance of government department, on-site inspection report would be prepared detailing the estimate for cost of work to be carried out. The Assessee/Board has to take into consideration, the rates as prescribed by PWD or Engineering department, of Zilla Panchayath and in no case the same will be more than the standard rates prescribed by them. There is no freedom to fix the price. These rates act as restrictions on creation of any surplus. Therefore, there is no scope/potential for private profits.

3.16.2 The said estimation will then be approved by the Project Director (ex-officio member), and the same would be sent to KARNIK head office or PWD or PRAD for technical sanction/scrutiny.

3.16.3 Once project is sanctioned by Technical Advisory Committee of KARNIK, the same would be submitted to the government department from which the communication for intended work was received. KARNIK confirms the technologies adopted in these projects.

3.16.4 The project is carried out by the Assessee itself under the supervision of the Project Director.

3.16.5 On completion of the activity, completion report along with utilization certificate, photographs of location after completion of activity etc. is furnished to the concerned Department of State.

3.17 It is submitted that as per Memorandum of Association of the Assessee, the funds and income shall be solely utilized for the achievement of the objects and no portion of it shall be utilized for payment to the member by way of profit/interest/dividends etc. Copy of the Memorandum of Association.

In this regard, Ld. A.R. relied on the following decisions:

• In CIT vs. Textool Co. Ltd.  [2013] 216 Taxman 327 (SC), it was held as follows:

8. Having considered the matter in the light of the background facts, we are of the opinion that there is no merit in the appeal. True that a fiscal statute is to be construed strictly and nothing should be added or subtracted to the language employed in the Section, yet a strict construction of a provision does not rule out the application of the principles of reasonable construction to give effect to the purpose and intention of any particular provision of the. (See: Shree Sajjan Mills Ltd. v. CIT  [1985] 156 ITR 585/23 Taxman 37 (SC). From a bare reading of Section 36(1)(v) of the Act, it is manifest that the real intention behind the provision is that the employer should not have any control over the funds of the irrevocable trust created exclusively for the benefit of the employees. In the instant case, it is evident from the findings recorded by the Commissioner and affirmed by the Tribunal that the assessee had absolutely no control over the fund created by the LIC for the benefit of the employees of the assessee and further all the contribution made by the assessee in the said fund ultimately came back to the Textool Employees Gratuity Fund, approved by the Commissioner with effect from the following previous year. Thus, the conditions stipulated in Section 36(1)(v) of thewere satisfied. Having regard to the facts found by the Commissioner and affirmed by the Tribunal, no fault can be found with the opinion expressed by the High Court, warranting our interference.

• In PCIT vs. State Bank of India (2020) 420 ITR 376 (Bombay), it was held as follows:

8. The very purpose of insertion of sub-section (9) of section 40A thus was to restrict the claim of expenditure by the employers towards contribution to funds, trust, association of persons etc. which was wholly discretionary and did not impose any restriction or condition for expanding such funds which had possibility of misdirecting or misuse of such funds after the employer claimed benefit of deduction thereof. In plain terms, this provision was not meant to hit genuine expenditure by an employer for the welfare and the benefit of the employees.

• In Hasanand Pinjomal vs. CIT  (1978) 112 ITR 134 (Guj.), it was held as follows:

Before entering into an analysis of the relevant statutory provisions, it would be necessary to consider the object behind the enactment of section 40A. In the course of business or profession, the assessee has to incur expenditure involving payments made from time to time to different persons under various circumstances. The legislature found from experience that the existing provisions of the were inadequate to deal with evasion of tax under the cloak or guise of permissible deductions and also that many payments were made with unaccounted money possessed by the assessee and deductions were claimed in respect of such payments. In order to remedy such situation, section 40A was added by the Finance Act of 1968 and it came into force with effect from April 1, 1968. While introducing the Bill in the Lok Sabha for its consideration, the Finance Minister made a speech on April 29, 1968, in which he pointed out that the provision in question was intended to serve the objective of checking tax evasion. Though the Finance Minister did not elaborate, it is obvious that the intention of the legislature in enacting section 40A(3) particularly was to ensure that payments exceeding the sum specified are made by a crossed cheque drawn on a bank or by a crossed bank draft so that it will be easier to ascertain, when deduction is claimed, whether the payment was genuine and whether it was made out of income from disclosed sources. While interpreting the provisions of this section, the above mischief which was sought to be remedied will have to be borne in mind.

• In Allied Motors P. Ltd. vs. CIT  [1997] 224 ITR 677 (SC), it was held as follows:

5. Section 43B was, therefore, clearly aimed at curbing the activities of those taxpayers who did not discharge their statutory liability of payment of excise duty, employer's contribution to provident fund, etc., for long periods of time but claimed deductions in that regard from their income on the ground that the liability to pay these amounts had been incurred by them in the relevant previous year. It was to stop this mischief that section 43B was inserted. It was clearly not realised that the language in which section 43B was worded would cause hardship to those taxpayers who had paid sales-tax within the statutory period prescribed for this payment, although the payment so made by them did not fall in the relevant previous year. This was because the sales-tax collected pertained to the last quarter of the relevant accounting year. It could be paid only in the next quarter which fell in the next accounting year. Therefore, even when the sales-tax had in fact been paid by the assessee within the statutory period prescribed for its payment and prior to the filing of the income-tax return, these assessees were unwittingly prevented from claiming a legitimate deduction in respect of the tax paid by them. This was not intended by section 43B. Hence the first proviso was inserted in section 43B. The amendment which was made by the Finance Act, 1987 in section 43B by inserting, inter alia, the first proviso, was remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to the assessee and which made the provision unworkable or unjust in a specific situation.

• In UOI vs. Exide Industries Ltd.  [2020] 116 taxmann.com 378 (SC), it was held as follows:

21. Be it noted that the interpretation of a statute cannot be unrelated to the nature of the statute. In line with other clauses under Section 43B, clause (f) was enacted to remedy a particular mischief and the concerns of public good, employees' welfare and prevention of fraud upon revenue is writ large in the said clause. In our view, such statutes are to be viewed through the prism of the mischief they seek to suppress, that is, the Heydon's case  [1584] 3 Co Rep 7 principle. In CRAWFORD, Statutory Construction (CRAWFORD, Statutory Construction p. 508), it has been gainfully delineated that "an enactment designed to prevent fraud upon the revenue is more properly a statute against fraud rather than a taxing statute, and hence should receive a liberal construction in the government's favour.

3.18 The objects of the Assessee are not chosen by the Assessee but are completely guided by the Guidelines issued by Ministry of Urban Development, Government of India. A copy of the "National Network of Building Centres Guidelines, May 1993. [Additional evidence]. The following table establishes this submission:

Objects suggested by Government of India	Reference to Assessee’s Objects
a) technology transfer from ‘lab’ to ‘land’ by disseminating information on cost effective technologies in urban and rural areas.	2nd
b) skill upgradation and training of masons, artisans, carpenters, other building related work force Including professionals and entrepreneurs in production and practice of various cost effective building materials, techniques and systems.	4th
c) manufacturing/production of cost effective building materials/ components based on local natural or waste  resources and providing distribution outlet for the various user groups.	3rd
d) creating a pool of trained rural/urban construction workforce to meet the diverse needs of housing and building construction and other developmental activities undertaken by individual house holds or public housing/development agencies utilising appropriate and cost effective building technologies.	4th
e)     housing       and      building       guidance, information and counselling	1st

3.19 It is submitted that in many cases the Courts have held that carrying on statutory, State, regulatory functions by a body cannot be regarded as carrying on trade, commerce or business. Therefore, the very mischief envisaged in the context of section 2(15) is inconceivable in the instant case. When carrying out the statutory functions are not trade etc., it is axiomatic that the Provisos to section 2(15) should not simply apply. Ld. A.R. relied on the following cases:

• State of Tamil Nadu vs. Board of Trustees of the Port of Madras  [1999] 114 STC 520 (SC);

• CIT (Exemptions) vs. National Internet Exchange of India (2019) 417 ITR 436 (Delhi);

• Bureau of Indian Standards vs. DGIT (E)  [2013] 358 ITR 78 (Delhi);

3.20 Therefore, it is submitted the in the aforesaid background of the Assessee, the Assessee's case does not fall within the mischief of 1st proviso to section 2(15) of the. Hence, the exemption under section 11 of theought not to have been denied.

4. As regards the objectives of the Assessee do not involve carrying on any activity in the nature of trade, commerce or business or rendering any service in relation to any trade, commerce or business: [Ground Nos. 2.1, 2.5 & 2.10]

4.1 It is submitted that the Learned Commissioner (Appeals) has failed to appreciate that the objectives of the Assessee do not involve carrying on any activity in the nature of trade, commerce or business or rendering any service in relation to any trade, commerce or business.

4.2 The objective for which Nirmithi Kendras are established are explained in the study authored by Mr. Rajesh Goel, Assistant Chief, HUDCO, India in respect of "Strengthening the Role of Building Centres in India-Constraints and Perspectives"

"The major strategy of the Government of India was to augment the housing stock and making housing affordable to the weaker sections of the society. Towards the same the initiative to launch the building centre movement was to create a sustainable mechanism for grass-root level transfer of innovative building technology options in all districts of the country so as to reach out to the public at large. As the Building Centre represented a complete departure in many ways from conventional building practices, it has continuously faced tremendous resistance to change. Both the local populace as well as the local implementing agencies were wary of the performance of these technologies and therefore reluctant to adopt them. Problems of availability of land and infrastructure were also a stumbling block. The motivation of the project manager which is critical to the success of the Building Centres, was often lacking. Logistical problems were resolved through sustained interaction and appropriate interventions at the levels of State governments, local bodies, promoting and implementing agencies. Many State Governments provided land for the building centres besides providing funds under various training programmes. In addition to regular training for project managers, for those regions, as for example, northern states, which had been slow to catch up, HUDCO sponsored special training programmes wherein the concerned project managers were taken on an exposure visit to the successful centres in other parts of India, and convinced about its replicability. At the policy-level, major initiatives taken were a three-point agenda for revision of academic curricula to include these technologies, preparation of relevant Indian Standard Codes and incorporation in the 'Standard Specifications and Schedule of Rates' of construction agencies. Other efforts included support for 'Performance Evaluation and Validation' of selected technologies, lobbying for fiscal incentives for Building Centre products, allowing a 0.25% rebate in HUDCO's lending interest rates for the works executed by Building Centres, lobbying State governments for the award of projects to Building Centres, etc. The resources for the building centre movement were made available from the Govt., of India through its annual budgetary support, to the extent of Rs. 0.5 million per building centre from the MoU D & PA [Ministry of Urban Development and Poverty Alleviation] in urban areas and an enhanced grant of Rs. 1.5 million from the MoRD [Ministry of Rural Development]"

4.3 The Objects of the Assessee trust as per the Memorandum of Association (MOA) are as follows:

Serve as a seminal Agency to generate and propagate innovative ideas on housing.

• A clearing house of information and data bank on housing which would bring the fruits of research from lab to land.

• A production centre to prefabricate standardized housing materials

• A training house to impart skills to local workmen in innovative housing technique and create a cadre of trained workers in all blocks in the district.

• A nodal agency to serve as a catalyst in the field of housing ensuring horizontal co-ordination in implementation of housing program.

• A chain for retail outlets of housing material.

• An agency for transportation and distribution of house building materials.

• An agency to arrange for financial assistance for house construction.

• A forum to organize exhibitions, seminars, orientation programmers, demonstration on housing and publishing useful data and literature on housing and allied activities.

• Research and development institution and a consultant in the field of housing.

• Without prejudice to the generality of the above and for effectively carrying out these objectives the Kendra shall have the power of acquire, hold and receive property of any kind, including securities and negotiable instruments and maintain buildings including the right to alter and improve them and to equip them suitably to manage, sell, transfer of otherwise dispose for deal with property of any kind belonging to the Kendra to enter into contracts for or in connection with any of the purpose of the Kendra and on its behalf to raise moneys and funds in such manner as may be deemed fit for on behalf of the Kendra and

• To do all such things and to perform all such acts as may be necessary or appropriate for the achievement of any or all the above objects

4.4 As submitted in paragraph 3.19, the aforesaid objects are completely guided by the Guidelines issued by Ministry of Urban Development, Government of India vide "National Network of Building Centres Guidelines, May 1993 (Reprint August 2000)".

4.5 As per the objects of the Assessee, the following is an indicative list regarding innovative ideas, low cost technology, environmental friendly and pre-cast technologies in the field of housing created or generated by the Assessee:

• Walling - Stabilized mud blocks; Fly ash Blocks; Rat trap bond walls; Hollow blocks walls

• Foundations - Brick Arch Foundation; Under Reamed Piles

• Roofing - Under Reamed Piles; Stone slabs over RCC rafters; RCC planks over RCC joists; RCC planks over RCC joists; Ferro cement shell roofing; Filler slab roofing; Funicular shell roofing; Brick funicular shell roofing; Precast blocks over inverted T-beams; Micro-concrete roofing tiles

• Miscellaneous - Ferro cement door shutters; RCC door/window frames; Ferro cement sun shades-cum-lintel; Brick on edge lintels; Corbelling for lintels; Precast Ferro cement shelves; Ferro cement water tank; Brickarch for lintels; Precast RCC shelves units

• Drinking water facilities - Methods which bring Conservation and regeneration of resource base and Reduction of water wastage and energy conservation - Rainwater harvesting: stream based water treatment and pumping systems.; Photovoltaic cells-based solar pumps

• Dug Well-based Water Supply - Eco friendly water supplying method; single piped water supply for the entire area, laying of pipeline and location of overhead tank and distribution pipe network.

4.6 The summary of various activities carried on in furtherance to the objects is as under:

SI. No.	Object	Activity	Page
1	To generate & propagate	State level skill upgradation training program was conducted for masons
	innovative	at        the        Assessee’s         premises.	15
	ideas             on	Participants      were    benefited     from
	housing	various cost-effective, alternative and
		eco-friendly technologies;
		The     training     was     conducted     on
		different technologies including Brick
		Panel, slabs  brick  attic  slabs.  The	15
		masons were  made  to  produce  each
		product by themselves;
		The    Assessee     had    put    up    stalls
		exhibiting       various       models       and	16
		products. Special  arrangements  were
		made to demonstrate the technologies
		to visitors who visits stalls;
		“Hands  on   Training   Program”   was
		conducted at the Assessee’s premises	19
		to provide  training  on  all  products
		and       techniques        in       Alternative
		Building      Technologies     and     Green
		Building Concepts;	22
		Live     demos     were     conducted     to
		demonstrate techniques like Arch and
		Dome through prototype models;	22
		Students were  made  to  manufacture
		Stabilized Mud Blocks on their own;
			22
		Different      models       of      Rainwater
		Harvesting Systems were exhibited;
			31-
		Vault      roof     construction      training	32
		program was conducted;
		Vermicompost is  the  product  of  the
		composting    process    using     various
		species      of     worms,     usually      red wigglers,        white        worms       other	34
		earthworms, to  create  a  mixture  of
		decomposing vegetable or food waste,
		bedding materials and vermicast.
		Engineer when designs a house need
		to accommodate  all  features  taking
		into consideration of all factors which	34
		include solar power,  reuse  of  water/
		kitchen waste,  decomposition  of  bio
		waste  etc.   In   this   context   special
		training  was   conducted   on   Wormy
		Compost in individual houses;
		The Project Director of the Assessee through ‘Aakashavani’ i.e. All India	40
		Radio    discussed  topics   relating   to
		construction of eco-friendly houses.
		The innovative  ideas  on  housing  are	46
		brought out by the Assessee from its
		production and innovation center;
			47
		Ferro Cement Products;
			48-
		Pre-Cast Concrete Products;	49
		Earthen Products;	50
		Model      House      &      Demonstration	51-
		Buildings;	52
		Technologies: Arch  Foundation,  Iron
		ore       waste       tailing        block       for
		superstructure, Single  layer  arches,	53
		Corbel, Frameless Doors & Windows,
		Reinforces    Brick    Lintel,    Reinforced
		brick pillars, Rain water harvesting,
		Brick Jally, Ferro cement steps, Attic
		tiles, Semi underground ferro cement
		water tank;
		The Assessee with its extensive study	54-
		and research  on  traditional  practices	56
		&       engineering       techniques        has
		restored heritage buildings;
		Renovation of existing building while	60-
		retaining     the     heritage     style     and	64
		structure;
		Low cost/ Cost effective technologies
		like     exposed     masonry,      brick     or	65
		laterite     arches,      filler     slab      roof,
		concrete frames etc.
			68-
		Innovative works & wood houses;	70
		Assessee has entered into MOUs with
		Mangalore Institute  of  Technology  &
		Manipal Institute  of  Technology  for	73
		providing platform  for  the  students
		for    their     academic     and     research
		oriented project studies;
		R&D - Dome construction;
		R&D - Polymer concrete;
		R&D - Pet bottle wall;	74-
		R&D - Pet bottle lintel;	77
		R&D - Reinforced brick lintel;
		Technical  guidance   for   construction
		of individual houses;	79-
		Zero maintenance houses;	82
			83
2	To   bring    the	Ferro Cement Products;	47
	fruits               of
	research from	Pre-Cast Concrete Products;	48-
	lab to land	Earthen Products;	49
			50
		Model      House      &      Demonstration
		Buildings;	51-
			52
		Construction of  skating  track  using
		Arch foundation technique;	57
		Construction using antic materials;
			58-
		Innovative works & wood houses;	59
		Dome construction;	68-
		Polymer concrete;	70
		Pet bottle wall;
		Pet bottle lintel;
		Reinforced brick lintel;
			74-
		Technical  guidance   for   construction	77
		of individual houses;
		Zero maintenance houses;
			79-
			82
			83
3	On      Training to           impart	Training on Ferro-cement products;	10
	skills	Training     on    Funicular     Shells     and brick panel slabs;	11
		The Assessee went to rural areas and
		conducted skill development program	12
		in various  grama  panchayats  for  the
		local     masons     and     other     general
		public;
		State level  skill  upgradation  training
		program  was  conducted  for  masons at        the        Assessee’s         premises.	15
		Participants      were    benefited     from
		various cost-effective, alternative and
		eco-friendly technologies;	17
		Mobile          Training          Unit          was
		implemented  to   train   the   migrated
		rural masons;	19
		“Hands  on   Training   Program”   was
		conducted at the Assessee’s premises
		to provide  training  on  all  products
		and       techniques        in       Alternative
		Building      Technologies     and     Green
		Building Concepts;	21
		Awareness program was conducted to
		impart        information,         skill         or
		knowledge in the field of construction;	22
		Live     demos     were     conducted     to
		demonstrate techniques like Arch and	24
		Dome through prototype models;
		Internship      training      program     for	25
		engineering students was conducted;
		Technical    field    visits    and    training program was conducted;	31
		Training on  Vault  roof  construction
		was conducted;
		Engineer when designs a house need to accommodate all features taking	34
		into consideration of all factors which
		include solar power,  reuse  of  water/
		kitchen waste,  decomposition  of  bio
		waste  etc.   In   this   context   special
		training was conducted on Wormy Compost in individual houses; The Assessee along with Mangalore Institute of Technology and Engineering, Moodabidri, conducts “Finishing School Programs” to final year students on construction techniques;	39
4	To       organize exhibitions,	Training rural youth and motivating them to construct their own toilets	11
	seminars,	and       bathrooms       to      keep       the
	orientation	environment clean;
	Programmes,		29-
	demonstration on        housing	Seminar     on    construction     and    re- cycling    of    demolition    wasted    was	30
	and publishing	organized;
	useful        data	Bio-Digester was  put  to  use  at  the	35-
	and literature on        housing	Assessee’s        premises       and        also conducted                             Bio-Digester	36
	and          allied	implementation        and        awareness
	activities	program;	37-
		Field training on rainwater harvesting	38
		program was conducted;
5	To be a R&D institution	R&D - Dome construction; R&D - Polymer concrete; R&D -  Pet  bottle  wall; R&D - Pet bottle lintel; R&D - Reinforced brick lintel;	74- 77

4.7 The finding by the Learned Assessing Officer that the Assessee has not carried out its objects is perverse as is evident from the aforesaid activities being regularly carried out by the Assessee.

4.8 The carrying out of aforesaid objects is not in the nature of trade, commerce or business. In fact, pursuance of the aforesaid objects would only mean incurring costs on them with no monetary return. There is no question of making profits by carrying the aforesaid activities.

4.9 Section 2(15) of thereads as follows:

(15) "charitable purpose" includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility:

Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of 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, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity:

Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty-five lakh rupees or less in the previous year;

4.10 The 1st proviso to section 2(15) of themay be summarized as under:

• 'advancement of any other object of general public utility' shall not be a charitable purpose if it involves the carrying on of--

(a) any activity in the nature of trade, commerce or business; or

(b) any activity of rendering any service in relation to any trade, commerce or business;

• for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity.

4.11 It is submitted that the 1st proviso to section 2(15) gets attracted only if the main objects [i.e. objects of general public utility] involve carrying on of 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.

4.12 In order to attract the proviso, it is not sufficient if some activities in the nature of trade, commerce or business or of rendering any service in relation to any trade, commerce or business, are carried out by a trust. It is only when a trust's main object/s 'involve' carrying on of such activities, the aforesaid proviso is attracted. In other words, it is only when it is impossible to pursue the main object/s without carrying out such activities, the aforesaid proviso is attracted.

4.13 If the main object/s can be carried out without such activities, the aforesaid proviso is not attracted merely because the trust carries out other fund raising activities. As long as other fund raising activities do not emanate from the main object/s, there is bar as long as funds so raised are applied in pursuance of main objects.

4.14 In this context, it is important to understand the meaning of 'involves'.

4.15 As per Advanced Law Lexicon, 3rd Edition, authored by P. Ramanatha Aiyar:

• Involve - To comprise, to contain, to include by rational or logical construction; to connect with something as a natural or logical consequence or effect; to include necessarily; to imply (Webster Diet.); entangle, implicate in charge or crime; implying financial embarrassment (as) "Involved circumstances." A thing is only said to be "involved" in another when it is a necessary resultant of that other. In its more exact and literal signification, the word is synonymous with "comprise" or "embrace." (st. John v. West, 4 How. Pr. N.Y. 329,332; see also 23 All 94 (98): 21 AWN 8. A point involving a substantial question of law.) This word is also used, according to the context, as synonymous with "affected."

• The primary signification of the word 'involve' is 'to roll up or envelop; and it also means to comprise, to contain, to include by rational or logical construction; and its exact synonym may not be found in a single word.'

• Involves. A case cannot be said to involve a question unless its decision is necessary for the purpose of the case. 59 LW 533 : 1946 MWN 612 : (1946) 2 MLJ 245.

• The test to be applied to see whether the question in a case involves a substantial question of law or not is not merely the importance of the question but its importance to the case itself. If the rate of the case depends upon a consideration of that point, it will be deemed to be 'involved.' There must be a pressing necessity for the decision of the point. It, on the other hand, there is only a remote contingency of its being taken into consideration, it will not answer that test. 1944 A.L.W. 477 (FB).

• The term 'involves' implies a considerable degree of necessity. The mere circumstance that a question of law is raised in a case would not justify the inference that the proposed appeal 'involves' a question of law as envisaged under Art. 133 unless it is necessary to decide the question of law for a proper decision of the case. Israr Ahmad v. State of U.P., AIR 1993 All 87, 89. [Constitution of India, Art. 133(1)(a)] See also Banki Lal v. Jagat Narain, (1901) 23 All 94, 98 (DB), Per STRASHEY C.J.

• The word 'involves' in S. 205 Govt., of India Act (1935) implies a considerable degree of necessity. The test is not merely the important of the question but its importance to the case itself. Hansraj Singh v. Rex,  AIR 1949 All 632; A.B. Lager v. State of Madh. Bha., AIR 1950 MB 81.

4.16 In CIT vs. Surat Art Silks Manufacturer's Association (1980) 121 ITR 1 (SC), the Hon'ble Supreme Court observed as follows:

15. We must then proceed to consider what is the meaning of the requirement that where the purpose of a trust or institution is advancement of an object of general public utility, such purpose must not involve the carrying on of any activity for profit. The question that is necessary to be asked for this purpose is as to when can the purpose of a trust or institution be said to involve the carrying on of any activity for profit. The word "involve" according to the Shorter Oxford Dictionary means "to enwrap in anything, to enfold or envelop; to contain or imply". The activity for profit must, therefore, be intertwined or wrapped up with or implied in the purpose of the trust or institution or in other words it must be an integral part of such purpose. But the question again is what do we understand by these verbal labels or formulae; what is it precisely that they mean Now there are two possible ways of looking at this problem of construction. One interpretation is that according to the definition what is necessary is that the purpose must be of such a nature that it involves the carrying on of an activity for profit in the sense that it cannot be achieved without carrying on an activity for profit. On this view, if the purpose can be achieved without the trust or institution engaging itself in an activity for profit, it cannot be said that the purpose involves the carrying on of an activity for profit. Take, for example, a case where a trust or institution is established for promotion of sports without setting out any specific mode by which this purpose is intended to be achieved. Now obviously promotion of sports can be achieved by organising cricket matches on free admission or no-profit no-loss basis and equally it can be achieved by organising cricket matches with the predominant object of earning profit. Can it be said in such a case that the purpose of the trust or institution does not involve the carrying on of an activity for profit, because promotion of sports can be done without engaging in an activity for profit. If this interpretation were correct, it would be the easiest thing for a trust or institution not to mention in its constitution as to how the purpose for which it is established shall be carried out and then engage itself in an activity for profit in the course of actually carrying out of such purpose and thereby avoid liability to tax. That would be too narrow an interpretation which would defeat the object of introducing the words "not involving the carrying on of any activity for profit". We cannot accept such a construction which emasculate these last concluding words and renders them meaningless and ineffectual.

4.17 In Yogiraj Charity Trust vs. CIT  [1976] 103 ITR 777 (SC), the Supreme Court has held as follows:

If the primary or dominant purpose of trust is charitable, another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust from being valid charity...........

4.18 In CIT vs. Surat Art Silks Manufacturer's Association (1980) 121 ITR 1 (SC), the Hon'ble Supreme Court observed as follows:

6. But even if such a contention were permissible, we do not think there is any substance in it. The law is well settled that if there are several objects of a trust or institution, some of which are charitable and some non-charitable and the trustees or the managers in their discretion are to apply the income or property to any of those objects, the trust or institution would not be liable to be regarded as charitable and no part of its income would be exempt from tax. In other words, where the main or primary objects are distributive, each and everyone of the objects must be charitable in order that the trust or institution might be upheld as a valid charity-Mohammed Ibrahim Riza v. CIT [1930] LR 57 IA 260 and East India Industries (Madras) Pvt. Ltd. v. CIT [1967] 65 ITR 611. But if the primary or dominant purpose of a trust or institution is charitable, another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust or institution from being a valid charity - CIT v. Andhra Chamber of Commerce  [1965] 55 ITR 722. The test which has, therefore, to be applied is whether the object which is said to be non-charitable is a main or primary object of the trust or institution or it is ancillary or incidental to the dominant or primary object which is charitable. It was on an application of this test that in CIT v. Andhra Chamber of Commerce (supra), the Andhra Chamber of Commerce was held to be a valid charity entitled to exemption from tax. The Court held that the dominant or primary object of the Andhra Chamber of Commerce was to promote and protect trade, commerce and industry and to aid, stimulate and promote the development of trade, commerce and industry and to watch over and protect the general commercial interests of India or any part thereof and this was clearly an object of general public utility and though one of the objects included the taking of steps to urge or oppose legislation affecting trade, commerce or manufacture, which, standing by itself, may be liable to be condemned as non-charitable, it was merely incidental to the dominant or primary object and did not prevent the Andhra Chamber of Commerce from being a valid charity. The Court pointed out that if "the primary purpose be advancement of objects of general public utility, it would remain charitable even if an incidental entry into the political domain for achieving that purpose, e.g., promotion of or opposition to legislation concerning that purpose, was contemplated"...............

10. It is clear on a plain natural construction of the language used by the Legislature that the ten crucial words "not involving the carrying on of any activity for profit" go with "object of general public utility" and not with "advancement". It is the object of general public utility which must not involve the carrying on of any activity for profit and not its advancement or attainment. What is inhibited by them in last ten words is the linking of activity for profit with the object of general public utility and not its linking with the accomplishment or carrying out of the object. It is not necessary that the accomplishment of the object or the means to carry out the object should not involve an activity for profit. That is not the mandate of the newly added words. What these words require is that the object should not involve in the carrying on of any activity for profit. The emphasis is on the object of general public utility and not on its accomplishment or attainment. The decisions of the Kerala and Andhra Pradesh High Courts in CIT v. Cochin Chamber of Commerce & Industry  [1973] 87 ITR 83 and Andhra Pradesh State Road Transport Corporation v. CIT [1975] 100 ITR 392, in our opinion, lay down the correct interpretation of the last ten words in section 2, clause (15). The true meaning of these last ten words is that when the purpose of a trust or institution is the advancement of an object of general public utility, it is that object of general public utility, and not its accomplishment or carrying out, which must not involve the carrying on of any activity for profit.

14............ What these last concluding words require is not that the trust or institution whose purpose is advancement of an object of general public utility should not carry on any activity for profit at all but that the purpose of the trust or institution should not involve the carrying on of any activity for profit. So long as the purpose does not involve the carrying on of any activity for profit, the requirement of the definition would be met and it is immaterial how the moneys for achieving or implementing such purpose are found, whether by carrying on an activity for profit or not. Ld. A.R. pointed out that even in Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC), a decision which, as he shall presently point out, does not command itself to us on another point, the same interpretation has been accepted by this Court.

15. He must then proceed to consider what is the meaning of the requirement that where the purpose of a trust or institution is advancement of an object of general public utility, such purpose must not involve the carrying on of any activity for profit. The question that is necessary to be asked for this purpose is as to when can the purpose of a trust or institution be said to involve the carrying on of any activity for profit. The word "involve" according to the Shorter Oxford Dictionary means "to enwrap in anything, to enfold or envelop; to contain or imply". The activity for profit must, therefore, be intertwined or wrapped up with or implied in the purpose of the trust or institution or in other words it must be an integral part of such purpose. But the question again is what do he understand by these verbal labels or formulae; what is it precisely that they mean Now there are two possible ways of looking at this problem of construction. One interpretation is that according to the definition what is necessary is that the purpose must be of such a nature that it involves the carrying on of an activity for profit in the sense that it cannot be achieved without carrying on an activity for profit. On this view, if the purpose can be achieved without the trust or institution engaging itself in an activity for profit, it cannot be said that the purpose involves the carrying on of an activity for profit. Take, for example, a case where a trust or institution is established for promotion of sports without setting out any specific mode by which this purpose is intended to be achieved. Now obviously promotion of sports can be achieved by organising cricket matches on free admission or no-profit no-loss basis and equally it can be achieved by organising cricket matches with the predominant object of earning profit. Can it be said in such a case that the purpose of the trust or institution does not involve the carrying on of an activity for profit, because promotion of sports can be done without engaging in an activity for profit. If this interpretation were correct, it would be the easiest thing for a trust or institution not to mention in its constitution as to how the purpose for which it is established shall be carried out and then engage itself in an activity for profit in the course of actually carrying out of such purpose and thereby avoid liability to tax. That would be too narrow an interpretation which would defeat the object of introducing the words "not involving the carrying on of any activity for profit". He cannot accept such a construction which emasculate these last concluding words and renders them meaningless and ineffectual.

16. The other interpretation is to see whether the purpose of the trust or institution in fact involves the carrying on of an activity for profit or, in other words, whether an activity for profit is actually carried on as an integral part of the purpose or to use the words of Chandrachud, J., as he then was in' Dharmodayam case, "as a matter of advancement of the purpose". There must be an activity for profit and it must be involved in carrying out the purpose of the trust or institution or, to put it differently, it must be carried on in order to advance the purpose or in the course of carrying out the purpose of the trust or institution. It is then that the inhibition of the exclusionary clause would be attracted. This appears to us to be a more plausible construction which gives meaning and effect to the last concluding words added by the Legislature and he preferred to accept it. Of course, there is one qualification which must be mentioned here and it is that if the constitution of a trust or institution expressly provides that the purpose shall be carried out by engaging in an activity which has a predominant profit motive, as, for example, where the purpose is specifically stated to be promotion of sports by holding cricket matches on commercial lines with a view to making profit, there would be no scope for controversy, because the purpose would, on the face of it, involve carrying on of an activity for profit and it would be non-charitable even though no activity for profit is actually carried on or, in the example given, no cricket matches are in fact organised.

17. The next question that arises is as to what is the meaning of the expression "activity for profit". Every trust or institution must have a purpose for which it is established and every purpose must for its accomplishment involve the carrying on of an activity. The activity must, however, be for profit in order to attract the exclusionary clause and the question, therefore, is when can an activity be said to be one for profit The answer to the question obviously depends on the correct connotation of the proposition "for". This proposition has many shades of meaning but when used with the active participle of a verb it means "for the purpose of and connotes the end with reference to which something is done. It is not, therefore, enough that as a matter of fact an activity results in profit but it must be carried on with the object of earning profit. Profit-making must be the end to which the activity must be directed or, in other words, the predominant object of the activity must be making of profit. Where an activity is not pervaded by profit motive but is carried on primarily for serving the charitable purpose, it would not be correct to describe it as an activity for profit. But where, on the other hand, an activity is carried on with the predominant object of earning profit, it would be an activity for profit, though it may be carried on in advancement of the charitable purpose of the trust or institution. Where an activity is carried on as a matter of advancement of the charitable purpose or for the purpose of carrying out the charitable purpose, it would not be incorrect to say as a matter of plain English grammar that the charitable purpose involves the carrying on of such activity, but the predominant object of such activity must be to sub-serve the charitable purpose and not to earn profit. The charitable purpose should not be submerged by the profit-making motive; the latter should not masquerade under the guise of the former. ...............

............... The test which has, therefore, now to be applied is whether the predominant object of two activities involved in carrying out the object of general public utility is to sub-serve this charitable purpose or to earn profit. Where profit-making is the predominant object of the activity, the purpose, though an object of general public utility, would cease to be a charitable purpose. But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity..............

4.19 The aforesaid law was declared when the provision existed prior to Amendment by Finance Act, 1983, which reads as under:

"charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit"

4.20 It may be noted that the Legislature amended section 2(15) in 1983 by excluding the concluding exclusionary words "not involving the carrying on of any activity for profit". The Section between 1984 to 2009 read as follows:

(15) "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility;

4.21 Thus between 1984 to 2009, the definition of charitable purpose in Section 2(15) was identical to the concluding words of Section 4(3) of the 1922 Act.

4.22 The amended section 2(15) as applicable for the impugned AY 2013-14 reads as under:

(15) "charitable purpose" includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility:

Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of 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, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity:

Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty-five lakh rupees or less in the previous year;

4.23 It is our submission that the aforesaid declaration of law by Surat Arts Silks [supra] would continue apply to the legal position prevailing during impugned assessment year as well. The effect of words "not involving the carrying on of any activity for profit" existing before 1983 and the words of the First Proviso is in substance the same.

4.24 In this regard, reliance is placed on the decision in the case of The Tribune Trust vs. CIT  (2017) 390 ITR 547 (P & H). The Hon'ble Court made the following observations:

38. The question in this appeal which pertains to the assessment year 2009-10 is the effect of the amendment to section 2(15) introduced on 19.12.2008 which came into force with effect from the financial year 01.04.2009.

39. It is necessary to compare section 2(15) as it stood under the 1961 Act and as interpreted by the Supreme Court in Surat Art Silk's Cloth Mfgs. Assn. case (supra), on the one hand and Section 2(15) as it was amended with effect from 01.04.2009 on the other. As we observed earlier the Supreme Court held that the concluding ten crucial words "not involving the carrying on of any activity for profit" go with the words "object of public utility" and not with "advancement". In our view the proviso introduced by the 2009 amendment does not change this position. The opening words of the proviso "Provided that the advancement of any other object of general public utility" were also a part of section 2(15) as it originally stood. The words that follow in the proviso "shall not be a charitable purpose, if it involves the carrying of any activity in the nature of trade, commerce or business......etc." replaced the words in the original Section 2(15) "not involving the carrying on of any activity for profit". On a parity of the reasoning in Surat Art Silk case, the words in the proviso that follow the opening words "Provided that the advancement of any other object of general public utility" equally apply to the "object of general public utility" and not to the word "advancement".

The plain language of the proviso does not convey an intention to the contrary. In fact, the legislature could have continued the opening part of the amended section 2(15) with the words "not involving" instead of the words "provided that the advancement of any other object of general public utility shall not be a charitable purpose if it involves" in the proviso. Either way the amendment would have been the same. In that event there could have been no doubt whatsoever that the legislature did not seek to set at naught the effect of the judgment of the Supreme Court in this regard in Surat Art Silk's Cloth Mfrs. Assn. case (supra). The introduction of the proviso does not indicate such an intention either.

40. If the legislature intended the latter part of the proviso to apply to the word "advancement" as well and not merely to the words "object of general public utility", it would have worded the amendment entirely differently. The proviso would have expressly been made applicable to the advancement as well as to the object of general public utility. That the legislature did not do so is an indication that it accepted the interpretation of the Supreme Court of Section 2(15) as it originally stood and retained the effect of the section in that regard in the 2009 amendment. The ratio of the judgment in Surat Art Silk's Cloth Mfgs. Assn. case (supra), in this regard, therefore, remains the same.

41. Further, the amendment also indicates that the legislature accepted the observations in Surat Art Silk Cloth Mfgs. Assn's case (supra), to the effect that the purpose of the enacting section 2(15) in 1961 was to overcome the decision of the Privy Council in the Tribune's case. While the legislature in the 1984 amendment which continued up to the year 2009 altered this position by deleting the words "not involving the carrying on of any activity for profit", it reintroduced an exclusionary clause albeit in different and wider terms in the 2009 amendment. The exclusionary clause related to the object of general public utility and not the advancement thereof.

4.25 In CIT v. Gujarat Maritime Board [2007] 295 ITR 561 (SC), the Supreme Court reiterates the above principle of Surat Art Silks case [supra] by observing as follows:

14. He has perused number of decisions of this Court which have interpreted the words, in section 2(15), namely, 'any other object of generally public utility'. From the said decisions it emerges that the said expression is of the widest connotation. The word 'general' in the said expression means pertaining to a whole class. Therefore, advancement of any object of benefit to the public or a section of the public as distinguished from benefit to an individual or a group of individuals would be a charitable purpose--CIT v. Ahmedabad Rana Caste Association  [1983] 140 ITR 1 (SC). The said expression would prima facie include all objects which promote the welfare of the general public. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be served. If the primary purpose and the predominant object are to promote the welfare of the general public the purpose would be charitable purpose. When an object is to promote or protect the interest of a particular trade or industry that object becomes an object of public utility, but not so, if it seeks to promote the interest of those who conduct the said trade or industry--CIT v. Andhra Chamber of Commerce  [1965] 55 ITR 722 (SC). If the primary or predominant object of an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the dominant purpose, would not prevent the institution from being a valid charity--Addl. CIT v. Surat Art Silk Cloth Mfrs. Association  [1980] 121 ITR 1 (SC).

4.26 It is submitted that 1st proviso to section 2(15) gets attracted only if the primary/dominant objects are (a) in the nature of trade, commerce or business; or (b) rendering any service in relation to any trade, commerce or business. In the instant case, as already demonstrated, the objects of the Assessee are not in the nature of trade, commerce or business.

4.27 In this regard, he relied on the following decisions:

• In India Trade Promotion Organization vs. DGIT (Exemptions) [2015] 371 ITR 333 (Delhi) it was held as follows:

3. It is not disputed that the petitioner was engaged in socially and economically desirable activities relating to the promotion of Indian trade and that the activities of the petitioner fell within the ambit of the expression "the advancement of any other object of general public utility" as appearing in Section 2(15) of the said Act. But, because of the new proviso to Section 2(15), the petitioner's objects were not regarded as charitable purposes.........

10. It was also pointed out that the respondent, in its order dated 23.02.2012, had not taken into account the fact that the petitioner was a Government of India undertaking incorporated under section 25 of the Companies Act, 1956 in accordance with the decision of the Cabinet. The petitioner functions under the administrative control of the Department of Commerce under the Ministry of Commerce and Industries and all the fairs of the petitioner are held by the Government of India or its nominees. The affairs of the petitioner are managed by the Board of Directors headed by the Chairman and Managing Directors nominated by Government of India on rotation basis from the pool of senior officers from the Civil Services. This ensures that the functions of the petitioner are managed in accordance with the rules and regulations and in consonance with the object for which the petitioner was constituted.............

43. From this, it is clear that prior to the introduction of the proviso to Section 2(15) of the said Act, there was no dispute that the petitioner was established for charitable purposes and, therefore, its income was not to be included in the total income and was, therefore, granted the benefit of exemption. He has already noted above, while discussing the facts of the case that the income received by the petitioner is from the letting out of space, sale of publications, sale of tickets and leasing out food and beverages outlets in Pragati Maidan. The dominant and main object of the petitioner is to organise trade fairs/exhibitions in order to promote trade, commerce and business not only within India, but internationally. This is done through the organisation of trade fairs, including the annual International Trade Fair and other exhibitions. It is for this purpose that the space is let out to various entities during the said fairs and exhibitions. All these activities, including the sale of tickets and sale of publications are an inherent part of the main object of the petitioner. It is clear from the facts of the case that profit making is not the driving force or objective of the petitioner. It is registered under Section 25 of the Companies Act, 1956, which specifically applies to entities which intend to apply their profits, if any, or other income in promoting their objects and prohibits, the payment of any dividend to its members. This makes it clear that any income generated by the petitioner does not find its way into the pockets of any individuals or entities. It is to be utilized fully for the purposes of the objects of the petitioner.

45. To be clear, if an activity in the nature of trade, commerce or business is carried on and it generates income, the fact that such income is applied for charitable purposes, would not make any difference and the activity would nonetheless not be regarded as being carried on for a charitable purpose. He has seen that by virtue of Section 25 of the Companies Act, the petitioner is enjoined to plough back its income in furtherance of its object and the declaration of dividends is prohibited. If a literal interpretation is to be given to the proviso, then it may be concluded that this fact would have no bearing on determining the nature of the activity carried on by the petitioner. But, he felt that in deciding whether any activity is in the nature of trade, commerce or business, it has to be examined whether there is an element of profit making or not. Similarly, while considering whether any activity is one of rendering any service in relation to any trade, commerce or business, the element of profit making is also very important.

58. In conclusion, he said that the expression "charitable purpose", as defined in Section 2(15) cannot be construed literally and in absolute terms. It has to take colour and be considered in the context of Section 10(23C)(iv) of the said Act. It is also clear that if the literal interpretation is given to the proviso to Section 2(15) of the said Act, then the proviso would be at risk of running fowl of the principle of equality enshrined in Article 14 of the Constitution of India. In order to save the Constitutional validity of the proviso, the same would have to be read down and interpreted in the context of Section 10(23C)(iv) because, in our view, the context requires such an interpretation. The correct interpretation of the proviso to Section 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. In both the activities, in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business, the dominant and the prime objective has to be seen. If the dominant and prime objective of the institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a 'charitable purpose'. On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes.

• In DIT (E) vs. Sabarmati Ashram Gaushala Trust : [2014] 362 ITR 539 (Gujarat) it was held as follows:

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 object of 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 relation to any trade, commerce or business, for a cess or fee or any other consideration.................

11. Ld. AR was wholly in agreement with the view of the Tribunal. The objects of the Trust clearly establish that the same was for general public utility and where for charitable purposes. The main objectives of the trust are - to breed the cattle and endeavour to improve the quality of the cows and oxen in view of the need of good oxen as India is prominent agricultural country; to produce and sale the cow milk; to hold and cultivate agricultural lands; to keep grazing lands for cattle keeping and breeding; to rehabilitate and assist Rabaris and Bharwads; to make necessary arrangements for getting informatics and scientific knowledge and to do scientific research with regard to keeping and breeding of the cattle, agriculture, use of milk and its various preparations, etc.; to establish other allied institutions like leather work and to recognize and help them in order to make the cow keeping economically viable; to publish study materials, books, periodicals, monthlies etc., in order to publicize the objects of the trust as also to open schools and hostels for imparting education in cow keeping and agriculture having regard to the trust objects.

12. All these were the objects of the general public utility and would squarely fall under section 2(15) of the. 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'.

• In DIT (E) vs. Shree Nashik Panchvati Panjrapole  [2017] 397 ITR 501 (Bombay), it was held as follows:

15. As noted above, Ld. AR found that that impugned order of the Tribunal has recorded a finding of fact that the dominant function of the respondent Trust is to provide an asylum to old, maimed, sick and stray cows. Further, only 25% of the cows being looked after yield milk and if the milk is not procured, it would be detrimental to the health of the cows. Therefore, the milk which is obtained and sold by the respondent assessee is an activity incidental to its primary/principal activity of providing asylum to old, maimed, sick and disabled cows. In the present facts, the activity of milking the cows and selling the milk is almost compelled upon the Trust, in the process of giving asylum to the cows. In our view, the activity to be considered in the nature of trade, commerce or business would in most cases have to be carried out on a regular basis with a view to earn the profit. The presence of the profit intent (even if it does not fructify) would normally be a sine qua non for the activity to be considered as trade, commerce or business. Therefore, in the present facts, it is not as though the keeping of the cows and milking them was with a view to carry out activity in the nature of trade, commerce or business to earn profits. The Revenue has not shown how even in the absence of profit motive, the activity of obtaining milk and selling the same would still be an activity of trade, commerce or business. In the alternative, Mr. Malhotra submitted that the proviso to Section 2(15) of thewould apply even if it is not trade, commerce or business but only in its nature. However, how and why the activity of selling milk obtained incidentally while taking care of the cows, is in the nature of trade, business or commerce is not shown. Admittedly, in the present facts, the dominant activity carried out by the respondent assessee's Trust for over 130 years is to take care of old, sick and disabled cows. In these circumstances, an incidental activity of selling milk which may result in receipt of money, by itself would not make it trade, commerce or business nor an activity in the nature of trade, commerce or business to be hit by the proviso to Section 2(15) of the.

• In Bureau of Indian Standards vs. DGIT (E)  [2013] 358 ITR 78 (Delhi), it was held as follows:

13. In view of the above discussion, it cannot be said that the BIS is involved in any carrying on trade, commerce or business. BIS is a statutory body established under the BIS Act and was brought into existence "for the harmonious development of the activities of standardisation, marking and quality certification of goods". This was, and has been, its primary and pre-dominant object. Even though it does take license fee for granting marks/certification, the same cannot be said to be done for the purpose of profit. If any profit/revenue is earned, it is purely incidental. The BIS performs sovereign and regulatory function, in its capacity of an instrumentality of the state. Therefore, this Court has no doubt in holding that it is not involved in carrying any activity in the nature of trade, commerce or business.

15. In a similar vein, the Allahabad High, in Bar Council of Uttar Pradesh v. CIT  [1983] 143 ITR 584/12 Taxman 209 held that the object of the Bar Council, to safeguard the interests of its advocates, to assist disabled advocates, to see that advocates who misbehave are taken to task, to promote law reform etc. shows that the body is constituted under Section 6 of the Advocates Act, 1961 to benefit the public at large by having on its rolls, advocates who are not only competent in law but who are respectable and proper persons to belong to the noble profession of lawyers; the said activities have been held for the advancement of general public utility within the meaning of Section 2(15) of the. In Ahmedabad Rana Caste Association (supra), the Supreme Court held that the expression "any other object of general public utility" prima facie include all objects which promote the welfare of the general public. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be served. If the primary purpose and the predominant object are to promote the welfare of the general public the purpose would be charitable purpose.

16. What survives to be determined is whether any of BIS's activities fall within the latter and larger category of "involved in the carrying on of any activity of rendering any service in relation to any trade, commerce or business". The expressions "any activity," "rendering any service" and "in relation to any trade, commerce or business" imply that the intention of the legislature was to make the latter part of the exception broad and inclusive. It seems that the exception (the first proviso) is intended to catch with its ambit any and all commercial activity, except what falls within the second proviso (which bars application of the exception in cases where the aggregate value of the receipts from the activities mentioned therein is less than ten lakh rupees in the relevant previous year). The Bureau, it would appear at the first blush, renders service in relation to trade, commerce or business by granting certification/quality marks in return of license fee. Apparently, Parliament intended to clarify that not all activities of State agencies (some of which might be set up to carry on trading and commercial activities) can be considered charitable..................

In these circumstances, "rendering any service in relation to trade, commerce or business" cannot, in the opinion of the Court, receive such a wide construction as to enfold regulatory and sovereign authorities, set up under statutory enactments, and tasked to act as agencies of the State in public duties which cannot be discharged by private bodies. Often, apart from the controlling or parent statutes, like the BIS Act, these statutory bodies (including BIS) are empowered to frame rules or regulations, exercise coercive powers, including inspection, raids; they possess search and seizure powers and are invariably subjected to Parliamentary or legislative oversight. The primary object for setting up such regulatory bodies would be to ensure general public utility. The prescribing of standards, and enforcing those standards, through accreditation and continuing supervision through inspection etc, cannot be considered as trade, business or commercial activity, merely because the testing procedures, or accreditation involves charging of such fees. It cannot be said that the public utility activity of evolving, prescribing and enforcing standards, "involves" the carrying on of trade or commercial activity.

• In The Bombay Presidency Golf Club Ltd. vs. DIT  [2012] 149 TTJ 471 (Mumbai)/[2012] 23 taxmann.com 319 (Mumbai), it was held as follows:

9.............. The first proviso thus puts a rider only on the sixth category i.e. for "advancement of any other object of general public utility", that it will not be held to be charitable purpose if it involves the carrying out 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, for a cess or any other consideration, irrespective of the nature of use or application. Second proviso carves out the exception to the first proviso wherein the receipts from such activities is less than Rs. 10 lakhs. Thus, the nature and dominant object of general public utility should not be in the nature trade, commerce or business...............

10. Thus, the test of business, trade or commerce has to be viewed from the angle that the activity of the trust has continued on business principle and pursued with reasonable continuity. If the principle and ratio laid down by the Hon'ble High Court is applied in the instant case, it would be seen that none of its receipts can be said to be arising or accruing from the activities which have been carried out for the purpose of business or in the nature of trade or commerce. All its activities are towards promotion of game of golf and other ancillary activities carried are only incidental to the said game only. Any transaction which are incidental or ancillary towards fulfillment of object of other general public utility will not normally amount to business, trade or commerce, unless there is some intention to carry on business, trade or commerce on a permanent basis or with a reasonable continuity...............

• In NEIA Trust vs. JDIT (E) [2019] 104 taxmann.com 16 (Mumbai - Trib.), it was held as follows:

8............. Undoubtedly the dominant and prime object is required to be seen............

9. The facts of the present case is quite similar to the facts of the case titled as India Trade Promotion Organization (supra). Therefore finding of the said cases is quite applicable to the facts of the present case. Since the dominant and prime object of the assessee is not to earn the profit in relation to trade, commerce and business, therefore, the exemption u/s. 11 & 12 is not liable to be declined. Accordingly, we set aside the finding of the CIT(A) in this issue and allowed the claim of the assessee.

4.28 Therefore, it is submitted that exemption under section 11 of thecannot be denied by invoking 1st proviso to section 2(15) if the primary/dominant objects are not (a) in the nature of trade, commerce or business; or (b) rendering any service in relation to any trade, commerce or business.

4.29 It is reiterated that the Assessee's main objects do not involve carrying on of activity in the nature of trade, commerce or business or rendering any service in relation to any trade, commerce or business. The main objects are reproduced in paragraph 4.3. In paragraph 4.6, it is demonstrated that these objects are completely in accordance with the Guidelines i.e., "National Network of Building Centres Guidelines, May 1993 (Reprint August 2000)" issued by Ministry of Urban Development, Government of India. In paragraph 4.6, it is demonstrated how these objects are carried out. In Surat Art Silk Cloth Manufacturers Association case [supra], the box analysis was made in paragraph 17 of the judgment. In the context of Assessee the same may explained as follows:

Box 1	Box 2	Box 3
Every trust must have a Purpose	Every purpose must for its accomplishment involve the carrying on of an activity.	The activity must not be for profit
Para 4.6	Para 4.6	No

4.30 It is submitted that the lower authorities have neither disputed nor made any adverse inference regarding the objects of the Assessee involving carrying on any activity in the nature of trade, commerce or business or rendering any service in relation to any trade, commerce or business.

4.31 However, it is submitted that the Learned Assessing Officer in paragraph 6.10 stated that "in the entire year the assessee has not carried out any activity as envisaged in the Objects of its MOA ...........". It is submitted that in paragraph 4.6, it is demonstrated that these objects are in fact carried out. Hence, the said statement of the Learned Assessing Officer is perverse and contrary to the facts.

4.32 In this regard, Ld. AR made his submission with reference to specific observation made by the Learned Assessing Officer in the table below: (For the AY 2013-14)

Observation of the AO	Our Submission
6.8 Now  after  considering  the	As submitted  earlier,  in  order  to
object of the assessee trust and	attract    the    proviso,    it    is    not
an  analysis   of   the   facts   on	sufficient if some activities in the
record, I am of the considered opinion that the activities of the assessee trust are clearly hit by the first proviso ………….	nature of trade, commerce or business or of rendering any service in relation to any trade, commerce or business, are carried out by a trust. It is only when a trust’s main object/s ‘involve’ carrying on of such activities, the aforesaid proviso is attracted. In other words, it is only when it is impossible to pursue the main object/s without carrying out such activities, the aforesaid proviso is attracted.
	Hence, it is submitted that the Learned Assessing Officer cannot deny exemption under section 11 on the basis of projects undertaken by the Assessee for the Government. Carrying out these projects are not the objects of the Assessee.
6.8 a) The main object of Dakshina Kannada Nirmithi Kendra were assimilation and dissemination of information pertaining to  innovative  ideas in housing.	It is submitted that the Learned Assessing Officer having noted the objects of the Assessee, ought to have taken his conclusion to a logical end. The main object does not involve carrying on of 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.
6.8 d) Now let us analyze the actual work carried out by Dakshina Kannada Nirmithi Kendra ………..	It is submitted that projects undertaken by the Assessee are fund raising activity and the same are not the objects for which the Assessee was set up.
All of these activities/ functions are akin to the activities carried out by a private contractor / developer on a commercial basis.
6.8 (l) However, the main and most crucial is that 100% of	Firstly, his statement that  100% of the activities carried out by the
the activities carried out by the assessee are not within the OBJECTS as enumerated in its MOA and detailed in Para 6.7 above. On  a plain  reading of the objects of the Assessee Trust it would be apparent that at no stage does it envisage the assessee trust itself carrying out any construction activity.	Assessee are not with the Objects as enumerated in the MOA is perverse. He has only considered the project activities as the only activities of the Assessee. In paragraph 4.6, it is demonstrated how the objects stated in MOA are carried out. It is submitted that the Learned Assessing Officer has conceded that the MOA of the Assessee does not envisage construction activity. Therefore, the project activities carried out by the Assessee are not main objects but are only fund raising activities.
6.8 (n) The commercial activity authorised by the Object of the Assessee Trust/ Society are (a) Production of Pre Fabricated Housing Material - Clause 3, (b) Retail Store of Housing Material -             Clause 6 and (c) Transportation & Distribution of Building Material -Clause 7. On examination of the work carried out as submitted it can be safely said that the Assessee Trust/ Society has not carried out    any    of    these    activities during the year.	It is submitted that the exemption cannot be denied on the basis that certain objects were not carried out.
6.8 (o) Further as an agency promoting innovation in housing, the Objects of the Assessee Trust/ Society required it to (a) run a training house to train worker  -  Clause 4, (b) arrangement for financial assistance - Clause 8, (c) Organise                                        Seminars, Exhibitions, Demonstration - Clause 9. As can be seen  from the activities carried out by the Assessee Trust/ Society, it can	It is submitted that in paragraph 4.6, it is demonstrated how these objects are carried out. Hence, the said statement of the Learned Assessing Officer is perverse and contrary to the facts. Even otherwise, it is submitted that the exemption cannot be denied on the basis that certain objects were not carried out.
be categorically stated that none of these activities have been carried out during the year.
6.9 In view of the above, it is proved without any shadow of doubt that the actual activities carried out by the assessee are in nature of pure commercial activity out by any contractor.	The actual  activities  carried  out by the Assessee are essentially two fold: a) Activities in pursuance to objects of the Assessee [as demonstrated in paragraph 4.6]
	b) Fund raising activities of the Assessee by carrying out project works for the Government.
	The Learned Assessing Officer has misconstrued the objects, activities and the scheme of the Act.
6.10 Without  prejudice  to  the	It is  submitted that  in  paragraph
above,  it  is  also  clearly   seen	4.6, it is demonstrated how these
that    in    the    entire    year    the	objects  are   carried   out.   Hence,
assessee has  not  carried  out	the said statement of the Learned
any activity as envisaged in the	Assessing Officer  is  perverse  and
Objects of its MOA ……….	contrary to the facts.

4.33 Without prejudice to the fact that Assessee carried out its main objects, the Learned Assessing Officer has returned the following findings:

6.8 (n) The commercial activity authorised by the Object of the Assessee Trust/Society are (a) Production of Pre Fabricated Housing Material - Clause 3, (b) Retail Store of Housing Material - Clause 6 and (c) Transportation & Distribution of Building Material - Clause 7. On examination of the work carried out as submitted it can be safely said that the Assessee Trust/Society has not carried out any of these activities during the year.

6.8 (o) Further as an agency promoting innovation in housing, the Objects of the Assessee Trust/Society required it to (a) run a training house to train worker-Clause 4, (b) arrangement for financial assistance-Clause 8, (c) Organise Seminars, Exhibitions, Demonstration - Clause 9. As can be seen from the activities carried out by the Assessee Trust/Society, it can be categorically stated that none of these activities have been carried out during the year.

4.34 Such being the case, if the Assessee has not carried out the main objects, then there is no scope for invocation of 1st Proviso.

4.35 Without prejudice to the above, it is submitted that even the project activities cannot be treated as trade, commerce or business or rendering of any service in relation to any trade, commerce or business.

4.36 Ld. A.R. made a reference to the meaning of the terms trade, commerce & business.

4.37 In the following paragraphs, a reference may be made to meaning of the term 'trade':

• As per Advance Law Lexicon, 3rd Edition authored by P. Ramanatha Aiyar the term Trade' means as follows:

• 'TRADE" means any trade, business, industry, profession or occupation relating to production, supply, distribution, or control of goods and includes the provision of only services. [M.R.T.P. Act (54 of 1969), S. 2(s) and Competitions Act, 2002 (12 of 2003), S. 2(x)].

• In its ordinary sense, that is to say exchange of goods for money or goods for goods with the object of making a profit.

• Business of buying and selling in general in order to make a profit or to buy or sell in a given market

• 'TRADE" means the craft or business which a person has learned and which he carries on as a means of livelihood; a purchase or sale; a bargain; specifically, in politics; a deal; the exchange of commodities for other commodities or for money; the business of buying and selling, or dealing by way of sale or exchange.

• The connotation of "trade" is not limited to an occupation which primarily concerns itself with sale and purchase of goods. Pursuit of a skilled employment with a view to earn profit, such employment not being in the nature of a learned employment not being in the nature of a learned profession or agriculture must be regarded as engaging, in "trade" within the meaning of Art 276 of the constitution. A skilled occupation which involves the application of manufacturing processes to a commodity submitted to the person carrying on the occupation must be regarded as trade. Municipality of Chopda v. Motilal Manakchand, : AIR 1958 Bom 487, 489. [Constitution of India, Art 276]

• A privately owned convalescent hospital conducted for private profit was not a "trade" within the meaning of the Local Government Act, 1919 (NSW), S. 309 (Hornsby Shire Council v. Salmar Holdings,  (1972) 46 ALJR).

• It is not essential to a "trade" that the persons carrying it on should make, or desire to make, a profit (per Coleridge C.J. Re, Law Reporting Council, 22 QBD 279)

• As per the Webster's New Twentieth Century Dictionary (2nd edition), the term "Trade", means amongst others, "a means of earning one's living, occupation or work".

• In Black's Law Dictionary, trade means a business which a person has learnt or he carries on for procuring subsistence or profit; occupation or employment, etc.

• The word "trade" was elucidated in the case of State of Punjab vs. Bajaj Electricals Ltd., [1968] 2 SCR 536, as under:

"3. The expression "trade" is not defined in the. "Trade" in its primary meaning is the exchanging of goods for goods or goods for money; in its secondary meaning it is repeated activity in the nature of business carried on with a profit motive, the activity being manual or mercantile, as distinguished from the liberal arts or learned professions or agriculture. The question whether trade is carried on by a person at a given place must be determined on a consideration of all the circumstances. No test or set of tests which is or are decisive for all cases can be evolved for determining whether a person carries on trade at a particular place. The question, though one of mixed law and fact, must in each case be determined on a consideration of the nature of the trade, the various steps taken for carrying on the trade and other relevant facts.

4. In the present case, the respondent has no shop or office within the State of Punjab. The respondent supplies goods within the State pursuant to orders received and accepted at New Delhi, and also receives price for the goods within the State. But these are ancillary activities and do not in our judgment amount to carrying on trade within the State of Punjab. We need not refer in detail to cases such as Grainger and Son v. Gough (Surveyor of Taxes); F.L. Smith & Co. v. F. Greenwood (Surveyor of Taxes) and Firestone Tyre Co. Ltd. v. Lewellin which interpret the expression "trade exercised within the United Kingdom" in the English Income-tax Acts, for they merely lay down that for the purpose of the Income-tax Acts, there is no single, decisive or "crucial" test to determine whether the taxpayer exercises trade at a given place".

• The Supreme Court in Khoday Distilleries Ltd. vs. State of Karnataka  [1995] 1 SCC 574 was of the opinion:

"68. There is no doubt that the word 'business' is more comprehensive than the word 'trade' since it will include manufacture which the word 'trade' may not ordinarily include. The primary meaning of the word 'trade' is the exchange of goods for goods or goods for money. However, the word 'trade' has also secondary meaning, viz., business carried on with a view to profit. In fact, the words 'trade' and 'industry' are also used interchangeably many times. It all depends upon the context in which the words occur. In Words and Phrases Legally Defined, 3rd Edn., (Vol. 4; R-Z) by John B. Saunders, the word 'trade' is explained as:

"'Trade' in its primary meaning is the exchange of goods for goods or goods for money and in a secondary meaning it is any business carried on with a view to profit, whether manual or mercantile, as distinguished from the liberal arts, or learned professions and from agriculture. However, the word is of very general application, and must always be considered in the context in which it is used. As used in various revenue Acts, 'trade' is not limited to buying and selling, but may include manufacture. In the expression 'restraint of trade' the word is used in its loosest sense to cover every kind of trade, business, profession or occupation."

69. In Skinner v. Jack Breach Ltd., Lord Hewart, C.J. has observed:

"No doubt in a great many contexts the word 'trade' indicates a process of buying and selling, but that is by no means an exhaustive definition of its meaning. It may also mean a calling or industry or class of skilled labour."

70. While interpreting the provisions of the Industrial Courts Act, 1919 Lord Wright in National Assn. of Local Government Officers v. Bolton Corpn. has observed thus:

"Section 11 of theof 1919 shows that 'trade' is used as including 'industry' because it refers to a trade dispute in the industry of agriculture. ... Trade and industry are thus treated as interchangeable terms. Indeed, 'trade' is not only in the etymological or dictionary sense, but in legal usage, a term of the widest scope. It is connected originally with the word 'tread' and indicates a way of life or an occupation. In ordinary usage it may mean the occupation of a small shopkeeper equally with that of a commercial magnate; it may also mean a skilled craft."

71. In Aviation and Shipping Co. Ltd. v. Murray (Inspector of Taxes), Lord Donovan has observed:

"A trade is an organised seeking after profits, as a rule with the aid of physical assets."

72. Thus it is apparent that the word 'trade' may include all the connotations of the word 'business'..."

• In Shree Nashik Panchavati Panjrapole (2017) 397 ITR 501 (Bombay) it was held that the presence of profit motive would normally be a sine qua non for an activity to be regarded as trade.

4.38 Accordingly, the term 'trade', means (a) buying and selling, (b) exchange of goods for goods or goods for money, (c) business carried on with a view to make profit & (d) includes manufacture. Further, as analysed below [paragraphs 4.43 to 4.52], it is submitted that the term 'business' for the purpose of IT Act means any activity to make profit. As per section 2 (13) of thethe term 'business' includes trade. Hence, the term trade' for the purpose of IT Act also to mean an activity for making profit.

4.39 It is submitted that project activities of the Assessee do not fall within meaning of the said term 'trade' as the same are not undertaken with the intention of making profit. The project works are allotted by Government departments, the project activities are monitored by KARNIK, the Assessee does not have any discretion in fixing the price and the MOA of the Assessee prohibits any private profit.

4.40 In the following paragraphs, a reference may be made to meaning of the term 'commerce':

• As per Advance Law Lexicon, 3rd Edition authored by P. Ramanatha Aiyar the term 'Commerce' means as follows:

• "COMMERCE" means the carrying of any trade, business or profession, sale or exchange of goods of any type whatsoever and includes the running of with a view to make profits, hospitals or nursing homes, infirmaries, educational institutions, and also includes hotels restaurants and boarding houses not attached to educational institutions and the expression 'commercial' shall be construed accordingly. [Punjab Regional and Town Planning and Development Act (11 of 1995), S. 2(k)].

• "An interchange or mutual change of goods, wares, productions or property of any kind, between nations or individuals, either by barter or by purchase and sale; trade; traffic'. (Webster Diet.) "Interchange of goods, merchandise or property of any kind; trade; traffic; used more especially of trade on a large scale"

• "Commercial action" includes any cause arising out of the ordinary transactions of merchants and traders, and without prejudice to the generality of the foregoing words, any cause relating to the construction of a mercantile document, the export or import of merchandise, affreightment, insurance, banking, mercantile agency and mercantile usage" [RSC Ord. 72, R. 1(2)]. The original practice rules, made by Notice in 1895, used the term "commercial cause." A question of international law as to whether a seizure of goods was justified under a proclamation by a foreign sovereign, is not such a 'commercial' cause. Sea Insurance v. Carr,  [1901] 1 QB 7. See also Dena Bank Ahmed Nagar v. Prakash Birbhan Kataria, : AIR 1994 Bom 343, 345.

• Commerce is "traffic, trade, or merchandize, in buying and selling of goods. There is a distinction between commerce and trade; the former relates to our dealings with foreign nations or our colonies, etc., abroad - the other to our mutual traffic and dealings among ourselves at home. Jacob; People v. Fisher, 14 Wend, 15' see also MERCHANT). But this distinction may be questioned. (Stroud, 6th Edn. 2000).

• In the case of Institute of Chartered Accountants of India (ICAI) vs. DGIT (E)  [2012] 347 ITR 99 (Delhi), the Honourable Delhi High Court has held as follows:

17. The meaning of "commerce" as given by the Concise Oxford Dictionary is "exchange of merchandise, specially on large scale". In ordinary parlance, trade, and commerce carry with them the idea of purchase and sale with a view to make profit. If a person buys goods with a view to sell them for profit, it is an ordinary case of trade. If the transactions are on a large scale it is called commerce. Nobody can define the volume, which would convert a trade into commerce. For the purpose of the first proviso to section 2(15), trade is sufficient, therefore this aspect is not required to be examined in detail.

4.41 Accordingly, the term commerce', means (a) any cause arising out of commercial/ordinary transaction of merchants and traders & (b) traffic, trade, or merchandize, in buying and selling of goods. Further, as analysed below [paragraphs 4.43 to 4.52], it is submitted that the term lousiness' for the purpose of IT Act means any activity to make profit. As per section 2(13) of thethe term lousiness' includes commerce. Hence, the term 'commerce' for the purpose of IT Act also to mean an activity for making profit. It is submitted that project activities of the Assessee do not fall within meaning of the said term commerce'.

4.42 In the following paragraphs, a reference may be made to meaning of the term "business':

• Section 2(13) of the IT Act, which defines the term 'Business' reads as follows:

"Business" include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.

• As per the Black's Law Dictionary, 6th Edition the term 'Business' means as under:

• Employment, occupation, profession, or commercial activity engaged in for gain or livelihood, Activity or enterprise for gain, benefit, advantage or livelihood.

• Dogget Vs. Burnet, 62 App. 103, 65 F. 2d 191, 194. That which habitually busies or occupies or engages the time, attention, labor, and effort of persons as a principal serious concern or interest or for livelihood or profit.

• The word "business" is defined as meaning almost anything which is an occupation as distinguished from a pleasure - anything which is an occupation or duty which requires attention as a business. In Bouriers law Dictionary "business" means that which occupies the time, attention and labour of men for the purpose of livelihood or profit, but it is not necessary that it should be the sole occupation or employment. It embraces everything about which a person can be employed. It is a word of much indefinite import, and the legislature could not well have used a larger word. According to the Chamber's Twentieth Century Dictionary, "business" means: (a) employment; (b) trade, profession or occupation; (c) a task or errand incumbent of undertaken; (d) matter requiring attention; (e) dealings, commercial activity, a commercial or industrial concern. The word "business" in the Oxford English Dictionary means: (a) A task appointed or undertaken; a person's official duty, part or province; function; occupation, (b) A person's official or professional duties as a whole; stated occupation, profession or traded, (c) A pursuit of occupation demanding time and attention; a serious employment as distinguished from a pastime, (d) A particular occupation; a trade or profession; commercial transactions or engagement as cited in M.M. Hassan (Dr.) v. T.C. Mohammed,  AIR 1994 Ker 278, 280

• Ordinarily speaking, "business is synonymous with trade". It is also defined as "anything which occupies the time and attention and labour of a man, for the purpose of profit, is "business" Dena Bank Ahmednagar v. Prakash Birbhan Kataria,  AIR 1994 Bom 343, 345

• Any activity incidental or ancillary to the main business will also come within the definition of "business" (Karnataka Pawnbrokers' Assn. v. State of Karnataka,  (1998) 7 SCC 707 para 35 : AIR 1999 SC 201).

• The sales of unclaimed and unserviceable goods, in discharge of various statutory charges, items etc., by the Port Trust, are an infinitesimal part of its main activities or services but they cannot be treated as 'business' (State of T.N. v. Board of Trustees of the Port of Madras,(1999) 4 SCC 630, para 44; AIR 1999 SC 1647).

• In taxing statues it is used in the sense of occupation or profession which occupies time, attention and labour of a person, normally with the object of making profit. To regard an activity as business, there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive and not for sport or pleasure. Hindustan Steel Ltd. v. State of Orissa, AIR 1970 SC 253 at 256 [Orissa Sales Tax Act (14 of 1947), S. 2(c), (as stood prior to the amendment of 1959)].

• According to Sampath Iyengar's Law of Income-tax (9th edition), a business activity has four essential characteristics. Firstly, a business must be a continuous and systematic exercise of activity. Business is defined as an active occupation continuously carried on. Business vocation connotes some real, substantive and systematic course of activity or conduct with a set purpose. Second essential characteristic is profit motive or capable of producing profit. To regard an activity as business, there must be a course of dealings continued, or contemplated to be continued, normally with an object of making profit and not for sport or pleasure [Bharat Development (P.) Ltd. vs. CIT : [1980] 4 Taxman 58/133 ITR 470 (Delhi)]. The third essential characteristic is that a business transaction must be between two persons. Business is not a unilateral act. It is brought about by a transaction between two or more persons. And lastly, the business activity usually involves a twin activity. There is usually an element of reciprocity involved in a business transaction.

• In Institute of Chartered Accountants of India (ICAI) vs. DGIT (E)  [2012] 347 ITR 99 (Delhi), it was held as follows:

29. It may be, however, pointed out that the term "profit motive" is not only the sole or relevant consideration that has to be kept in mind. It is one of the aspects. Normally intention to earn profit is required. Emphasis, however it does appear, has shifted and the concept and principle of "economic activity" has gained acceptability. The definition of the term "business" may also vary when we are examining taxability under Sales Tax, Excise Duty, Value Added Tax, etc. because these are not taxes on income but the taxable event occurs because of the "economic activity" involved. Even if a person/an organization is carrying on trading on the principle of "no loss no profit", it may be liable to pay taxes or comply with the statute when the charge, or incidence of tax, is on the "economic activity". This concept is today well recognized in European Union and England (see Riverside Housing Association Ltd. v. Revenue & Customs Commissioner,  : (2006) EWHC 2383 (Ch) and the case law cited therein). It may also be also appropriate here to refer the decision of the House of Lords in Town Investments Ltd. v. Department of the Environment  [1977] 1 All ER 813. In this case, a Government department was claiming benefit under a legislation that protected "business tenancies" from increase in rent. The term "business" in the said case by a majority decision was held to include Government activities. It was held that the word "business" is a etymological chameleon; it suits its meaning to the context in which it is found. It is not the term of legal art but in its dictionary meaning it includes anything which is an occupation, as distinguished from pleasure-anything which is an occupation or a duty which requires attention is business. It was also observed that business conveys in ordinary meaning the notion of a distinct enterprise (not necessarily for profit) having its distinct object, distinct management and distinct assets and liabilities.

33. Section 2(15) defines the term 'charitable purpose'. Therefore, while construing the term 'business' for the said section, the object and purpose of the section has to be kept in mind. Ld. A.R. did not think that a very broad and extended definition of the term 'business' is intended for the purpose of interpreting and applying the first proviso to section 2(15) of theto include any transaction for a fee or money. An activity would be considered "business" if it is undertaken with a profit motive, but in some cases this may not be determinative. Normally the profit motive test should be satisfied but in a given case activity may be regarded as business even when profit motive cannot be established/proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles, and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is infact in the nature of business. The test as prescribe in Raipur Mfrs. Co.'s case (supra) and Sai Publications Fund's case (supra) can be applied. The six indicia stipulated in Lord Fisher's case (supra) are also relevant. Each case, therefore, has to be examined on its own facts.

• In Improvement Trust vs. CIT [2014] 41 taxmann.com 403 (Amritsar-Trib.)/[2014] 62 SOT 121 (Amritsar-Trib.)(URO), it was held as follows:

15. As per the amended definition of charitable purpose under Section 2(15) of the Act, w.e.f. 01.04.2009, advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activities in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess of fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity."

16. As discussed above since the applicant is engaged in the activity in the nature of trade, commerce and business and is engaged in the trade of real estate business predominantly with a profit motive, its engagement in any of the activities as stated above will not affect its character as such since the proviso provides that the advancement of any other object of general public utility shall not be regarded as charitable purpose if it involves in carrying on any activity in the nature of trade, commerce or business or rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration irrespective of the nature of use or application, or retention, of the income from such activity.

17. Thus, the activities of the assessee are aimed at earning profit as it is carrying on activity in the nature of trade, commerce or business. Further profit making by the assessee is not mere incidental or byproduct of the activity of the assessee. The main pre-dominant purpose of assessee is making profit, it is real object of the assessee and also there is no spending of the income exclusively for the purpose of charitable activities and profits of the assessee not used for charitable purpose under the terms of the object and there is no obligation on the part of the assessee to spend it on 'charitable purposes' only.

4.43 Section 2(13) of theprovides that lousiness' includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.

4.44 It is submitted that under section 28(i) of the IT Act, the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year, are chargeable to tax. A combined reading of section 2(13) and section 28(i) convey that the business is necessarily an activity to make profit.

4.45 It is submitted that section 2(6) of the Karvat Act defines the term lousiness' as including any trade, commerce, manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on in furtherance of gain or profit and whether or not any gain or profit accrues therefrom; and any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern.

4.46 Section 2(17)(a) of the GST Act provides that lousiness' includes any trade, commerce, manufacture, profession, vocation, adventure, wager, or any other similar activity, whether or not it is for a pecuniary benefit.

4.47 It may be noted that the use of phrases i.e. "whether or not any gain or profit accrues therefrom" under Karvat Act and "whether or not it is for a pecuniary benefit" convey that even if there is no profit or gain or pecuniary benefit, aforesaid activities qualify to be regarded as 'business'.

4.48 The Explanation to section 2(31) of thereads as follows:

Explanation.--For the purposes of this clause, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains;

4.49 It may be noted from the aforesaid Explanation, the Legislature while defining the term 'person', toed the line of VAT laws.

4.50 It is submitted that in the absence of similar phrase being used while defining the term 'business', one has to understand that, any activity which is carried on for the profit or gain alone will qualify to be regarded as 'business' for the purpose of IT Act.

4.51 It is submitted that under section 2(13), business includes trade or commerce. As submitted above, any activity will mean to be a business only if the same is carried on for profit. Hence, it is submitted that even a trade or commerce should be an activity carried on for profit so as to fall within 'business'.

4.52 In The Tribune Trust vs. CIT  (2017) 390 ITR 547 (P & H), it was held as follows:

44. The second sentence is important while considering the meaning of the words "trade, commerce or business" used in the proviso to Section 2(15) as amended in 2009. The second sentence states that ordinarily, profit motive is a normal incident of business activity and if the activity of a trust results in yielding profit, it could be concluded that the object of the trust involves the carrying on of an activity for profit. We will restrict our reliance upon paragraph-21 insofar as it is observed that ordinarily, profit motive is a normal incidence of business activity. We see no reason to take a different view as regards the words "trade" and "commerce".

45. The normal incidence of trade and commerce is also profit. Considering the nature of the legislation, we are inclined to accept Mr. Bhan's contention that each of these three words indicates the element of profit. A wider meaning ought not to be given to these words especially in a taxing statute. Section 2(15) defines charitable purpose.

..............

4.53 In this regard, Ld. A.R. also made a reference to the following decisions where Courts have laid down relevant principles in this context:

• In CIT vs. Surat Art Silks Manufacturer's Association : (1980) 121 ITR 1 (SC), the Hon'ble Supreme Court observed as follows:

"Where an activity is not pervaded by profit motive but is carried on primarily for serving the charitable purpose, it would not be correct to describe it as an activity for profit. But where, on the other hand, an activity is carried on with the predominant object of earning profit, it would be an activity for profit, though it may be carried on in advancement of the charitable purpose of the trust or institution. Where an activity is carried on as a matter of advancement of the charitable purpose or for the purpose of carrying out the charitable purpose, it would not be incorrect to say as a matter of plain English grammar that the charitable purpose involves the carrying on of such activity, but the predominant object of such activity must be to sub-serve the charitable purpose and not to earn profit. The charitable purpose should not be submerged by the profit-making motive; the latter should not masquerade under the guise of the former. The purpose of the trust, as pointed out by one of us (Pathak, J.) in Dharmadeepti v. CIT (supra), must be "essentially charitable in nature" and it must not be a cover for carrying on an activity which has profit making as its predominant object."

• In Commissioner of Sales Tax vs. Sai Publication Fund 2002] 258 ITR 70 (SC), it was held as follows:

10.............. From the facts of the present case, the sole object of the assessee-trust is to spread the message of Saibaba of Shirdi. It is also not disputed that the books and literature, etc., containing the message of Saibaba were distributed by the trust to the devotees of Saibaba at cost price. There is no dispute that the primary and dominant activity of the trust is to spread the message of Saibaba. This main activity does not amount to 'business'. The activity of publishing and selling literature, books and other literature is obviously incidental or ancillary to the main activity of spreading message of Saibaba and not to any business as such even without profit motive and it is in a way a mean to achieve the object of the trust through which message of Saibaba is spread. It is clear from the trust deed and objects contained therein that it was not established with an intention of carrying on the business/occupation of selling or supplying goods. This being the position, it cannot be said that the trust carries on the business of selling and supplying goods so as to fall within the meaning of 'dealer' under section 2(11).

11. No doubt, the definition of 'business' given in section 2(5A) even without profit motive is wide enough to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture and any transaction in connection with or incidental or ancillary to the commencement or closure of such trade, commerce, manufacture, adventure or concern. If the main activity is not business, then any transaction incidental or ancillary would not normally amount to 'business' unless an independent intention to carry on 'business' in the incidental or ancillary activity is established. In such cases, the onus of proof of an independent intention to carry on 'business' connected with or incidental or ancillary to sales will rest on the department. Thus, if the main activity of a person is not trade, commerce, etc., ordinarily incidental or ancillary activity may not come within the meaning of 'business'. To put it differently, the inclusion of incidental or ancillary activity in the definition of 'business' pre-supposes the existence of trade, commerce, etc. The definition of 'dealer' contained in section 2(11) clearly indicates that in order to hold a person to be a 'dealer', he must 'carry on business' and then only he may also be deemed to be carrying on business in respect of transaction incidental or ancillary thereto. We have stated above that the main and dominant activity of the trust in furtherance of its object is to spread message. Hence, such activity does not amount to 'business'. Publication for the purpose of spreading message is incidental to the main activity which the trust does not carry as business. In this view, the activity of the trust in bringing out publications and selling them at cost price to spread message of Saibaba does not make it a dealer under section 2(11) of the.

17............. It may be stated that the question of profit motive or no profit move would be relevant only where person carries on trade, commerce, manufacture or adventure in the nature of trade, commerce, etc. On the facts and in the circumstances of the present case irrespective of the profit motive, it could not be said that the trust either was 'dealer' or was carrying on trade, commerce, etc. The trust is not carrying on trade, commerce, etc., in the sense of occupation to be a 'dealer' as its main object is to spread message of Saibaba of Shirdi as already noticed above. Having regard to all aspects of the matter, the High Court was right in answering the question referred by the Tribunal in the affirmative and in favour of the respondent-assessee. We must, however, add here that whether a particular person is a 'dealer' and whether he carries on 'business', are the matters to be decided on the facts and in the circumstances of each case.

• In Institute of Chartered Accountants of India (ICAI) vs. DGIT (Exemptions)  [2012] 347 ITR 99 (Delhi), the Hon'ble Delhi High Court after discussing various decisions with regard to the scope of the words trade, commerce & business held that while construing the term business for the purpose of Section 2(15) of thethe object and purpose of the section must be kept in mind and a broad and extended definition of business would not be applicable for the purpose of interpreting and applying the first proviso to section 2(15) of the. The relevant extract of the said judgment is as under:

33. Section 2(15) defines the term 'charitable purpose'. Therefore, while construing the term 'business' for the said section, the object and purpose of the section has to be kept in mind. Ld. A.R. did not think that a very broad and extended definition of the term 'business' is intended for the purpose of interpreting and applying the first proviso to section 2(15) of theto include any transaction for a fee or money. An activity would be considered "business" if it is undertaken with a profit motive, but in some cases this may not be determinative. Normally the profit motive test should be satisfied but in a given case activity may be regarded as business even when profit motive cannot be established/proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles, and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is infact in the nature of business. The test as prescribe in Raipur Mfrs. Co.'s case (supra) and Sai Publications Fund's case (supra) can be applied. The six indicia stipulated in Lord Fisher's case (supra) are also relevant. Each case, therefore, has to be examined on its own facts.

• In Institute of Chartered Accountants of India (ICAI) vs. DGIT (Exemptions)  [2012] 358 ITR 91 (Delhi), it was held as follows:

67. The expressions "trade", "commerce" and "business" as occurring in the first proviso to section 2(15) of themust be read in the context of the intent and purport of section 2(15) of theand cannot be interpreted to mean any activity which is carried on in an organised manner. The purpose and the dominant object for which an institution carries on its activities is material to determine whether the same is business or not............. The expressions "business", "trade" or "commerce" as used in the first proviso must, thus, be interpreted restrictively and where the dominant object of an organisation is charitable any incidental activity for furtherance of the object would not fall within the expressions "business", "trade" or "commerce".

71. Although, it is not essential that an activity be carried on for profit motive in order to be considered as business, but existence of profit motive would be a vital indicator in determining whether an organisation is carrying on business or not...............

• In The Tribune Trust vs. CIT  (2017) 390 ITR 547 (P & H), it was held as follows:

44. The second sentence is important while considering the meaning of the words "trade, commerce or business" used in the proviso to Section 2(15) as amended in 2009. The second sentence states that ordinarily, profit motive is a normal incident of business activity and if the activity of a trust results in yielding profit, it could be concluded that the object of the trust involves the carrying on of an activity for profit. We will restrict our reliance upon paragraph-21 insofar as it is observed that ordinarily, profit motive is a normal incidence of business activity. We see no reason to take a different view as regards the words "trade" and "commerce".

45. The normal incidence of trade and commerce is also profit. Considering the nature of the legislation, we are inclined to accept Mr. Bhan's contention that each of these three words indicates the element of profit. A wider meaning ought not to be given to these words especially in a taxing statute. Section 2(15) defines charitable purpose. As in the case of any other definition, it is to assist the construction of the main provisions in which the terms defined are used. The main provisions such as Sections 11, 12 and 13 use the words "charitable purpose" in the context of granting the assessee's the relief against taxation partly or fully often subject to certain conditions. If a trade or business or commercial activity does not result in profit, it would not be necessary to deal with the same in the Income Tax Act. The relief from taxation partly or fully predicates taxability and taxability predicates income and income predicates profit. This is the normal sense of these terms. There is nothing in the which persuades us that the words are used in Section 2(15) with a different intention. There is nothing in the and in particular section 2(15) thereof that indicates that the legislature contemplated a trade or a business or a commercial activity other than for profit. It is obviously for this reason that the legislature did not add to the words "trade, commerce or business" (used twice in the proviso) the words "carried on for profit".

• In CIT vs. Andhra Pradesh State Road Transport  (1986) 159 ITR 1 (SC), the Hon'ble Supreme Court observed as follows:

"No activity can be carried on efficiently, properly, adequately or economically unless it is carried on business principles. If an activity is carried on business principles, it would usually result in profit, but, as pointed out by this court in Surat Art Silk Cloth Manufacturers Association's case [1980] 120 ITR 1 (SC), it is not possible so to carry on a charitable activity in such a way that the expenditure balances the income and there is no resultant profit, for, to achieve this, would not only be difficult of practical realisation but would reflect unsound principles of management."

• In the case of GS1 India vs. DGIT (E)  [2014] 360 ITR 138 (Delhi), the Hon'ble Delhi High Court has held as follows:

"22. Business activity has an important pervading element of self-interest, though fair dealing should and can be present, whilst charity or charitable activity is anti-thesis of activity undertaken with profit motive or activity undertaken on sound or recognized business principles. Charity is driven by altruism and desire to serve others, though element of self-preservation may be present. For charity, benevolence should be omnipresent and demonstrable but it is not equivalent to self-sacrifice and abnegation. The antiquated definition of charity, which entails giving and receiving nothing in return is outdated. A mandatory feature would be; charitable activity should be devoid of selfishness or illiberal spirit. Enrichment of oneself or self-gain should be missing and the predominant purpose of the activity should be to serve and benefit others. A small contribution by way of fee that the beneficiary pays would not convert charitable activity into business, commerce or trade in the absence of contrary evidence"

• In the case of State of Maharashtra vs. Saifuddin Mujjaffarali Saifu, : AIR 1994 Bom 48, the Hon'ble Bombay High Court has held as follows:

"Construction of bridges, roads, Highways, on reckoning can be said to be "Industry" or "Trade". Such activity is for the benefit of people at large without no profit even in the remotest possibility. The witness for the assessee clearly stated that the bridge across river Serpani was for the benefit of Tribals of that area."

4.54 It is submitted that to decide when a particular activity can be treated as business, the following various tests need to be adopted according to the facts and circumstance of the case:

(1) Whether activity undertaken is a commercial activity;

(2) Whether activity undertaken is for gain, benefit, advantage, livelihood or profit;

(3) Whether activity is undertaken with profit motive or capable of producing profit;

(4) Whether activity conducted regularly on sound and recognized business principles;

(5) Whether profit making is the aim or object of the trust;

4.55 The aforesaid tests may be applied to the instant case of the Assessee, which is as under:

SI. No.	Tests	Submission
1	Whether activity undertaken is                 a commercial activity	As submitted earlier, Assessee is formed under the policy by Government of Karnataka. Objects of the Assessee are not self chosen but mandated by Ministry of Urban Development, Government of India.
		The Assessee was formed with an object for propagation of low cost technology, environmental friendly and pre-case technologies. The said objects are State driven.
		The activities carried out by the Assessee in pursuance to its MOA as demonstrated in paragraph 4.6 are not commercial in nature.
		The project works carried on by it are incidental to
		the attainment of said primary/ dominant object. The project works carried on by the Assessee are in respect of construction or up keeping of public infrastructural facilities using the aforesaid technologies.
	Whether	The works  which  are  incidental  to  the  primary
2	such activity	objects undertaken by the Assessee are in the nature of infrastructure development which are
	undertaken	towards  the   betterment   of   public.   The   project
	is for  gain,	activities are  fund  raising  activities  for  pursuing
	benefit,	objects. Hence,  the  same  are  not  undertaken  for
	advantage,	provide gain.
	livelihood
	or profit
3	Whether activity     is undertaken with    profit motive     or capable    of producing profit	The Assessee does not have any discretion in fixing the price. The rates are prescribed by PWD or Engineering department  of  Zilla  Panchayath. The traits of free trade of fixation of price  are absent. Project activities are monitored by KARNIK; There is all pervasive state control in the project activities
		The Assessee does not have any discretion to utilize the funds.
4	Whether	It  is   submitted   that   there   is   subtle   difference
	activity	between the  phrase  ‘carrying  on  activities  in  the
	conducted	nature of  business’  and  ‘carrying  on  activities  on
	regularly	business principles’.  The  former  refers  to activity
	on     sound	itself assuming the character of business and the
	and	latter refers  to  activity  carried  on  for  a  different
	recognized	purpose but  with  the  acumen  of  business  world.
	business	The latter  indicates  the  import  of  business  kind
	principles	efficiency in carrying out activities in a structured and efficient manner.
5	Whether profit making     is the aim or object       of the trust	As submitted earlier, Assessee is formed under the policy by Government of Karnataka. Objects of the Assessee are not self chosen but mandated by Ministry of Urban Development, Government of India.
		The Assessee was formed with an object for propagation of low cost technology, environmental friendly and pre-case technologies. The said objects are State driven. The activities carried out by the Assessee in pursuance to its MOA as demonstrated in paragraph 4.6 are not commercial in nature. The project works carried on by it are incidental to the attainment of said primary/ dominant object. The project works carried on by the Assessee are in respect of construction or up keeping of public infrastructural facilities using the aforesaid technologies. There is a difference between activity of profit and activity for profit. What is barred is activity for profit. The project activities of the Assessee are not for profit

4.56 Therefore, it is submitted that the activities carried out by the Assessee are not in the nature of trade, commerce or business.

4.57 It is submitted that last limb of proviso to section 2(15) also deals with rendering of service in relation to any business, trade or occupation. The term 'service' is not defined under the. It generally means the act of serving, helping or benefitting another person with or without fee. Such service has to be rendered in relation to any trade, business or commerce.

4.58 It is submitted that in the present case, the Assessee carries various civil works carried out for dissemination of low-cost technologies, environmental friendly, pre-cast technologies etc. Even if such activities are regarded as service, the Assessee is not carrying any service in relation to trade, business or commerce. The services rendered are in relation to activities towards advancement of object of public utility for which the Assessee is set up and not in the nature of trade, commerce or business. Such services are rendered to government department and not to any person engaged in trade, commerce or business.

4.59 In Bureau of Indian Standards vs. DGIT [2013] 358 ITR 78 (Delhi), it was held as under:

"13. In view of the above discussion, it cannot be said that the BIS is involved in any carrying on trade, commerce or business. BIS is a statutory body established under the BIS Act and was brought into existence "for the harmonious development of the activities of standardisation, marking and quality certification of goods". This was, and has been, its primary and pre-dominant object. Even though it does take license fee for granting marks/certification, the same cannot be said to be done for the purpose of profit. If any profit/revenue is earned, it is purely incidental. The BIS performs sovereign and regulatory function, in its capacity of an instrumentality of the state. Therefore, this Court has no doubt in holding that it is not involved in carrying any activity in the nature of trade, commerce or business.

In these circumstances, "rendering any service in relation to trade, commerce or business" cannot, in the opinion of the Court, receive such a wide construction as to enfold regulatory and sovereign authorities, set up under statutory enactments, and tasked to act as agencies of the State in public duties which cannot be discharged by private bodies. Often, apart from the controlling or parent statutes, like the BIS Act, these statutory bodies (including BIS) are empowered to frame rules or regulations, exercise coercive powers, including inspection, raids; they possess search and seizure powers and are invariably subjected to Parliamentary or legislative oversight. The primary object for setting up such regulatory bodies would be to ensure general public utility. The prescribing of standards, and enforcing those standards, through accreditation and continuing supervision through inspection etc, cannot be considered as trade, business or commercial activity, merely because the testing procedures, or accreditation involves charging of such fees. It cannot be said that the public utility activity of evolving, prescribing and enforcing standards, "involves" the carrying on of trade or commercial activity."

4.60 In ADIT (Exemption)-II (1) vs. Jeevan Vidya Mission  [2015] 155 ITD 1150 (Mumbai), it was held as follows:

9.1 In this regard, we shall take first guidance from the judgment of Hon'ble Supreme Court in the case of Sai Publication Fund (supra). The Brief facts in this case were that this trust was set up by some devotees of Sai Baba of Shirdi for spreading his massages. In pursuance to this object, the assessee trust published and distributed books, pamphlets and other literatures containing massages of Sai Baba under the aegis of "Sai Publication", distributed by the trust to the devotees of Sai Baba, at cost price. Under these circumstances, a question arose whether this activity would amount to carrying on the business by the assessee trust. In that context, Hon'ble Apex Court held that if the main activity is not business, then any transactions incidental or ancillary would not normally amount to "business", unless an independent intention to carry on business in the incidental or ancillary activity is established. It was further held that publication for the purpose of spreading messages is incidental to the main activity which trust does not carry as business, and that activity of trust in bringing out publications and selling then at cost price to spread massages of Sai Baba does not make it a business activities, and that the question of profit motive or no profit motive would be relevant only when a person carries on trade, commerce, manufacture or adventure in the nature of trade, commerce, or business etc.

9.2. Further, we find that even after the amendment has been made under the law, by inserting proviso to section 2(15), the position of law, as was laid down by Hon'ble Supreme Court in the case of Sai Publication Fund, (supra), remains the same. In support of our view, we rely upon the judgment of Hon'ble Delhi High Court in GS1 India v. DGIT (Exemptions)  [2014] 360 ITR 138/[2013] 219 Taxman 205/38 taxmann.com 364, wherein it was held that the proviso to second limb will not apply in the case of a rendition of a service per se, for a cess, fee or any other consideration, or to a trade, commerce or business, but that this clause can come into play for the purpose of excluding an assessee "who carries on business, trade or commerce to feed the charitable activities". In other words, the scope of second limb, as held by High Court, extends only to such cases in which a business is carried out to feed the charitable activities. It would thus follow that even for invoking second limb of first proviso to Section 2(15), it is sine qua non that the assessee has extended services to business, trade or commerce and such services have been extended in the course of business carried on by the assessee. It is thus clear that even in a situation in which an assessee receives a fees or consideration for rendition of a service to the business, trade or commerce, as long as such a service is subservient to the charitable cause and is not in the nature of business itself, the disability under second limb of first proviso to Section 2(15) will not come into play.

9.3. Similarly, in Institute of Chartered Accountants of India v. DGIT (Exemptions)  [2013] 358 ITR 91/217 Taxman 152/35 taxmann.com 140, Hon'ble Delhi High Court has held that, "even though fees are charged by the petitioner institute for providing coaching classes and for holding interviews with respect to campus placement, the said activities cannot be stated to be rendering service in relation to any trade, commerce or business as such activities are undertaken by the petitioner institute in furtherance of its main object which as held earlier are not trade, commerce or business". In this case also, the rendition of services by the assessee is viewed in conjunction with the overall objectives of the assessee and once it is seen that these services are not in the nature of trade, commerce or business per se, the mere charging of fees for services so rendered, which were held to subservient to the charitable objectives, is held to have no effect on the overall charitable objects of the assessee;

12. Ld. A.R. And that findings of Ld. CIT(A) are factually correct and in line with the latest position of law, as discussed above. It is further analyzed by us that, activity of distribution of books as well as CDs is neither an 'independent' activity, nor a 'stand alone' activity. It cannot stand on its own. It has been carried out by the assessee trust as part of the main object of spreading awareness and imparting education on Jeevan Vidya. Whatever has been done, in this regard by the assessee, it was for the purpose of pursuing the main object of spreading awareness about Jeevan Vidya. Distribution of books, whether by way sale or otherwise, could have been termed as activity in the nature of trade, commerce or business, if it would have been done by the assessee trust on a stand - alone basis i.e. independent of its main object; like a businessman does. Apparently, from the facts gathered, it can be concluded that there was no motive to earn profit. These crucial facts have not been controverted by the Ld. Assessing Officer in his assessment order or by the Ld. DR before us.

4.61 In the following cases, the Courts have held that organisations carrying on activities like development of township and industries do not fall within the ambit of proviso to section 2(15) of the:

• In CIT vs. Bagalkot Town Development Authority, it was held as follows:

3................ There is no dispute with regard to the fact that the respondent was getting funds from the Government to carry out certain public works such as Rehabilitation & Resettlements of persons Displaced during the construction of Almatti Dam. Respondent had applied and obtained registration under Section 12-AA of theand it was considered as an Institution for charitable purposes. Consequently, assessee income was exempt from Income Tax under Section 11 of the.

7. Careful consideration of the rival contentions and perusal of material papers lead us to following irrefutable inferences:-

(i) Respondent/assessee is a statutory authority created under Karnataka Improvement Boards Act, 1976;

(ii) The purpose and intent of creation of respondent/authority is to carry out Rehabilitation & Resettlements of Displaced persons due to construction of Almatti Dam;

(iv) Assessee acts as an agent of the Government to give effect to the Rehabilitation & Resettlement policies;

(v) Assessee has no discretion in mode of deployment or utilisation of funds and fully controlled by periodical instructions issued by the Government; and

(vi) Funds belonging to the Government placed in deposits in the Banks by the assessee and the interest accruing thereon shall continue to remain under the absolute control of the Government and the respondent functioned in a fiduciary capacity.

9. In instant case also assessee is a statutory authority created under the Karnataka Improvement Boards Act to carry out public purpose. Therefore, ratio of above judgment is applicable to the facts of this case. Consequently, assessee shall entitle for exemption of tax.

10. In the premise, he is of the considered view that the argument advanced on behalf of the Revenue that assessee was not entitled for exemption under Section 11 of thefor the reasons recorded by the Commissioner of Income Tax, is untenable and deserve to be rejected and accordingly rejected.

11. Resultantly, he hold that questions of law raised by the Revenue are devoid of merits. Appeal fails and accordingly stands dismissed. No costs.

• In CIT vs. Hubli Dharwad Urban Development Authority : (2019) 419 ITR 29 (Kar. HC), it was held as follows:

3. According to the Revenue, the respondent-assessee was constituted by Notification issued by the State Government bearing No. HUD/849/TTP/87 dated 22.12.1987 under the provision of the Karnataka Urban Development Authorities Act, 1987 (hereinafter referred to as the 'KUDA, 1987', for the sake of convenience). The assessee being a statutory body constituted under KUDA, 1987, is for the purpose of carrying out the object of the said Act, which is to provide for the establishment of Urban Development Authorities for the planned development of major and important urban areas in the State. The assessee is constituted for the urban areas of Hubli-Dharwad as a planning authority...............

12. In view of aforesaid dicta what emerges is that the nature of activity of the respondent-assessee must be considered. As already noted, assessee is a statutory authority constituted under the provisions of KUDA 1987. In the circumstances, it is held that despite the insertion of the proviso, the assessee was entitled to continue the Certificate of Registration under section 12A of the Act, as even though the objects of the assessee fall within the limit of any other object of general public utility, but, having regard to the aforesaid dicta, it is held that its activity is not for of a commercial nature for the purpose of earning profit, but being statutory body its objects are to ensure orderly development of urban areas of Hubballi-Dharwad. In the circumstances, substantial question of law No. 1 is answered against the Revenue.

• In The Belgaum Urban Development Authority vs. CIT ITA No. 5020/2012, dated 19.02.2019 (Kar. HC), it was held as follows:

This appeal was admitted on 31.07.2013 to consider the following substantial questions of law raised in the memorandum of appeal:

"i) Whether in law, the finding arrived at by the Tribunal is perverse and contrary to the facts and circumstances in as much as whether the activity carried on by the assessee would amount to an activity in the nature of trade, commerce or business to deny registration under Section 12A of the Income Tax Act ...........

3. The relevant facts of the case are that the assessee, which is a statutory authority constituted under the provisions of the Karnataka Urban Development Authorities Act, 1987 (hereinafter referred to as 'KUDA Act', for short), filed an application for registration under Section 12A(1)(aa) of the Income Tax Act, 1961 (hereinafter referred to as the', for the sake of brevity)..............

16. From the aforesaid judgments what emerges is that in respect of two similar authorities namely Bagalkot Town Development Authority and Lucknow Development Authority which are similar to the assessee Authority, it has been held that they are entitled to registration under Section 12(A)(1)(aa) of theand to the benefit under Sections 11 and 12 of the. As already submitted by learned counsel for the assessee, the assessee Authority is a statutory body constituted under Section 3 of the KUDA Act, the object of the assessee Authority is planning and promoting and securing the development of Belagavi urban area and for that purpose to acquire, hold, manage and dispose off movable and immovable properties and to carry out building and engineering operations and to take all steps for the purpose of development of the Belagavi urban area.

17. Sections 15 to 34 pertain to development schemes that could be undertaken by the assessee Authority for the development of the urban area from time to time. Sections 35 and 36 empower the assessee Authority to acquire lands for the purpose of achieving the development schemes by agreement from the owners of the lands. Sections 17 to 19 empower the Authority to acquire the lands from the land owners by acquisition process and pay compensation to the land owners. Under Section 37 of the Act, the State Government can also transfer to the Authority, lands, belonging to it for the purpose of development scheme. There are various provisions under the which are supplemental to the main object and purpose of the act. The Authority is also empowered to develop sites, layouts and allot sites to the eligible persons, as well as auction sites and generally carry out the objects and intentions of KUDA Act.

18. The activity of the assessee is thus a charitable activity as defined under the expression 'charitable trust' under Section 2(15) of the. The activity of the assessee comes within the scope and ambit of the expression "the advancement of any other object of general public utility". The activity carried on by the assessee does not involve an activity which is in the nature of trade, commerce or business so as to come within the mischief of proviso to Section 2(15). As already noted, the assessee is a statutory authority constituted under the provisions of KUDA Act, whose object is to establish and develop urban areas in an orderly fashion. Even though the assessee Development Authority may be involved in developing various residential or commercial areas and thereby preparing house sites or commercial sites and even alienating such sites through auction or through allotting to eligible persons, the said activity cannot be held to be profit motive so as to come within the mischief of the expression trade, commerce or business. The upshot of the aforesaid discussion is that the assessee is a statutory Authority created under the Karnataka Urban Development Authorities Act, 1987. The purpose and intent of creation of the assessee Authority is to establish urban areas in Belgaum in a planned manner. The assessee being a statutory Authority is under the control of the State Government, which has the power to issue directions to the Authority as per Section 65 of the. The said directions are those, which are necessary or expedient for carrying out the purposes of the and it shall be the duty of the assessee to comply with such directions. Even the utilization of funds by the assessee is fully controlled by periodical instructions issued by the Government. The funds standing in the name of the assessee is under the absolute control of the Government as the assessee functions in a fiduciary capacity. Therefore, following the judgment of Bagalkot Town Development Authority, which has in turn followed the judgment of the Hon'ble Supreme Court in the case of Gujarat Maritime Board, it is held that the assessee, being a statutory Authority, created under the Karnataka Urban Development Authority Act, 1987 has to carry out its activity towards public purposes. Therefore, the argument advanced on behalf of the revenue that the assessee was not entitled for exception under Section 11 of the Act, is untenable and is rejected. In the circumstances, substantial question of law No. 1 is answered in favour of the assessee and against the revenue.

• In Karnataka Industrial Area Development Board (KIADB) vs. The Addn. DIT (Exemptions), in ITA 378/Bang/2013, dt., 04.09.2015 it has been held as follows:

"47. The main aim and object for which the Assessee was established is to (a) Promote rapid and orderly development of industries in the stale, (b) Assist in implementation of policies of Government within the purview of KIAD Act. (c) Facilitate in establishing infrastructure projects, (d) Function on "No Profit - No Loss" basis. For the above purpose, the Assessee (a) Acquire land and form industrial areas in the state, (b) Provide basic infrastructure in the industrial areas, (c) Acquire land for Single Unit Complexes (d) Acquire land for Government agencies for their schemes and infrastructure projects. The dominant and main object of the Assessee is charitable and not for making profits.

48. A look at the income stream of the Assessee dearly reveals that all the activities from which the Assessee derives income are an inherent part of the main object of the Assessee. It is clear from the facts of the case that profit making is not the driving force or objective of the Assessee. Rather the purpose for which the Assessee was created is to regulate and develop drinking water and drainage facilities in the urban areas of the State of Karnataka and for matters connected therewith. This makes it clear that any income generated by the Assessee does not find its way into the pockets of any individuals or entities. It is to be utilized fully for the purposes of the petitioner..............

49. Keeping in mind the above factual aspects and the provisions of the KID A Act, and principle laid down in the aforesaid decision of the Hon'ble Delhi High Court in the case of India Promotion Organization (supra), in our view, will clearly show that the Assessee does not driven primarily by desire or motive to earn profits but to do charity through advancement of an object of general public utility. The assessee is operating on no profit basis. This is substantiated by the actual income received on operations of the Assessee and the expenditure incurred set out in the earlier paragraphs of this order. The proviso to Sec. 2(15) of the is therefore not applicable to the case of the Assessee. We therefore hold that the Assessee is entitled to the benefits of Sec. 11 of the. The AO has not disputed the conditions necessary for allowing exemption u/s. 11 of the, except the applicability of proviso to Sec. 2(15) of the. In view of our conclusions that the said proviso is not applicable to the case of the Assessee, we hold that the Assessee's income is not includible in the total income and therefore the income returned by the Assessee is directed to be accepted."

• In the case of Karnataka Water Supply and Drainage Board (KWSDB) vs. Deputy Director (Exemption) in ITA No. 283/Bang/2015, dt., 04.09.2015, the Hon'ble, ITAT Bengaluru relied on the principle of 'dominant purpose' the decision of the Hon'ble Delhi High Court in the case of India Trade Promotion Organization vs. DGIT (Exemption) and others 2015) 371 ITR 333 (Delhi) and has held that assessee's income generating activities were inherent part of its main object which was not profit making. The relevant extract of the decision is reproduced as follows:

"34. A look at the income stream of the Assessee clearly reveals that all the activities from which the Assessee derives income are an inherent part of the main object of the Assessee. It is clear from the facts of the case that profit making is not the driving force or objective of the Assessee. Rather the purpose for which the Assessee was created is to regulate and develop drinking water and drainage facilities in the urban areas of the State of Karnataka and for matters connected therewith. This makes it clear that any income generated by the Assessee does not find its way into the pockets of any individuals or entities. It is to be utilized fully for the purposes of the objects of the petitioner..........

36. The principle laid down in the aforesaid decision, in our view, if applied to the facts of the present case, will clearly show that the Assessee does not driven primarily by desire or motive to earn profits but to do charity through advancement of an object of general public utility. The assessee is operating on no profit basis. This is substantiated by the actual income received on operations of the Assessee and the expenditure incurred set out in para-14 of this order. The income of the Assessee is primarily consists of Establishment, Administration and Supervision Charges, Water charges, interest, rent and other income (comprising of hire charges, fines, sale of scrap, tender forms etc.). If interest, rent and other income are excluded and compared with the expenditure on operations incurred by the Assessee, it becomes clear that the Assessee does not have profit motive. The proviso to Sec. 2(15) of the is therefore not applicable to the case of the Assessee. He therefore hold that the Assessee is entitled to the benefits of Sec. 11 of the for the impugned assessment years. The AO has not disputed the conditions necessary for allowing exemption u/s. 11 of the, except the applicability of proviso to Sec. 2(15) of the. In view of our conclusions that the said proviso is not applicable to the case of the Assessee, he hold that the Assessee's income is not includible in the total income and therefore the income returned by the Assessee is directed to be accepted."

• In Bangalore Development Authority (BDA) vs. Addl. CIT  (2019) 104 taxmann.com 266 (Bengaluru), it was held as follows:

2.1 The assessee, Bangalore Development Authority (BDA), a statutory body constituted under the State Government of Karnataka, filed its return of income for Assessment Year 2012-13 on 29.09.2012 declaring a loss of (-) Rs. 357,92,21,808/-, after claiming exemption under section 11 of the Income Tax Act, 1961 (in short the)........

5.3.4 At para 5.5 of the impugned order of assessment for Assessment Year 2012-13, the AO has extracted the Powers/Functions of the 'BDA' as per sections 15 & 16 of the Bangalore Development Act, 1976 as under:--

(i) To undertake works and incur expenditure for development of the Bangalore Metropolitan Area by drawing up detailed schemes.

(ii) To undertake from time to time any works for the development of the Bangalore Metropolitan Area and incur expenditure thereof and also for framing and execution of development schemes with the previous approval of the government.

(iii) The acquisition of the land which will be necessary for or affected by the execution of the schemes.

(iv) Laying and relaying out all or any land including the construction and reconstruction of buildings and formation and alteration of streets.

(v) To provide drainage, water supply and electricity.

(vi) To provide sanitary arrangements required.

(vii) To provide for the construction of houses.

(viii) Power to acquire land by agreement.

(ix) Power to lease, sell or transfer of the property.

(x) Formation of new extensions or layouts or making new private streets.

(xi) Allotment/sale of sites and buildings by direct sales, lease cum sale method and through auction sales in respect of corner sites and commercial sites.

5.3.5 The AO has summarized the main objects, functions and activities of 'BDA' at para 6 of the impugned order of assessment at para 5.6 thereof as under:

(i) To procure the land and develop the same into layouts by undertaking land development activities and convert the same into saleable plots/sites/flats/houses.

(ii) To undertake planning activities for group housing & layouts and preparation of development plan for Bangalore.

(iii) The assessee is engaged in acquisition of land for development of layouts and construction of houses and sale of the same to the general public.

(iv) The assessee is engaged in the development of infrastructure facilities such as construction of flyovers, ring roads, underpasses, grade separators etc.

(v) The assessee is engaged in construction of commercial complexes.

5.9.3 Ld. A.R. also observe that the finding of the AO in para 6.20(iii) of the order of assessment, and which is impliedly endorsed by the CIT(A) in the impugned appellate order, i.e., that (iii) "The assessee is not applying the huge amount of profit generated from the activities towards any charitable activities such as relief of poor, education, medical relief and other objects of advancement of general public utility and such surplus is being invested in fixed deposits in order to earn interest income" is also not correct in as much as it is evident from the financial statements of this year that the assessee has spent an amount of Rs. 278,78,43,000/- (disallowed by the AO - para 15.20 of Assessment Order and reflected in the computation of total income) on activities that fall under the head 'Advancement of General Public Utility' like construction of grade separators, PRR Bridges on Flyovers, renovation and remodeling works, Maintenance of BBMP facilities, Development of Lakes, etc. Be that as it may, if one were to peruse the object for which the assessee, viz., BDA was constituted, it is clear that the intent and purpose is for planned urban development of Bangalore City and not with the purpose of profit making; i.e., the activity of formation of layouts and allotment of sites is only carried out with the primary and main object to ensure planned development of Bangalore City and not with the intention to make profits.

5.10.1 Ld. A.R. And that the view of the AO in (iv) of para 6.20 of the order of assessment and which is impliedly endorsed by the CIT(A) in the impugned order; i.e., that (iv) "The activities of the assessee and the generation of profits on account of the same are akin to the activities carried on by real estate companies, property developers, infrastructure firms, etc., and therefore, the activities of the assessee squarely fall under the ambit of activities which are in the nature of trade, commerce and business. Accordingly the activities of the assessee are hit by the first proviso to section 2(15)"; is in our opinion rather superfluous in nature. No doubt, it is a fact that one will see a lot of similarities in the activity of the assessee vis-a-vis. that of a real estate developer. However, the issue to be considered is, not whether the activity of the assessee is similar to that of the private real estate developer or not, but whether the underlying purpose of the activity is the same as that of the private real estate developer, i.e., making and maximization of profit. In the case of this assessee; viz., BDA, the underlying motive/objective is not making and maximizing of profits, but planned development of Bangalore City. It is important in this context to note the fact that concerned Income Tax authorities have recognized the assessee as a public charitable organization by grant of registration under section 12A of thesince 26.03.2003 and that the assessee's objects clause, i.e., section 14 of the BDA Act has not undergone any change or modification since its enactment; which is what must have prompted the Income Tax Department to take the view that it was charitable in nature. In other words, the Income Tax Department considered the assessee, 'BDA' to be covered by the provisions of section 2(15) of the.

5.10.2 It is after the introduction of the proviso to section 2(15) of thethat the Income Tax Department took a view that the activity of 'BDA' was in the nature of trade, commerce or business and cancelled the registration, granted under section 12A of the Act, vide order dated 08.11.2011. The assessee's registration under section 12A of thehowever stood restored by a decision of the Co-ordinate Bench of this Tribunal vide order in ITA No. 12/Bang/2012 dated 10.04.2015. In this prevailing factual matrix, there is no change in the objects and the only issue which apparently prompts Revenue to take the view it has taken, i.e., that the activity of the assessee is hit by the proviso to section 2(15) of the; is the fact that the activity of the assessee has resulted in huge surplus or profits. In our view, the fact of surplus or shortfall is not to be reckoned as the test for applicability of the proviso to section 2(15) of the; but rather, whether the activity is embarked upon solely with the view to earn profit or not; which the AO and CIT(A) have not done.

5.10.4 Ld. A.R. find that the aforesaid judicial pronouncements relied upon by the assessee are those of other urban development authorities, in whose cases also the AO has taken the view that the activities of city development are hit by the proviso to section 2(15) of the. Referring to the above cited cases, he find that in the case of Ahmedabad Development Authority (supra) the Hon'ble Gujarat High Court has upheld the appeal of the assessee, by overruling therein the decision of the Ahmedabad Tribunal in that case. In the case of Lucknow Development Authority (supra) the Hon'ble Allahabad High Court has upheld the decision of the Lucknow Bench of which was in favour of the assessee. He find that in the above judicial pronouncements cited by the assessee, the facts are identical to that of the assessee in the case on hand; that the AOs in these cases have taken a view that the activity is in the nature of trade, commerce or business and hit by the proviso to section 2(15) of theand the assessees have got relief at the higher appellate forums, viz., the Hon'ble High Courts and/or Tribunals.

The above cited cases relied upon by the AO find mention in the impugned order of assessment and the AO has briefly discussed these judicial pronouncements therein. He find from the discussions therein that in all these citations, the issue involved was the cancellation of registration under section 12A of theand not assessments made on the basis that the activities in those cases are hit by the proviso to section 2(15) of the. In our view, these judicial pronouncements cannot be applied to the assessee in the case on hand for the reason that the assessee's Registration under section 12A of thewhich was cancelled by the CIT(Exemption), has since been restored by a Co-ordinate Bench of this Tribunal, by following the decision of the Hon'ble Karnataka High Court in the case of Director of Income Tax (Exemption) v. Karnataka Industrial Area Development Board [IT Appeal No. 261 of 2013 dated 07.11.2014]. In that legal view of the matter, the judicial pronouncements relied upon by the AO would not come to the rescue of Revenue in the case on hand. Further, in view of the decision of the Hon'ble Apex Court in the case of CIT v. Vegetable Products  [1973] 88 ITR 192 it is judicially correct to follow the decisions of Hon'ble High Courts of Gujarat and Allahabad which support the case of the assessee (supra), when the same are in favour of the assessee; despite there being decisions contrary by other High Courts; when there is no decision of the jurisdictional High Court against the assessee. In view of the factual and legal matrix of the case, as discussed above, he hold that the activities of the assessee, i.e., Bangalore Development Authority are not hit by the proviso to section 2(15) of the. Having held so, he direct the AO to allow the assessee the benefits of section 11 of thewhile giving effect to this order. Consequently, grounds raised by the assessee on this issue are allowed.

• In CIT vs. Gujarat Industrial Development Corporation : [2017] 83 taxmann.com 366 (Gujarat), it is held as follows:

"17. Applying the aforesaid decision to the facts of the case on hand and the objects and purpose for which the assessee-Corporation is established and constituted under the provisions of the Gujarat Industrial Development Act, 1962 and collection of fees or cess is incidental to the object and purpose of the, and even the case would not fall under the second part of proviso to Section 2[15] of the. As the activities of the assessee is for advancement of any other object of general public utility, the same can be for "charitable purpose" and therefore, the assessee Corporation shall be entitled to exemption under Section 11 of the. No error has been committed by the learned Tribunal in holding so. We are in complete agreement with the view taken by the learned Tribunal"

• In Himachal Pradesh Environment Protection and Pollution Control Board vs. CIT : [2009] 125 TTJ (Chd) 98, it is held as follows:

"17. On a perusal of these objectives, as sanctioned by the statute, it is obvious that the activities performed by the assessee trust are regulatory functions for the public good, and any collection for fees or charges, in the course of discharging these regulatory functions, cannot be viewed as a consideration of rendering these services of pollution control measures. We are unable to see any substance in learned CIT's stand that the income earned by assessee as licence fees, consent fees and testing charges are receipts in consideration of rendering the services to trade, commerce or business. What is termed as consent fees is in fact fees accompanying the application for obtaining consent (i.e., permission) of the assessee Board to set up a new unit. It cannot be anybody's case that the processing of applications by itself has a commercial motive, or that fees for processing of application is a fees collected for rendering of service of pollution control which is undisputed sole object of the assessee trust. Similarly, fees for testing charges and licence fees are not also towards rendering of any services of pollution control either. These are not the services with a profit motive but essentially only to recoup the costs of getting the samples tested or processing of licences. In any event, these activities, if these can be at all be construed as rendering of services, these are wholly subservient to the public utility objective of pollution control, and, it cannot be anyone's case that even though the State Pollution Boards like the assessee before us are set up under an Act of the Parliament, but, to use the words employed in the CBDT circular (supra) "the object of 'general public utility' will only be a mask or a device to hide the true purpose which is trade, commerce, or business or rendering of any service in relation to trade, commerce or business".

• In Gujarat Housing Board (GHB) vs. DCIT 2018-TIOL-2438-ITAT-AHM, it was held as follows:

3. Briefly stated, the relevant material facts are like this. The assessee before us is a trust constituted, by Government of Gujarat, under the Gujarat Housing Board Act, 1961. It is formed by the State Government so as to deal with, and satisfy, the housing accommodation needs of general public-particularly with a view to provide shelter to economically weaker sections of society..........

7. We find that the core issue that is really required to be adjudicated by us is whether construction and sale of dwelling units by the assessee, on the given facts, is an activity in the nature of trade, commerce or business or service thereto.............. The assessee is a trust set up under the State Government legislation and is doing commendable work in the field of providing affordable accommodation.......

8. Viewed thus, merely the fact that the assessee has constructed and sold the dwelling units does not make it a business venture as long as predominant object, which is what the trust set up by the State Government is pursuing, is implementation of the provisions of the trust through various schemes. What has been said in the context of the aforesaid case is equally applicable on the present set of facts. There is no dispute that the objects of the Trust are covered by the objects of general public utility and the registration granted to the assessee trust is still valid. Clearly, therefore, pursing these valid objects of general public utility through lawful statutory schemes cannot be considered as business activity, and, as a corollary thereto, exemption under section 11(2) cannot be declined by invoking proviso to Section 2(15) which can only come into play in the event of the assessee pursuing the activities in the nature of trade, commerce or business or services thereto. The case of the revenue does not, therefore, derive any strength from the judicial precedents relied upon, in view of subsequent rulings by higher judicial forums. The action of the authorities below cannot, therefore, meet our judicial approval.

10. In view of the above discussions, as also bearing in mind entirety of the case, we deem it fit and proper to hold that the authorities below were in error in invoking proviso to Section 2(15) and declining the benefit of Section 11 to the assessee. We see no point in remitting the matter to the file of the Assessing Officer for examination de novo, in the light of the above legal position-as was the decision of the coordinate bench in immediately preceding assessment year, since all the related facts are on record and, unlike in the immediately preceding assessment year, it is not a case of ex parte best judgment assessment order. Such an exercise will unnecessarily delay the matter reaching finality. In any case, no specific points, on which further examination is required, were pointed out to us. The grievances of the assessee are thus upheld and the Assessing Officer is directed to allow the benefits of exemption under section 11 to the assessee. The assessee gets the relief accordingly.

• The Hon'ble Gujarat High Court has affirmed the aforesaid decision in CIT(E) vs. Gujarat Housing Board (GHB)  2019-TIOL-1499-HC-AHM-IT.

• In Greater Noida Industrial Development Authority vs. UOI [2018] 254 Taxman 289 (Delhi), it was held as follows:

35. Allahabad High Court in Greater Noida Industrial Development Authority, (supra) after extensively referring to the statutory mandate and object for which the petitioner authority has been established and also the provisions of the i.e. the Income Tax Act, had observed that the petitioner was to provide amenities and facilities in industrial estate and in industrial area in the form of road, electricity, sewage etc. We have also referred to the functions and objectives for which the petitioner is established. The said activities necessarily require money and funds, which are received from the State Government. Petitioner, given the regulatory and administrative functions performed is required and charges fee, cost and consideration in the form of rent and transfer of rights in land, building and movable properties. Similarly payments have to be made for acquisition of land, creation and construction of infrastructure and even buildings. Carrying out and rendering the said activities is directly connected with the role and statutory mandate assigned to the petitioner. It has not been asserted and alleged that these activities were or are undertaken on commercial lines and intent. Petitioner does not earn profits or income from any other activity unconnected with their regulatory and administrative role. Income in the form of taxes, fee, service charges, rents and sale proceeds is intrinsically, immediately and fundamentally connected and forms part of the role, functions and duties of the petitioner.

• In ITO vs. Moradabad Development Authority  [2017] 159 ITD 971 (Delhi Trib), it was held as follows:

9. We have heard both the parties and perused all the records. The status of the assessee in the earlier years was accepted by the Revenue as a charitable in nature having income allowable for exemption u/s. 11 of the. There was no change in the facts and circumstances during the present assessment year. The Assessing Officer never denied the fact that the assessee is registered u/s. 12AA of the Income-tax Act. During the year under consideration the activities of the assessee were charitable in nature and as per its object. The Assessing Officer relied on the judgment of the Hon'ble Supreme Court in case of Safdarjung Enclave Educational Society v. Municipal Corporation, Delhi [1992] 3 SCC 390 but the same is not applicable in the case as the charitable purpose and object was never changed at any time in case of assessee herein. Thus, exemption u/s. 11 rejected by the Assessing Officer is not just and proper. In assessee's own case for the preceding year and the subsequent year, the Coordinate Bench of theAT has allowed the appeal of the assessee. The Delhi High Court in its decision in the case of India Trade Promotion Organization (Supra) has clearly given the interpretation of Constitutional validity of the proviso to Section 2(15) of the. The Hon'ble Delhi High Court held that the said proviso applies in a situation where the main object is essentially to carry on business for the purpose of profit. But in assessee's case, the situation is different. The main object of town planner has been held to be charitable and at the time of registration u/s. 12A was in very much existence. Thus, the Revenue has not made out the case that the condition on which the registration was allowed has changed from earlier year or in subsequent year as well as in the present year. The reliance of the decision of the Jurisdictional High Court (Allahabad High Court) in case of CIT v. Lucknow Development Authority [IT Appeal No. 149 of 2009, dated 16-9-2013] Hon'ble High Court-ALL is relevant. The Hon'ble Allahabad High Court after examining the said objects in light of proviso to Sec. 2(15) has held that development authorities will not be hit by the proviso to Sec. 2(15). The reliance on the judgments by the Ld. DR are on different footing altogether. The reliance of the Board Circular is also not applicable in the present case as there was no change in the charitable purpose while doing the activity of development by the assessee. It is part of development only which is the object of the assessee since the beginning. Thus, the CIT(A) was correct in partly allowing the appeal of the assessee.

• In Moradabad Development Authority vs. ACIT (Exemption) in ITA No. 4631 & 4632/Del/2017, dated 04.01.2018, it was held as follows:

"3. We have heard both the sides and gone through the relevant material on record. It is seen, as is evident from para 4.1 of the impugned order itself, that the assessee was allowed exemption u/s. 11 of the by the Tribunal for the assessment years 2008-09 and 2009-10. It is an admitted position that the regular assessment for the assessment years 2010-11 and 2011-12 was not taken up and the claim for exemption u/s. 11 of the got automatically allowed. We have gone through the lead order passed by the Tribunal for the assessment year 2009-10, whose copy is available on page 75 of the paper book. In this order, the Tribunal considered the effect of proviso to section 2(15) and, thereafter, held that the activities of the assessee of construction and sale of plots were incidental to the main object of town planning and, hence, exemption u/s. 11 was to be granted. The said order of the Tribunal was challenged by the Department before the Hon'ble Allahabad High Court. Vide its judgment dated 03.05.2017, a copy of which is available on page 80 of the paper book, the Hon'ble Allahabad High Court dismissed the Revenue's appeal by following another judgment of the co-ordinate Bench in CIT vs. Yamuna Expressway Industrial Development Authority & Ors., in which similar questions were answered against the Revenue. A copy of the judgment of the Hon'ble jurisdictional High Court in the case of CIT vs. Yamuna Expressway Industrial Development Authority & Ors., is available on page 93 of the paper book. The Hon'ble High Court in its judgment has considered all the relevant aspects of the issue threadbare and, thereafter, decided similar issue against the Revenue.

4. It is, ergo, palpable that the assessee has been allowed exemption u/s. 11 of the consistently in the past, either by the AO himself or by virtue of the orders of the Tribunal as affirmed by the Hon'ble High Court. This settled position ought not to have been ordinarily disturbed."

• In New Okhla Industrial Development Authority vs. CIT 2016] 72 taxmann.com 151 (Delhi - Trib.), it was held as follows:

"22.1 Be that as it may, we have no hesitation to hold that the CIT(E) put cart before the horse by making enquiries regarding activities of the assessee and without giving heel of attention to the statutory provisions and act which created the existence of the assessee and without looking into the objects and financial resources, its application and utilization, further utilization of surplus and incidental profits, if any, and without verifying about the further diversion of funds in the case of dissolution of the authority by considering the relevant provisions of the act of UPIDA, 1976.

39. It will also be relevant to consider ratio of the decisions of Hon'ble High Court of Allahabad in the case of Lucknow Development Authority (supra) and order of theAT New Delhi in the case Haridwar Development Authority (supra) wherein it has been held that the assessee authority has been created with object of general public utility with the charitable objects within the meaning of section 2(15) of the Act, and thus the proviso of section 2(15) of theis not applicable because assessee authority is not carrying out any activity with any profit motive but predominant object of the assessee is the development of the specified area of the district by providing housing, roads, development and maintenance of roads, parks sewerage system and plantation of the specified area and all these activities are being carried out for the welfare of the pupil of the specified area with the charitable purposes for development of infrastructure facilities of general public utility without any profit motive therefore it was held that the predominant object of the authority created under UPUPDA Act, 1973, is not profit earning therefore it was held that it is entitled for registration of under section 12A of the. We further observed that the Ld. CIT DR has not disputed this factum that the provisions of UPUPDA, Act 1973 are pari materia to the provisions of UPIDA Act, 1976 and thus ratio of the decision of Hon'ble Jurisdictional High Court in the case of Lucknow Development Authority (supra) and order of the tribunal in the case of Haridwar Development Authority (supra) are applicable in favour of the assessee.

40. On the basis of forgoing discussion, we reach to a logical conclusion that the CIT(E) dismissed application of assessee for grant of registration under section 12A of the Act, by considering the irrelevant fact and by taking a hyper technical approach and he has not followed procedure for grant of registration as prescribed under section 12AA of the. At the same, we observed that the assessee successfully demonstrated that it has been created by the special act of the state i.e. UPIDA, 1976 for the purpose of the development of infrastructure of a specified industrial area with a predominant purpose of creating and developing facility for development of industries in the state and its legal existence is akin to a municipal corporation for development of facilities in the specified area which is a charitable activity for the welfare of public at large and thus the same is an activity of general public utility. We are satisfied that there is no prime object or aliment of earning profit as private developer or builder and activities acquiring of land and selling developed property is an incidental and profit earned therefrom has to be used towards objects of the assessee which are of charitable purposes and thus newly inserted proviso to section 2(15) of the Act, cannot be pressed into service for denial of registration under Section 12A of the."

He also relied on the following decisions:

• In CIT vs. Shri Balaji Samaj Vikas Samiti [2018] 403 ITR 398 (Allahabad), it was held as follows:

27. Merely because the State had itself not been able to cook and supply cooked food by way of mid-day-meals at it's schools and further because it out-sourced that part of the work, against consideration, it cannot be said that it transformed the activity into one in the nature of trade, commerce or business etc. Execution of a contract between two parties, in these facts cannot be decisive whether the activity itself was one purely in the nature of trade, commerce or business. What was more important is to examine whether assessee had engaged in an activity that was inseparably linked to and performed in continuation of the charitable scheme of the government.

28. The fact that some money had been paid by the State to the assessee was only a necessary expense at the hands of the State. Looking at the nature of expenses met by the assessee one cannot escape the conclusion that similar expenses would have been incurred by the State, had it performed that work itself or though it's own agencies.

29. Thus, at the hands of the assessee, the payments received were utilized to defray the expenses met to perform the task of cooking and supplying the meals as directed by the State government. It is also not the case of the revenue that the assessee was in any manner free to utilize either the materials supplied to it or food cooked by it, as per it's own wish/discretion. The assessee appears to have acted merely as an agent of the State.

30. Therefore, on the basis of findings recorded by the Tribunal and the material examined by the Commissioner it would be wrong to conclude that because there existed a contract between the assessee & the government therefore the assessee was not pursuing a "charitable purpose". On the other hand the activity performed by the assessee clearly appears to be inseparably linked to the 'charitable purpose' of providing mid-day meals at village schools. Also, admittedly, the total receipts of the assessee were below the limit of Rs. 10,00,000/- as stipulated under the second proviso to Section 2(15) of the.

31. In that view of the matter, the Tribunal has rightly concluded that the restriction created by the first proviso to Section 2(15) of thedid not operate against the assessee and therefore the activity of the assessee, even though it may have involved an activity in the nature of trade, commerce or business, etc., it would fall within the ambit of general public utility and therefore be a charitable purpose under Section 2(15) of the.

32. Accordingly, he answered question Nos. 1, 2 & 4 raised in this appeal thus: In view of the fact the assessee was engaged solely to implement the welfare scheme of the state government to provide mid-day-meals to students at its various village schools, it was rightly held to be engaged in an activity of general public utility. Alternatively, if it be assumed that in that process the assessee engaged in an activity in the nature of trade, commerce or business, etc, then, because the receipts from such activity were below Rs. 10,00,000/-, the assessee was still entitled to registration under Section 12AA(1)(b)(ii) of the."

• In NEIA Trust vs. JDIT (E)  [2019] 104 taxmann.com 16 (Mumbai - Trib.), it was held as follows:

6................ The Trust is sponsored and the nature of activities of the trust is to provide credit insurance cover to Indian Exporters keeping in view of the national interest. The Trust is sponsored by Govt., of India with the objective to promote exports, improve competitiveness of Indian exports and to implement schemes formulated by the Govt., of India for the benefits of medium and long term exporters in national interest. Certainly, none of the above objectives are tainted with motive of trade, commerce or business as Govt., of India is not into business of providing Credit Insurance. Wherever, it has intended to do so, it has been done through Corporate structure e.g. ECGC of India Ltd. (Export Credit Guarantee Corporation) which does the credit insurance activity on commercial basis with Govt., of India as the sole shareholder with a premium and other income of Rs. 1020 crores (appx) and a net surplus of Rs. 171 (approx) for FY 2012-13. On the basis of the above, NEIA's activity cannot and should not be considered to be in nature of trade, commerce or business.

7. The Trust scope of activity is primarily to implement schemes formulated by Govt. of India. Ministry of Commerce, Govt., of India, is the settler of the Trust and the Trust is not empowered to carry out any other activity.

• In ITO vs. Data Security Council of India [2017] 82 taxmann.com 281 (Delhi - Trib.), it was held as follows:

(A) The main objects of the assessee includes:-

(1) To promote, encourage, support data protection and information security, maintenance of data privacy of any kind in India carrying out research, dissemination of information, setting of standards, for members providing education, training, conducting meetings, seminars, workshops, conferences interacting with government or non-government bodies, agencies, companies or any other person, taking appropriate legal or any other action by itself or on behalf of its members.

(2) No objects of the company will be carried by the company without obtaining prior approval/no objection certificate from concern authority (if any).

3............ He noted that during the year under consideration, the assessee had received income under the following heads:--

Sl.No.	Heads	Amount (in Rs.)
1	Donation	2,00,00,000
2	Grants Apportioned	1,21,87,672
3	Participation Fees	3,86,799
4	Membership Fees	6,81,250
5	Sponsorship Fees	1,03,90,522
6	Interest from bank and on refund	1,60,223

14. I have considered the submissions of both the parties and perused the record of the case. The facts are not disputed. The activities undertaken by assessee are in the field of cyber security for increasing level of security and privacy of IT and BPO service providers in public life to ensure that India is secure destination. In the present day of technological advancement when the use of internet and other technological support services has immensely entered into day to day working of an individual where payments are made and amounts are received through internet, it is in the interest of all that the confidential data of every individual is fully secured. It cannot be denied that the potential of cyber threats is increasingly recognized in every walk of life because of increased use of internet in various utility services like transport, telephone, electricity, water, etc. Therefore, the potential of cyber threats is increasingly recognized for their impact on the lives of individuals, as attacks are increasingly targeting critical infrastructure like, utilities, transport, oil and energy and hence the ability to disturb social harmony and interactions, urge to cause unrecoverable damages to businesses and ability to harm national security posture. Admittedly, the assessee is imparting very valuable services in this regard and training officials of police, banking, and other personnel in technical field. The grants received by assessee are mainly from Government. One of the major objections of Assessing Officer was that assessee was imparting services to NOSSCOM. This objection is devoid of any merit because it is the predominant object of assessee which is to be examined for deciding whether the assessee was carrying on charitable activities or not. The assessee was registered u/s. 25 of the Companies Act which clearly shows that it could not carry on any activities for profit purposes. It is well settled law that while carrying on pre-dominant objects, if the assessee is earning some incidental surplus that will not prejudice the assessee's claim of being charitable in nature. I, therefore, find no reason to interfere with the order of ld. CIT(A).

• In DCIT vs. India Olympic Association [2018] 96 taxmann.com 184 (Delhi - Trib), it was held that where assessee association was primarily engaged in promotion of sports in country, it would not lose its character of charitable purpose merely because some sponsorship was accepted from a private company in respect of Asian games and Youth Olympic games.

• In PCIT (Exemptions) vs. Animal Breeding Research Organisation (India)  [2018] 95 taxmann.com 226 (Gujarat), it was held that assessee-society, established with a view to undertake and promote activities connected with development of cattle and buffaloes being covered by section 2(15), income earned by it from sale of semen was eligible for exemption

4.62 It is submitted that Courts in several cases have held that even the cricket association are not carrying on activities in the nature of trade, commerce or business, hence not hit by proviso to section 2(15). It is submitted that where Courts have taken a view that the activities carried on by the cricket association are not in the nature of trade, commerce or business, in no manner the activities of the Assessee could be regarded to be in the nature of trade, commerce or business. The following are such cases;

• Gujarat Cricket Association  (2019) 419 ITR 561 Gujarat HC;

• Tamil Nadu Cricket Association vs. DIT (Exemptions) and others  [2014] 360 ITR 633 (Mad.-HC);

• Mumbai Cricket Association vs. Addl. DIT 2018-TIOL-632-ITAT-MUM;

• Rajasthan Cricket Association  [2017] 164 ITD 212 (Jaipur - Trib.);

• DCIT (Exemptions) vs. Andhra Cricket Association (ACA) : 2019-TIOL-400-ITAT-VIZAG;

4.63 As regards our reply to certain observation made by the Learned Assessing Officer: (For the AY 2013-14)

4.63.1 It is submitted that Learned Assessing Officer has opined that the Assessee is involved in the construction of roads, bridges, culverts, repair work which is akin to work carried out by private contractor. However, the Learned Assessing Officer failed to appreciate the following points which differentiates the Assessee from private contractor:

• Activities of the Assessee are not run on the commercial lines or in the nature of trade, business or commerce;

• The project is approved by KARNIK only after confirmation of the technologies adopted and on estimation for savings sought to be achieved.

• The Assessee is a State Agency established under Building Center Movement to bring 'affordable housing' by adopting low cost technology, environmental friendly, pre-cast technologies etc. to cope up with the ever-growing need of shelter of the teeming population, particularly economically weaker sections of the society. The objectives of the Assessee are State driven. There is no intention to carry out activities for profit.

• The Assessee is constituted by Ex-Officio members who hold office by virtue of office held by them in the capacity of Public Authorities. Therefore, their tenure as member of the Board of the Assessee runs parallel with the office held by them in the capacity of Public Authorities. Therefore, the Board is an extension of State. The question of private gain does not arise.

• The Assessee is the projection of the State Government. It is further controlled by Department of Housing & Urban Development of Government of Karnataka through its wing Karnataka Rajya Nirmana Kendra [KARNIK]. Projects are sanctioned by technical advisory committee and performance evaluations of projects are undertaken. KARNIK acts as whistle blower. The documentation of project work should consist of the details of work order, entrusting agency, estimated cost, actual expenditure, date of commencement, date of handing over, technology adopted, quality check certificates, stage wise photographs, savings achieved. There is no scope for misuse of public funds.

• Projects are allotted by KARNIK for promoting the objectives for which Assessee is set up. The primary objective of carrying out various civil works is for propagation of low-cost technology, environmental friendly, pre-cast technologies to general public and to develop skilled workforce and artisans to use such technologies in building/housing and allied activities. The activities are carried out to promote the objectives for which the Assessee is set up.

• The Assessee is a State under Article 12 as held in Waman Rao Deshpande vs. Chairmen, Nirmithi Kendra & Others, in WP No. 11674/2005 (S-DIS), dated 17.03.2010 and hence cannot be compared with a private contractor;

• The activity of infrastructure development - roads, museums, roads, water facilities, community asset buildings etc. squarely falls within the domain of List II of (State List) of Seventh Schedule of the Constitution of India.

• The Assessee does not have Capital funds of its own. The projects are undertaken based on advance granted by the Department of State Government.

• The Assessee does not have any discretion in fixing the price. The rates are prescribed by PWD or Engineering department, of Zilla Panchayath. The traits of free trade of fixation of price are absent.

• The Assessee does not have any discretion to utilize the funds.

• Any surplus generated is used for pursuing main objects.

• Services are not rendered to private individuals or commercial enterprises. The objective is to promote low cost technologies, environmental friendly, pre-cast technologies etc. and to reach public at large in order to gain their acceptability of these options for implementing in construction of buildings. The Assessee receives work order from department of State and not private people. The activities of the Assessee create balance between the objectives for which it is set up and judicial utilization of public funds by utilizing the low-cost technologies in creation of public assets.

• The private contractors can also take up the civil work which the Assessee does. However, it would not be possible to impose restrictions as to the price and technology to be used. It is not possible to exercise control over the materials, technologies and pricing mechanism of private contractors. The private contractors can be only induced to apply low cost technologies, the success of which goes to the Building Centers movement. The twin objective of application of low cost technology and complete price control is possible because Assessee is an extension of State agency.

• It is submitted that activities carried on by a body as per the initiative of the Government cannot be compared to a private contractor as held the case of KIADB (supra).

4.63.2 The Learned Assessing Officer also has opined that Assessee failed to furnish technologies innovation made by it. In this regard, he submitted as under:

• The various activities undertaken by the Assessee in furtherance to its objects can be seen in the activity book.

• Of the above, the activities tabulated in Sl. No. 1 in table in paragraph 4.6 clearly bring about the technological innovations with which the Assessee is associated.

• Even in its project works, the Assessee uses innovative techniques tabulated in Sl. No. 2 in table in paragraph 4.6.

4.63.3 It is submitted that Learned Assessing Officer has contended that Assessee has rendered service as VAT has been imposed. It is submitted that mere levy of VAT does not make the Assessee's activities non charitable. As submitted earlier, section 2(6) of Karvat Act defines business as under:

4.63.3.1 As per Section 2(6) of the Karvat Act, the term "Business" is defined as follows:

(6) "Business" includes.-

a. any trade, commerce, manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on in furtherance of gain or profit and whether or not any gain or profit accrues therefrom; and

b. any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern.

4.63.3.2 The definition of "business" given in section 2(5A) of the KVAT Act even without profit-motive is wide enough to include any trade, commerce or manufacture or any adventure. The context in which business is understood under the Income-tax Act is not the same as KVAT Act as explained in aforesaid paragraphs.

4.64 Therefore, it is submitted that the proviso to section 2(15) does not get attracted to the case of the Assessee.

5. As regards activities carried on by the Assessee falling within the domain of the State Government under List II (State List) of the Seventh Schedule of the Constitution of India and within Part IV of the Constitution, thereby the same cannot be regarded to be in the nature of trade, commerce or business or rendering any service in relation to any trade, commerce or business: [Ground Nos. 2.3 & 2.4]

5.1 It is submitted the Learned Commissioner (Appeals) has failed to appreciate that as the objects and activities of the Assessee fall within the domain of the State Government under List II (State List) of the Seventh Schedule of the Constitution of India, the same cannot be regarded to be in the nature of trade, commerce or business or rendering any service in relation to any trade, commerce or business.

5.2 A reference may be made to certain entries of List II (State List) of the Seventh Schedule of the Constitution of India, which are as follows:

5. Local government, that is to say, the constitution and powers of municipal corporations, improvement trusts, districts boards, mining settlement authorities and other local authorities for the purpose of local self-government or village administration.

6. Public health and sanitation; hospitals and dispensaries.

13. Communications, that is to say, roads, bridges, ferries, and other means of communication not specified in List I; municipal tramways; ropeways; inland waterways and traffic thereon subject to the provisions of List I and List III with regard to such waterways; vehicles other than mechanically propelled vehicles.

35. Works, lands and buildings vested in or in the possession of the State.

5.3 As submitted above "Housing for all" has been stressed as a priority area by the Indian government.

5.4 It is submitted that the human right to housing is the right to live in adequate shelter in security, peace, and dignity. The right to housing is not merely having a roof over one's head; rather, it requires an accessible habitable space that fulfills the basic needs of humans to personal space, security, adequate lighting and ventilation, safe infrastructure, protection from weather, and adequate location with regard to work and basic facilities - all at a reasonable cost. One of the significant problems of homelessness is lack of affordable housing.

5.5 It is submitted that it is necessary for the State to ensure that it provides facilities for affordable housing through promotion of low-cost techniques so that even economically weaker sections could afford construction of the houses. 'Housing for all' removes inequalities in status among citizens to considerable extent. The objective of the State to follow the "Principles of Directive Policy" in Part IV of Constitution of India, both in the matter of administration as well as making of laws.

5.6 Articles 36 & 37 read as follows:

36. In this Part, unless the context otherwise requires, "the State" has the same meaning as in Part III.

37. The provisions contained in this Part shall not be enforceable by any court, but the principles therein laid down are nevertheless fundamental in the governance of the country and it shall be the duty of the State to apply these principles in making laws.

5.7 The Article 38 reads as follows:

(1) The State shall strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic and political, shall inform all the institutions of the national life.

(2) The State shall, in particular, strive to minimise the inequalities in income, and endeavour to eliminate inequalities in status, facilities and opportunities, not only amongst individuals but also amongst groups of people residing in different areas or engaged in different vocations

5.8 The Assessee is an implementing agency of the State sector schemes in relation to carrying out of promotion of affordable housing technologies under the Chairmanship of Deputy Commissioner and the objectives are State driven.

5.9 It is submitted that "Principles of Directive Policy" aims towards "Welfare State". It is for the State to make effective provision for securing the right to work, housing etc. The Court is required to interpret a statute so as to advance the object underlying. It is the responsibility of the State to provide not only a sufficient number of institutes, but the staff, adequate and qualified, to run the institute, of course, within the limits of its economic capacity and development. It is in this context the Assessee was set up by the State.

5.10 It is submitted that the activity of infrastructure development carried out by Assessee vis-a-vis. roads, bridges, culverts, drainage, digging open well, electrification, cultural auditorium, repair work in government schools and colleges, playground for schools and colleges, drinking water facilities, development work of anganwadi, art gallery, auditorium for government schools and colleges, construction of public community bhavan, Toilets and Bathrooms, borewell, employee quarters, dormitory, Interior work of Panchayat, rain water harvesting, public community hall squarely fall within the domain of List II of (State List) of Seventh Schedule of the Constitution of India.

5.11 It is submitted that as per Article 243G of the Constitution of India, State has the authority to delegate the powers and authorities as may be necessary to Panchayats at appropriate level to enable them to function as institutions of self-government and to plan and implement schemes for economic development and social justice, including those in relation to matters listed in the Eleventh Schedule.

5.12 It is submitted that as per Article 243W of the Constitution of India, State has the authority to delegate the powers and authorities as may be necessary to Municipalities to enable them to function as institutions of self-government and to plan and implement schemes for economic development and social justice, including those in relation to matters listed in the Twelfth Schedule.

5.13 It is submitted that within the Constitutional framework, local government is a State subject and States Legislatures pass legislations suitable in their context.

5.14 The functions of self-government and schemes for economic development and social justice included in the Eleventh Schedule to Constitution are as under:

1. Agriculture, including agricultural extension.

2. Land improvement, implementation of land reforms, land consolidation and soil conservation.

3. Minor irrigation, water management and watershed development.

4. Animal husbandry, dairying and poultry.

5. Fisheries.

6. Social forestry and farm forestry.

7. Minor forest produce.

8. Small scale industries, including food processing industries.

9. Khadi, village and cottage industries.

10. Rural housing.

11. Drinking water.

12. Fuel and fodder.

13. Roads, culverts, bridges, ferries, waterways and other means of communication.

14. Rural electrification, including distribution of electricity.

15. Non-conventional energy sources.

16. Poverty alleviation programme.

17. Education, including primary and secondary schools.

18. Technical training and vocational education.

19. Adult and non-formal education.

20. Libraries.

21. Cultural activities.

22. Markets and fairs.

23. Health and sanitation, including hospitals, primary health centres and dispensaries.

24. Family welfare.

25. Women and child development.

26. Social welfare, including welfare of the handicapped and mentally retarded.

27. Welfare of the weaker sections, and in particular, of the Scheduled Castes and the Scheduled Tribes.

28. Public distribution system.

29. Maintenance of community assets.

5.15 The functions of self-government and schemes for economic development and social justice included in the Twelfth Schedule to Constitution are as under:

1. Urban planning including town planning.

2. Regulation of land-use and construction of buildings.

3. Planning for economic and social development.

4. Roads and bridges.

5. Water supply for domestic, industrial and commercial purposes.

6. Public health, sanitation conservancy and solid waste management.

7. Fire services.

8. Urban forestry, protection of the environment and promotion of ecological aspects.

9. Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded.

10. Slum improvement and upgradation.

11. Urban poverty alleviation.

12. Provision of urban amenities and facilities such as parks, gardens, playgrounds.

13. Promotion of cultural, educational and aesthetic aspects.

14. Burials and burial grounds; cremations, cremation grounds; and electric crematoriums.

15. Cattle pounds; prevention of cruelty to animals.

16. Vital statistics including registration of births and deaths.

17. Public amenities including street lighting, parking lots, bus stops and public conveniences.

18. Regulation of slaughter houses and tanneries.

5.16 As submitted earlier, the Assessee is set up for propagation of low cost technology in entire spectrum of building in order to provide assistance to economically weaker sections to adopt such innovative technologies in construction of their houses which is otherwise the duty of the State to ensure housing for all.

5.17 These technologies have been adopted in carrying out incidental civil works results in skill upgradation and training to the artisans (masons, carpenters, bar-benders, plumbers, electricians, etc.) on innovative and cost-effective technology options. This has resulted in creation of skilled workforce, artisans who are now technically equipped to adopt these low-cost technologies in building houses. This has visible impact in improving standard of living of artisans.

5.18 As explained earlier, Assessee has fostered the development of construction of community asset buildings, roads, drinking water facilities, development of tribal colonies, development of parks, rain water harvesting, solarization works, rain water channel at road, digging work of public well, fly mast lightning system, erection of brass idol, public stadium, development work in sanctuaries.

5.19 It is submitted that in the Assessee carries out activities at the instance of Government Department and strictly at the prescribed rates fixed by PWD or Engineering department, of Zilla Panchayath as the case may be.

5.20 It is submitted that neither the State Government nor the Assessee engaged in fulfilling the obligations of the State Government under the Constitution of India can be said to be involved in carrying on any activity in the nature of trade commerce or business as envisaged in the proviso to section 2(15) of the.

5.21 As submitted earlier, the activities carried on by the Assessee are incidental to the attainment of primary/dominant objects of the Assessee and the same are as part of execution of social welfare programmes. The same cannot be said to be involved in carrying on any activity in the nature of trade commerce or business as envisaged in the proviso to section 2(15) of the.

5.22 In Bureau of Indian Standards vs. DGIT (E) [2013] 358 ITR 78 (Delhi), it was held as follows:

13. In view of the above discussion, it cannot be said that the BIS is involved in any carrying on trade, commerce or business. BIS is a statutory body established under the BIS Act and was brought into existence "for the harmonious development of the activities of standardisation, marking and quality certification of goods". This was, and has been, its primary and pre-dominant object. Even though it does take license fee for granting marks/certification, the same cannot be said to be done for the purpose of profit. If any profit/revenue is earned, it is purely incidental. The BIS performs sovereign and regulatory function, in its capacity of an instrumentality of the state. Therefore, this Court has no doubt in holding that it is not involved in carrying any activity in the nature of trade, commerce or business.

5.23 Therefore, the activities carried out by the Assessee are for the purposes of national importance which cannot be treated as activities in the nature of trade or commerce or business or any service in relation to any trade or commerce or business.

6. As regards the objectives of the Assessee fall within the ambit of "relief of the poor": {Ground No. 2.8}

6.1 Without prejudice to the above, it is submitted that the Learned Commissioner (Appeals) is not justified in upholding the action of the Learned Assessing Officer in denying exemption by invoking 1st proviso to section 2(15) of the IT Act, failing to appreciate that the objects of the Assessee fall within the ambit of "relief of the poor".

6.2 It is submitted that the phrase "relief of the poor" is not defined under the.

6.3 The phrase "relief of the poor" as explained by CBDT in Paragraph 2.2 of Circular No. 11/2008 : , dated 19.12.2008, reads as follows:

2.2. 'Relief of the poor' encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid.

..............

6.4 In Bangalore Development Authority (BDA) vs. Addln. CIT  (2019) 104 taxmann.com 266 (Bengaluru), it was held as follows:

5.9.1 The question of whether allotment of sites and flats to the economically weaker sections of society constitutes relief for the poor is perhaps a debatable issue. Relief for the poor does not necessarily mean giving something free of cost to the poor. It also includes providing them things at a concessional rate. The question that arises for consideration is which of those sections of society can be said to be 'poor' as per section 2(15) of the. Whether the word poor can mean only those who are below the official poverty line or does it include all those who are economically weaker, but not necessarily below the poverty line.

5.9.2 In this context, if one were to observe the activities of Educational and Medical institutions, which in the eyes of law, are considered as charitable institutions, it is not necessary that educational/medical assistance is to be given free only to those below the poverty line. It will suffice if education/medical assistance is provided at concessional rates. In fact, the Hon'ble Apex Court has laid down where different slabs of fee structure is approved for different categories/segments of students who are admitted. In fact, recently the Government of India too has declared reservation in government jobs in the country to all sections of the citizenry who are economically backward; i.e., to those whose family's annual income is less than 8 lakhs; which is a concession to people who are considered economically backward but not necessarily below the poverty line. In other words, it is not mandatory that 'poor' confines itself to those sections below the poverty line and that 'Relief means providing something free of cost. In this background, it could be said that the rules that govern the allotment of sites are so formed in order to facilitate the economically weaker sections of society to purchase these sites. In the case of construction of flats, it is clear from the very scheme and the name thereof, that these flats are meant only for the Economically Weaker Sections of society.

6.5 In Surat Urban Development Authority (SUDA) vs. DCIT (E) : [2020] 116 taxmann.com 242 (Ahmedabad - Trib.), it was held that the Authority takes over the new infrastructure developments, residential projects for people falling in low and middle income group. Since the assessee trust is engaged in providing easily affordable residence to low and middle income group, the same falls within the ambit of relief of poor.

6.6 In DCIT vs. A.P. State Civil Supplies Corporation Ltd., : [2016] 160 ITD 117 (Hyderabad - Trib.), it was held as follows:

11. The assessee was established with an object to ensure supply of food grains, edible oils, dall etc., to the masses/general public through the approved outlets by State Civil supplies department by grant of substantial subsidies given by the Govt., and is a Corporation governed and controlled by the Govt., of A.P. {then}. The main activities of the Corporation are purchase/procurement, storage and distribution essential commodities to the poor and needy people of the society in general. The Corporation is dealing in levy items like rice, edible oils, sugar etc. The Assessee Corporation has been carrying out its object of distribution of essential commodities to the people particularly to the poorer section of the society at lower prices with the support of subsidy being provided by the then Government of Andhra Pradesh. Without the subsidy the Corporation cannot survive. The sale price is less than the procurement price. This activity no way can be considered as trading activity. Whereas in the case of a trader or an ordinary business man sale price generally will be more than cost and there cannot be rate fixed by government. Therefore, calling the activities of the assessee in the nature of an 'ordinary business man does' is totally incorrect and without any evidentiary value.

Thus, the activities of the assessee are unlike an ordinary business man or trader but can be considered in the nature of relief to the poor and therefore "charitable" and eligible for exemption of income u/s. 11 of the.

6.7 In Centre For Rural Reconstruction vs. CIT : 2018-TIOL-122-ITAT-VIZAG it was held that micro finance activity of borrowing and lending, for purpose of providing relief to the poor people, comes within the purview of 'charitable activity'.

6.8 In the instant case, it is submitted that the Assessee is a State Agency established under Building Center Movement to bring 'affordable housing' by adopting low cost technology, environmental friendly, pre-cast technologies etc. to cope up with the ever-growing need of shelter of the teeming population, particularly economically weaker sections of the society.

6.9 Further, it is also submitted as under:

6.9.1 State level skill upgradation training program was conducted for masons at the Assessee's premises. Participants were benefited from various cost-effective, alternative and eco-friendly technologies; [Page 15 of theivity Book]

6.9.2 The Assessee went to rural areas and conducted skill development program in various grama panchayats for the local masons and other general public; [Page 12 of theivity Book]

6.9.3 State level skill upgradation training program was conducted for masons at the Assessee's premises. Participants were benefited from various cost-effective, alternative and eco-friendly technologies; [Page 15 of theivity Book]

6.10 Therefore, it is submitted that the objects of the Assessee fall within the scope of 'relief of the poor'.

7. As regards the monies received by the Assessee cannot be regarded as a cess or fee or any other consideration: [Ground No. 2.6]

7.1 It is submitted that the language used in proviso to section 2(15) is carrying on of 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, for a cess or fee or any other consideration.

7.2 As submitted earlier, the Assessee is a Government of Karnataka entrusted Kendra, set-up by KARNIK and was formed as an implementing agency of the State. The Assessee is functioning at the instructions of the State. It is also submitted that even the work executed is at instance of the State. It is submitted that complete functioning of the Assessee is under the control of the State.

7.3 It is submitted that when project is undertaken at the instance of government department, on-site inspection report would be prepared detailing the estimate for cost of work to be carried out. The Assessee has to take into consideration, the rates as prescribed by PWD or Engineering department, of Zilla Panchayath and in no case the same will be more than the standard rates prescribed by them. There is no freedom to fix the price.

7.4 The meaning of the term "Cess" as per Advanced Law Lexicon, 3rd Edition, authored by P. Ramanatha Aiyar, reads as follows:

• "Cess" is "An assessment; tax; levy; specifically; (a) A rate or local tax............(b) In Scotland, the land tax. (c) In India, a tax for a special object; as, a road cess'. (Webster)

• "Cess" defined. Burma Act II of 1880, S. 6 - The remuneration that is payable to the patwari or a lambardar does not fall under the head of cesses. AIR 1937 Nag 21.

• The word "cess" is used in Ireland and is still in use in India although the word rate has replaced it in England. It means a tax and is generally used when the levy is for some special administrative expense which the name (health cess, education cess, road cess, etc.) indicates. When levied as an increment to an existing tax, the name maters not for the validity of the cess must be judged of in the same way as the validity of the cess must be judged of the tax to which it is an increment - Guruswamy and Co. v. state of Mysore, AIR 1967 SC 1512, per dissenting judge and India cement Ltd. v. state of T.N.,  AIR 1990 SC 85.

• The word 'cess' has a definite legal connotation, indicating tax allocated to a particular thing, not forming part of the general fund. The word 'cess' is only tax and not a mere fee. It is not mere fee. It is not necessary for the purpose of levy of cess, there should be quid pro quo between the service actually rendered and the amount of tax levied, as it is not a fee but a tax - Shanmugha oil mill v. Coimbatore market committee,  AIR 1960 Mad 160, 164. [Constitution of India, Art. 277]

• A cess may either be a tax or a fee. In Entry 49, List 2 of the Government of India Act the expression 'cesses' is used in the sense of taxes'. Kunwar Ram Nath v. Municipal Board, Pilibhit, AIR 1983 SC 930, 934. [Constitution of India, List 2, Entry 53, Government of India Act, List 2, Entry 49]

• "cess" was termed as 'a tax levied for a specific purpose often with a prefixed word defining the object' - Gwalior Sugar Co. v. state of Madhya Bharat, AIR 1954 MB 196.

• A cess is a tax confined to a local area for a specific object or a particular purpose - Balaraju v. Hyderabad Municipality, AIR 1960 AP 234, 241.

• The word 'cess' means a tax and is generally used when the levy is for some special administrative expense which the name (health cess, education cess, road cess, etc.) indicates. Shinde Brothers v. Hy. Commissioner, Raichur,  AIR 1967 SC 1512, 1525. [Mysore Health cess Act (28 of 1962), S. 3] See also India cement Ltd. v. state of T.N.,  (1990) 1 SCC 12.

• A tax or rate. A great many miscellaneous cesses, imposts and charges were imposed under the Government of the Moghuls in addition to the land revenue both by the government and the zemindars. These have been either abolished or assimilated with the land revenue. The cesses abolished are called siwai (i.e. extras) or abwa or mathaut : S. 74 Bengal Tenancy Act 8 of 1885. Other cesses indirectly connected with the use of land and water and called sayar the landlord was allowed to retain: S. 3(4) Agra Tenancy Act, UP Act 3 of 1926. Such cesses were Banker or a tax on jungle products; and Juifar, a tax on fisheries; and Phulkar, a tax on fruits trees.

• An assessment, tax or levy. [S. 14(1), Cardamom Act (42 of 1965)]

7.5 Section 2(b) of Central Road Fund Act, 2000 (India) defines the term 'cess' meaning a duty in the nature of duty of excise and customs, imposed and collected on motor spirit commonly known as petrol and high speed diesel oil for the purposes of this Act.

7.6 Section 8 of Goods and Services Tax (Compensation to States) Act, 2017, defines the term 'cess' meaning the goods and services tax compensation cess levied.

7.7 In Vijayalashmi Rice Mill v. CTO : (2006) 6 SCC 763, it was held that 'cess' is also a tax, but is a special kind of tax. Generally tax raises revenue which can be used generally for any purpose by the State.

7.8 In State of W.B. v. Kesoram Industries Ltd.,  (2004) 10 SCC 201, it was held that the term cess is commonly employed to connote a tax with a purpose or a tax allocated to a particular thing suggested by the name of the cess, such as health cess, education cess, road cess etc. This is a well-settled position of law. However, it also means an assessment or levy. Depending on the context and purpose of levy, cess may not be a tax; it may be a fee or fee as well. It is not necessary that the services rendered from out of the fee collected should be directly in proportion with the amount of fee collected. It is equally not necessary that the services rendered by the fee collected should remain confined to the persons from whom the fee has been collected. Availability of indirect benefit and a general nexus between the persons bearing the burden of levy of fee and the services rendered out of the fee collected is enough to uphold the validity of the fee charged.

7.9 In Shinde Bros. v. Commr.,: AIR 1967 SC 1512 : (1967) 1 SCR 548, it was held that the word "cess" is used in Ireland and is still in use in India although the word rate has replaced it in England. It means a tax and is generally used when the levy is for some special administrative expense which the name (health cess, education cess, road cess etc.).

7.10 The meaning of the term "Fee" as per Advanced Law Lexicon, 3rd Edition, authored by P. Ramanatha Aiyar, reads as follows:

• Fees are payments primarily in the public interest but for some special service rendered or some special work done for the benefit of those from whom payments are demanded; the fees charged must be commensurate with the services rendered. The payments collected by way of fees must be specially appropriated for that purpose and must not be merged in the general revenue of the state.

• A fixed amount or a percentage of an underwriting or principal. (Water Law)

• FEES, are a charge or emolument, or compensation for particular acts or services; reward or compensation for services rendered or to be rendered, - a payment in money for official or professional services, whether the amount be optional or fixed by custom; compensation paid to professional men, as an attorney or physician; the reward or compensation allowed by law to an officer for specific services performed by him in the discharge of his official duties; frequently for services rendered in the progress of a cause, to be paid by the parties obtaining the benefit of the acts, or receiving the services, at whose instances they were performed. Sometimes the term may mean charges, and is often used in interchangeably with the term 'cost'.

• The word Tees' is used in connection with occupational charges for the occupation of the Municipal property and not in connection with any services that the municipality may render to the occupiers of its property - Nagapur Kshtriayaskhattik Samraj v. Corporation of the city of Nagpur,  AIR 1959 Bom 112, 120.

• A fee is levied essentially for services rendered and as such there is an element of quid pro quo between the person who pays the fee and the public authority which imposes it. Krishan puri v. state of Punjab, AIR 1980 SC 1008.

7.11 It is submitted that the monies received by the Assessee do not fall within the meaning of 'cess' or Tee'.

7.12 It is submitted that the phrase "any other consideration" is placed next to the terms 'cess' and 'fee', the same has to be interpreted by applying the principles of "Nositur a Sociis" and "ejusdem generis". It is submitted that the Nositur a Sociis means that when two words are capable of being analogously defined, then they take colour from each other. The term ejusdem generis is a facet of Nositur a Sociis. The aforesaid principle means that the general words following certain specific words would take colour from the specific words. Reliance is placed on the following decisions:

• State of Karnataka vs. Jyothi Gas (P) Ltd. [2010] 31 VST 289 (Karn) HC; [Paras 19 to 24]

• CIT vs. McDowell & Co. Ltd.  [2009] 180 Taxman 514 (SC); [Paras 10 to 17]

• Grasim Industries Ltd. vs. Collector of Customs, Bombay (2002) 128 STC 349 (SC); [Para 11]

• CIT vs. Shree Warna Sahakari Sakhar Karkhana Ltd., : (2002) 253 ITR 226 (Bombay); [Page 230]

7.13 It is submitted that applying the aforesaid principle of interpretation, the phrase "any other consideration" shall take the colour from the specific terms 'cess' and Tee'.

7.14 The activities listed in the first proviso fall into two limbs viz., "any activity in the nature of trade, commerce or business" and "any activity of rendering any service in relation to any trade, commerce or business". This is evident from the comma separating them. It is submitted that the words "for a cess or fee or any other consideration" will apply only to the second limb and not to the first limb. The cess and fee are associated with the service and not with trade, commerce or business. As submitted earlier, the words 'any other consideration' are to be understood in the light of meanings attributed to cess and fee on the basis of principle of ejusdem generis.

7.15 Further, the Assessee's project activities are carried out to Government departments. These Government departments are not into trade, commerce or business. Therefore, the consideration emanating from the project activities cannot be regarded as falling within the second limb of the first proviso.

8. As regards claim of the Assessee that it is eligible for exemption was accepted by the department in previous years: [Ground No. 2.7]

8.1 It is submitted that Assessee has been claiming exemption and the has been allowed by the department. It is submitted that the impugned AYs 2010-11 to 2013-14 is the first ever year the department denied exemption for the Assessee. It is also submitted that more particularly, even after the insertion of proviso by Finance Act 2008, the Assessee has been granted exemption under section 11 of the.

8.2 It is submitted that there has been no change in the circumstances in the impugned assessment year from that of the earlier AY 2009-10.

8.3 In this regard, he relied on the following decisions:

• Radhasoami Satsang vs. CIT : [1992] 193 ITR 321 (SC);

• CIT vs. Excel Industries and others [2013] 358 ITR 295 (SC);

• Berger Paints India Ltd. vs. CIT 2004] 187 CTR (SC) 193 : [2004] 266 ITR 99 (SC);

• PCIT vs. Maruti Suzuki India Ltd.,  [2019] 416 ITR 613 (SC);

• CIT vs. Sridev Enterprises  (1991) 192 ITR 165 (Kar.-HC);

• DIT (E) vs. Lovely Bal Shiksha Parishad [2004] 186 CTR (Del) 384 : [2004] 266 ITR 349 (Del);

• CIT vs. Leader Values Ltd. : [2008] 214 CTR (P & H) 429 : (2007) 295 ITR 273 (P & H);

• ITO vs. Moradabad Development Authority  [2017] 159 ITD 971 (Delhi - Trib);

• Delhi Bureau of Text Books vs. DIT 2017] 394 ITR 387 (Delhi);

• DIT (Exemptions) vs. Escorts Cardiac Diseases Hospital Society  [2008] 300 ITR 75 (Delhi);

• OTC Exchange of India vs. Asst. DIT (Exemption) [2017] 85 taxmann.com 329 (Mumbai - Trib.);

• DIT (Exemptions) vs. Dalmia Shiksha Prathishthan  [2008] 305 ITR 327 (Delhi);

6.2. On the contrary, Ld. D.R. submitted as follows:-

III. Applicability of Proviso to sec. 2(15) of the I.T. Act:

6.3. During the course of hearing on 24/5/2022, the ld. AR mentioned that since the Assessee has carried out the objects of the trust he is not hit by Proviso to Section 2(15) of theeven if he carries out other civil works. The Ld. AR is under the misconception that once the Trust carries out the Objects of the Trust, then it is eligible for deduction u/s. 11 of the for entire income even when it carries out other activities which are not as per the objects of the trust. This argument is not acceptable as it is totally against the law as provided by Proviso to Section 2(15) of the I.T. Act

For ready reference Section 2(15) is reproduced as under:

"(15) "Charitable Purpose" includes relief of the poor, education, yoga, medical relief [preservation of environment (including water-sheds, forests and wildlife) and preservation of moments or places or objects of artistic or historic interested and the advancement of any other object of general public utility:

[PROVIDED that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves carrying on of any activity in the nature of trade, commerce or business or any other activity of rendering any service in relationship to any trade, commerce or business for a cess or fee or any other consideration, irrespective of the nature of use or application or retention of income from such activity, unless-

(i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and

(ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year"

6.4. From the reading of the clauses to Proviso to sec. 2(15), of the it is clear that even if the trust or institution carries out certain activities in the nature of trade, commerce, business to promote the objects of trust, such quantum has to be less than 20% of total receipts. In the instant case, the assessee has not proved that the civil works that it executed were towards its objectives mentioned in the MOA. Therefore, the relaxation given under clause (i) to proviso is applicable in its case. Without prejudice, even if some works are carried out towards the objects of the assessee, the Ld. AR has not produced any facts and figures to show that such receipts did not exceed 20% of total receipts for the respective years. Therefore, the proviso to sec. 2(15) of I.T. Act is clearly applicable in his case.

6.5. Further, Assessee tried to argue that the civil works carried out by him are not commercial in nature by mentioning that they are fund-raising activities. Same is not acceptable as the nature of getting the contracts and its execution is like any other work contracts. Whatever the by-laws of the society speaks, it cannot surpass the provisions of the law. The activity has to be examined in the real sense to know the actual nature of the work and its execution. It is not relevant as to why the Assessee is carrying out such activity. The argument of the AR that the assessee is carrying out civil works for the purpose of fund raising is not relevant for deciding the nature of activity under taxation laws. In view of the above, the Assessee is clearly hit by Proviso to Section 2(15) of the I.T. Act.

6.6. According the Ld. D.R., the arguments of Ld. A.R. on general terms of the society without giving any specific evidence to prove his point. Therefore, it is requested that the Assessment Order may be upheld as the Assessing Officer has based his decision after examination of the works executed by the Assessee in the light of law and has rightly held that there is no charitable purpose carried out by the Assessee and the Assessee is hit by Proviso to Section 2(15) of the I.T. Act. Further the Assessee is not eligible for the relaxation provided under Clause (i) of Proviso to sec. 2(15) of the, as he has not satisfied the condition mentioned in Clause (ii) thereof.

6.7. In view of the above, Ld. D.R. prayed that the Assessment order may be upheld in the interest of Justice, fairness and Equity. Further, in support of his arguments, the following case laws are relied upon by the Ld. D.R.:-

7. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in the case of Zilla Nirmithi Kendra in ITA No. 2069/Bang/2018 dated 14.2.2022, wherein it was held as under:-

"13. The facts of the case which were identical to the facts of the assessee's case, the Tribunal had to examine claim for exemption under section 11 of the. The facts of the case were that the assessee received funds for undertaking construction projects of the State Government and these projects were undertaken by the assessee in a very systematic and organized manner. The nature of activities carried on by the assessee was carrying on 'advancement of any other object of general public utility'. The Tribunal held that when that is the case, the assessee is hit by the proviso to section 2(15). The proviso reads that 'advancement of any other object of general public utility' shall not be a charitable purpose, if its involving carrying on any activity in the nature of trade, commerce or business, or any activity of rendering any service relating to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the application of money. Therefore, the case of the assessee is hit by the proviso to section 2(15) and the assessee is not entitled for the benefit of section 11 on the income generated from such activities. The tribunal also held that alternatively, section 11(4A) is to be looked into. Sub-section (4A) provides that exemption shall not be applied in relation to any income of any trust or institution, being profits and gains of business, unless the business is incidental to attaining of the objectives of the assessee or as the case may be, institution, and books of account are maintained by such Trust or institution in respect of such business. The Tribunal found that during the assessment year under consideration, the assessee had undertaken construction activities as well as sale of material to the public out of the funds provided by MPs, MLAs and local bodies and maintained separate accounts for the above business activities. Now the question is whether carrying on of such activities is a business incidental to the advancement of any of the objects of the assessee or not. By any stretch of imagination, it is not possible to hold that the business carried on by the assessee is incidental to the objects mentioned in the Memorandum of Association. On the other hand, it is a pre-dominant activity carried on by the assessee. In other words, 'incidental' is an offshoot of the 'main activities', inherent bye-product of pre-dominant activities. The activities complementing the main activities are not in the nature of incidental to the business. It is incidental if it is supporting the activities to the main activities. The Tribunal held that the activities carried on by the assessee is itself principal activities and not incidental activities. Hence, it is not possible to hold that the construction activities carried out by the assessee is not protected by the provisions of section 11(4A), there is no merit in the argument of the assessee. The Tribunal held that the activities carried on by the assessee were not incidental to the attainment of the objects of the Trust. There is no connection between the activities relating to construction business and the attainment of the objects of the trust. The mere fact that whole or some part of the income from running of the construction business is used for charitable purposes would not render the business itself being considered as incidental to the attainment of the objects. The application of income generated by the business is not relevant consideration and what is relevant is whether the activity is so inextricably connected or linked with the objects of the trust that it could be considered as incidental to those objectives. It was contended by the assessee that the surplus funds generated from the construction business was spent towards charitable activities and therefore, the assessee is entitled for exemption under section 11(4). This contention is not acceptable. Initially, the assessee carried on the business itself which is not at all property held under trust. This activity is a business activity and the provisions of section 11(4A) is applicable. The tribunal held that there is no nexus between the activities carried on and the objects of the assessee that can constitute an activity incidental to the attainment of the objects, namely, to promote cause of charity, mission activities, welfare, employment, diffusion of useful knowledge, upliftment and education and to create an awareness of self-reliance among the members of the public etc. Being so, the assessee is not entitled for any exemption under section 11.

14. We have examined the facts of the assessee's case and find that the same is identical to the case decided by theAT, Cochin Bench. The ratio laid down in the aforesaid case therefore is squarely applicable to the facts of the assessee's case. Respectfully following the aforesaid decision, we uphold the order of the CIT(A) and find no grounds to interfere in the order of CIT(A).

15. In the result, appeal by the assessee is dismissed."

8. Further, similar issue came for consideration before Cochin Bench in the case of Nirmithi Kendra reported in74 ITD 177, wherein it was held as under:-

7. "We have heard the rival submissions and perused the record. The main objectives of the assessee for which the Trust was formed are as follows:

1. To serve as seminal agency to generate and propagate innovative ideas on housing.

2. A production centre to prefabricate standardized housing materials including rubble filler blocks, hollow bricks, sanitary wares, electrical fittings, tiles, allied house materials, etc.

3. A nodal agency to serve as a catalyst in the field of housing ensuring horizontal co-ordination in implementation of housing programmes.

4. A chain for retail outlets of housing materials, and such other objectives.

7.1 During the year under consideration, the assessee had undertaken construction activities as well as sale of materials to the public. In the account statements submitted by the assessee, it was found that the assessee is engaged in executing various construction projects which include:

1. General projects

2. MPLADS projects and

3. ML A projects.

1. Under the General projects, the assessee is engaged in construction of Community hall, Kudumbasree Working Womens Hostel, toilet blocks, etc.

2. Under the MPLADS projects, the assessee is engaged in construction of Anganwadis, kitchen & dining hall, smart classrooms, school building, etc.

3. Under the MLA projects, the assessee is engaged in Anganwadis, Dispensaries, Library buildings, class rooms, etc.

The assessee received funds for undertaking these projects and these projects were undertaken by the assessee in a very systematic and organized manner.

7.2 The Ld. AR submitted that the Assessing Officer treated the income from activities undertaken by the assessee as taxable income by invoking the provisions of section 2(15) of the I.T. Act. According to the Ld. AR, none of the objectives of the assessee were carried on with any profit motive or involved in activities in the nature of trade, commerce or business. According to the Ld. AR, the assessee had undertaken activities of the Government of Kerala so as to facilitate the implementation of the government projects at very lowest rate. The Ld. AR also contended that registration u/s. 12A of the was granted to the assessee and there has been no question of the assessee indulging in any trade or commercial activities. The objectives of the assessee are mainly to carry out charitable activities and not of general public utility. As such, the proviso of section 2(15) of thewas not applicable to the assessee was erroneous and beyond the intention of the legislation. The activities carried out by the assessee were for the purpose of attainment of the objectives of the assessee.

7.3 As per the provisions of Section 2(15) of the Income Tax Act, 1961, the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business or any activity or running services in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. Provided further, that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is Rs. 25 Lakhs or less in the previous year. Thus, provisions of sec. 2(15) are abundantly clear and does not require any interpretation.

7.4 The activities carried on by the present assessee cannot be considered as activities of medical relief or education or relief to the poor. The correct way to express the nature of activities carried on by the assessee is to say that the assessee is carrying on "advancement of any other object of general public utility". When that is the ease, the assessee is hit by the proviso to sec. 2(15) of the I.T. Act. The proviso reads that "advancement of any other object of general public utility" shall not be a charitable purpose, if its involving carrying on any activity in the nature of trade, commerce or business, or any activity of rendering any service relating to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the application of money. Therefore, we find that the case of the assessee is hit by the proviso to section 2(15) of the I.T. Act and the assessee is not entitled for the benefit of section 11 of theon the income generated from such activities.

7.5 Alternatively, we have to look into section 11(4A) of the. Sub-section (4A) provides that exemption shall not be applied in relation to any income of any Trust or institution, being profits and gains of business, unless the business is incidental to attaining of the objectives of the assessee or as the case may be, institution, and books of account are maintained by such Trust or institution in respect of such business. During the assessment year under consideration, the assessee had undertaken construction activities as well as sale of material to the public out of the funds provided by MPs, MLAs and local bodies and maintained separate accounts for the above business activities. Now the question is whether carrying on of such activities is a business incidental to the advancement of any of the objects of the assessee or not. By any stretch of imagination, it is not possible to hold that the business carried on by the assessee is incidental to the objects mentioned in the Memorandum of Association. On the other hand, it is a predominant activity carried on by the assessee. In other words, "incidental" is an offshoot of the "main activities", inherent bye-product of predominant activities. The activities complementing the main activities are not in the nature of incidental to the business. It is incidental if it is supporting the activities to the main activities. In the present case, the activities carried on by the assessed is itself principal activities and not incidental activities. Hence, it is not possible to hold that the construction activities carried out by the assessee is not protected by the provisions of section 11(4A) of the. In view of this, we do not find any merit in the argument of the Ld. AR. Thus, this ground of appeal of the assessee is dismissed.

8. We now proceed to consider the question whether the said activities carried on by the assessee were incidental to the attainment of the objects of the Trust. We fail to see any connection between the activities relating to construction business and the attainment of the objects of the trust. The mere fact that whole or some part of the income from running of is used for charitable purposes would not render the business itself being considered as incidental to the attainment of the objects. We are in agreement with the Department that the application of income generated by the business is not relevant consideration and what is relevant is whether the activity is so inextricably connected or linked with the objects of the trust that it could be considered as incidental to those objectives.

9. It was contended by the Ld. AR, that the surplus funds generated from the construction business was spent towards charitable activities and therefore, the assessee is entitled for exemption u/s. 11(4) of the. Act. 'We are unable to accept this, contention. Initially, the assessee carried on the business itself which is not at all property held under trust. This activity is a business activity and the provisions of section 11(4A) of theis applicable.

10. It was contended that if the profits of the business carried on by the trust are utilized by the trust for the purposes of achieving the objectives of the trust, then the business should be considered to be incidental to the attainment of the objects of the trust as observed by the Supreme Court in the case of Asstt. CIT v. Thanthi Trust  [2001] 247 ITR 785/115 Taxman 126 which is as under:

"As it stands, all that it requires for the business income of a trust or institution to be exempt is that the business should be incidental to the attainment of objectives of the trust or institution. A business whose income is utilized by the trust or the institution for the purposes of achieving the objectives of the trust. In any event, if there be any ambiguity in the language employed, the provision must be construed in a manner that benefits the assessee".

11. Prima facie the above observation would appear to support the assessee's case in the sense that even if is held not to constitute a business held under trust, but only as a business carried on by or on behalf of the trust, so long as the profits generated by it are applied for the charitable objects of the trust, the condition imposed u/s. 11(4A) of the should be held to be satisfied, entitling the trust to the tax exemption.

12. In our opinion, these observations have to be understood in the light of the facts before the Supreme Court in the case of Thanthi Trust (supra), wherein the trust carried on the business of a newspaper and that business itself was held under trust. The charitable object of the trust was the imparting of education which falls u/s. 2(15) of the. The newspaper business was incidental to the attainment of the object of the trust, namely that of imparting education and the profits of the newspaper business are utilized by the trust for achieving the object of imparting education. In this case, there is no such nexus between the activities carried on and the objects of the assessee that can constitute an activity incidental to the attainment of the objects, namely, to promote cause of charity, mission activities, welfare, employment, diffusion of useful knowledge, upliftment and education and to create an awareness of self-reliance among the members of the public etc. We are therefore, of the opinion that the observations of the Supreme Court must be understood and appreciated in the background of the fact in that case and should not be extended indiscriminately to all cases. Being so, we are inclined to hold that the assessee is not entitled for any exemption u/s. 11 of the I.T. Act.

13. In the result, the appeal of the assessee in ITA No. 45/Coch/2017 is dismissed."

9. In view of the above order of the Tribunal, taking a consistent view on the above issue, we dismiss this common main ground in all assessees' appeals.

10. With regard to common additional ground in all the appeals regarding failure of lower authorities to appreciate that the assessee being a State under Article 12 of the Constitution, is exempted from the levy of Union Tax under Article 289 of the Constitution, the Ld. A.R. submitted as follows:-

2. As regards the Assessee being State under Article 12 of the Constitution and thereby exempt from taxation under Article 289 of the Constitution: [Additional Ground No. 2.9]

2.1 Article 12 of the Constitution of India reads as under:

"In this Part, unless the context otherwise requires, "the State" includes the Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India."

2.2 Thus, the aforesaid Article defines the expression 'State' to include the Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India.

2.3 Articles 36 and 37 read as under:

36. In this Part, unless the context otherwise requires, "the State" has the same meaning as in Part III.

37. The provisions contained in this Part shall not be enforceable by any court, but the principles therein laid down are nevertheless fundamental in the governance of the country and it shall be the duty of the State to apply these principles in making laws.

2.4 It is submitted that it is fundamental in governance of the country and it is the duty of the State to incorporate the Directive Principles of State Policy while framing the laws.

2.5 It is submitted that as part of implementation of Directive Principles of State Policy the Assessee was setup.

2.6 In the following paragraphs he submitted about the history of formation of Assessee:

2.6.1 The Government of India has established Building Centers in each district under the 'National Network of Building Centers' in India.

2.6.2 The Government of Karnataka took a leading initiative to promote, monitor, oversee, guide the Nirmithi Kendras and Rural Building Centers in the State and established an apex center called "Karnataka Rajya Nirmana Kendra [KARNIK]". KARNIK is a registered society under Karnataka Society Registration Act, 1960 [KSR Act, 1960] which was established on 11.06.1991.

2.6.3 The Department of Housing is under the direct control of the Ministry of Works and Housing. At the State level the Department of Housing is the umbrella organization overseeing the activities Karnataka Rajya Nirmana Kendra [KARNIK].

2.6.4 KARNIK has established Nirmithi Kendras in each district in the State of Karnataka including Dakshina Kannada Nirmithi Kendra, the Assessee.

2.6.5 The Assessee's Governing Board is constituted by the following members:

• Chairman - The Chief Secretary, DKZP Mangalore

• Deputy Commissioner, DK Mangalore

• Executive Director HUDCO, Madras

• General Manager, DIC Mangalore

• Officer in charge, NBO (RHDC), Bangalore

• Project Manager, Nirmithi Kendra, Manipa

• Principal, K.R.E.C. Srinivasnagar, Surathkal

• Deputy Secretary, Development, DKZP Mangalore

• Assistant Commissioner, Condapur

• Executive Engineer, KHB, Mangalore

• Executive Engineer, ZP Engg. Division Udupi

• Executive Director, Dr. T.M.A. Pai Foundation Manipal

• Trustee, Dr. T.M.A. Pai Foundation Manipal

• A Professor in Civil Engg/Architecture of Civil Engg. Dept/Architecture Department M.I.T. Manipal

• Lead Bank (Syndicate Bank) District Manager, Mangalore

• Managing Director, SCDCC Bank Mangalore-3

• Chief Planning Officer, DKZP, Mangalore

• The Chief Officer, T.M.C. Udupi

• Secretary, Nirmithi Kendra

• Two representatives from the category of

• Individual members to be nominated by the Chairman

2.6.6 The Assessee's Board consists of officials, all of whom are government officials/Public Authorities. The term of the members of governing body is limited to 3 years. The member-Secretary shall be Ex-Officio Treasurer and will be appointed by Chairman in consultation with Nodal agency [i.e., KARNIK]. The aforesaid Public Authorities hold respective public offices and by virtue of which can, they hold office in the Governing Body. Therefore, their tenure as members of the Board runs parallel with the office held by them in the capacity of Public Authorities.

2.7 The functioning, administration & operation of the Assessee are as under:

2.7.1 The Assessee is set up for propagation of low-cost technology in entire spectrum of building/housing in order to provide assistance to economically weaker sections to adopt such innovative technologies in construction. This is otherwise the duty of the State to ensure housing for all.

2.7.2 The Assessee is a State Agency established under Building Center Movement to bring 'affordable housing' by adopting low-cost technology, environmental friendly, pre-cast technologies etc. to cope up with the ever-growing need of shelter of the teeming population, particularly economically weaker sections of the society. The objectives of the Assessee are State driven. There is no intention to carry out activities for profit.

2.7.3 The adoption of these technologies in carrying out various civil works results in skill upgradation and training to the artisans (masons, carpenters, bar-benders, plumbers, electricians, etc.) on innovative and cost-effective technology options. This has resulted in creation of skilled workforce, artisans who are now technically equipped to adopt these low-cost technologies in building houses. This has visible impact in improving standard of living of artisans.

2.7.4 As explained earlier, Assessee has fostered the development of construction of housing and community asset buildings, roads, drinking water facilities, development of tribal colonies, development of parks, rain water harvesting, solarization works, rain water channel at road, digging work of public well, fly mast lightning system, erection of brass idol, public stadium, and development work in sanctuaries.

2.7.5 Assessee is the projection of the State Government. It is further controlled by Department of Housing & Urban Development of Government of Karnataka through its wing Karnataka Rajya Nirmana Kendra [KARNIK].

2.7.6 Activities of the Assessee are not run on the commercial lines or are not in the nature of trade, business or commerce.

2.8 Housing is declared to be priority sector. The promotion of low-cost housing falls under the domain of "Principles of Directive Policy" in Part IV of Constitution of India. It shall be the duty of the State to follow the "Principles of Directive Policy" in Part IV of Constitution of India, both in the matter of administration as well as making of laws. It is aimed towards a "Welfare State". It is for the State to make effective provision for securing the right to work, housing etc. It is the responsibility of the State to provide not only a sufficient number of institutes, but the staff, adequate and qualified, to run the institute, of course, within the limits of its economic capacity and development. The object of the Assessee is propagation of low cost technology in entire spectrum of building/housing to provide assistance to economically weaker sections to adopt such innovative technologies. This is otherwise the duty of the State.

2.9 The objective is to promote low-cost technologies, environmental friendly, pre-cast technologies etc. and to reach public at large in order to gain their acceptability of these options for implementing in construction of houses.

2.10 The Assessee is an implementing agency of the State sector schemes in relation to carrying out of promotion of technologies for low cost construction of buildings under the Chairmanship of Deputy Commissioner and the objectives are State driven.

2.11 In substance, right from the birth (i.e. the creation or formation of the Assessee) till completion of works, everything is for the purpose of State. The Assessee is administered, controlled and monitored by the State.

2.12 The objects of the Assessee are not chosen by the Assessee but are completely guided by the Guidelines issued by Ministry of Urban Development, Government of India vide "National Network of Building Centres Guidelines, May 1993 (Reprint August 2000)".

2.13 In order to enable Nirmithi Kendras to raise resources for pursuing their main objects, the Department of Rural Development & Panchayath Raj for Government of Karnataka issued Directive dated 14.11.1995 by which Nirmithi Kendras would be entrusted with government infrastructure development work. KARNIK was entrusted with the objective of sanctioning the proposals to Nirmithi Kendras, which are required to be carried out using low-cost technology, environmental friendly and pre-cast technologies. The Copy of the directive dated 14.11.1995 is kept on record. In this regard, the following factors are relevant:

2.13.1 Projects are allotted by KARNIK for promoting the objectives for which Assessee is set up. The project is approved by KARNIK only after confirmation of the technologies adopted and on estimation for savings sought to be achieved through adoption of said technologies.

2.13.2 Projects are sanctioned by technical advisory committee and performance evaluations of projects are undertaken. The documentation of project work should consist of the details of work order, entrusting agency, estimated cost, actual expenditure, date of commencement, date of handing over, technology adopted, quality check certificates, stage wise photographs, savings achieved.

2.13.3 The works which are incidental to the primary objects undertaken by the Assessee are in the nature of infrastructure development viz., constructing or upkeeping of roads, museums, water facilities, community asset buildings etc. squarely falling within the domain of List II of (State List) of Seventh Schedule of the Constitution of India.

2.13.4 The Assessee does not have Capital funds of its own. The projects are undertaken based on advance granted by the Department of State Government.

2.13.5 The Assessee does not have any discretion in fixing the price. The rates are prescribed by PWD or Engineering department, of Zilla Panchayath. The traits of free trade of fixation of price are absent.

2.13.6 The Assessee does not have any discretion to utilize the funds.

2.13.7 Any surplus generated is used for pursuing main object.

2.13.8 Services are not rendered to private individuals or commercial enterprises.

2.13.9 The Assessee receives work order from department of State and not from private people. The activities of Assessee create balance between the objectives for which it is set up and judicial utilization of public funds by utilizing the low-cost technologies in creation of public assets.

2.13.10 The private contractors can also take up the civil work which the Assessee does. However, it would not be possible to impose restrictions as to the price and technology to be used. It is not possible to exercise control over the materials, technologies and pricing mechanism of private contractors. The private contractors can be only induced to apply low cost technologies, the success of which goes to the Building Centers movement. The twin objective of application of low cost technology and complete price control is possible because Assessee is mere an extension of State agency. Further, any surplus earned by the Assessee is used in pursuance of its main objects.

2.14 A reference may be made to the decision of the Honourable Supreme Court in the case of Air India Corporation v. Union of Labour [1997] 9 SCC 37 93, which refers to various other co-ordinate bench decisions, in respect of the meaning of 'State' in Article 12 of the Constitution of India:

2.14.1 Rajasthan SEB v. Mohan Lal 1967 SC 1857 SC:

(a) 'Other authority within the meaning of Article 12 of the Constitution need not necessarily be an authority to perform government functions.

(b) The expression 'other authority' is wide enough to include within it every authority created by a statue on which powers are conferred to carry out governmental functions or the functions under the control of the Government

(c) It is not necessary that some of the powers conferred be governmental sovereign functions to carry on commercial activities.

(d) Since the State is empowered under the Articles 19(1)(g) and 298 to carry on any trade or business, it was held that Rajasthan State Electricity Board was 'other authority' under Article 12 of the Constitution.

2.14.2 Sukhdev Singh v. Bhagatram : [1975] 1 SCC 421:

(a) The concept of State had undergone drastic change. It cannot be conceived of simply as cohesive machinery wielding the thunderbolt of authority.

(b) The State is a service corporation. It acts only through instrumentalities or agencies of natural and juridical person.

(c) There is distinction between State action and private action.

(d) There is nothing strange in the notion of the State acting through a corporation and making it an agency or instrumentality of the State with an advent of the welfare state.

2.14.3 Maneka Gandhi v. UOI  [1978] 1 SCC 248 referred in the decision of Ajay Hasia v. Khalid Mujib Sheravardi : [1981] 1 SCC 722:

(a) If the entire share capital of the corporation is held by the Government it would go to a long way towards indicating that the corporation is an instrumentality or agency or Government

(b) Where the financial assistance of the State is so much as to meet almost the entire expenditure of the corporation it would afford some indication of the corporation being impregnated with governmental character

(c) It must also be a relevant factor whether the corporation enjoys monopoly status which is State conferred or State protected

(d) Existence of deep and pervasive State control may afford an indication that the corporation is a State agency of instrumentality

(e) If the functions of the corporation are of public importance and closely related to governmental functions it would be a relevant factor in classifying the corporation as an instrumentality or agency of Government

(f) Specifically, if a department of Government is transferred to a corporation, it would be a strong factor supportive of the inference of the corporation being an instrumentality or agency of Government

2.15 From the principles held in above cases, the Supreme Court in the case of Air India Statutory Corporation (AISC) observed as under:

2.15.1 The constitution of the corporation or instrumentality or agency or corporation aggregate or corporation sole is not of sole material relevance to decide whether it is by or under the control of the appropriate Government under the

2.15.2 If it a statutory corporation, it is an instrumentality or agency of the State. If it is a company owned wholly or partially by a share capital, floated from public exchequer, it gives indication that it is controlled by or under the authority of the appropriate Government.

2.15.3 Even when a corporation established by or under the control of the appropriate Government having protection under Article 14 and 19(2), carries on commercial activities it is an instrumentality or agency of the State.

2.15.4 The State acts through its instrumentalities, agencies or persons - natural or juridical.

2.15.5 The governing power, wherever located, must be subject to the fundamental constitutional limitations and abide by the principles laid in the Directive Principles.

2.15.6 The framework of service regulations made in the appropriate rules or regulations should be consistent with and subject to the same public law, principles and limitations.

2.15.7 Though the instrumentality, agency or persons conduct commercial activities according to business principles and are separately accountable under their appropriate bye-laws or Memorandum of Association, they become the arms of the Government.

2.15.8 The existence of deep and pervasive State control depends upon the facts and circumstances in a given situation and in the altered situation it is not the sole criterion to decide whether the agency or instrumentality or persons is by or under the control of the appropriate Government.

2.15.9 Functions of an instrumentality, agency or persons are of public importance following public interest element.

2.15.10 The instrumentality, agency, or person must have an element of authority or ability to effect the relations with its employees or public by virtue of power vested in it by law, Memorandum of Association or by laws or Articles of Association.

2.15.11 The instrumentality, agency or person renders an element of public service and is accountable to health and strength of the workers, men and women, adequate means of livelihood, the security for payment of living wages, reasonable conditions of work, decent standard of living and opportunity to enjoy full leisure and social and cultural activities to workmen.

2.15.12 Every action of the public authority, agency or instrumentality or the person acting in public interest or any act that gives rise to public element should be guided by the public interest in exercise of public power or action hedged with public element and is open to challenge. It must meet the test of reasonableness, fairness and justness.

2.16 Thus, it is submitted that the Assessee falls under the expression 'other authority' as defined under Article 12 of the Constitution of India in as much as:

2.16.1 The Assessee is formed under the policy of Government of Karnataka;

2.16.2 The governing body of the Assessee comprises of employees of Government of Karnataka only;

2.16.3 The objectives of the Assessee are state driven;

2.16.4 The project works which are undertaken to raise fund to be deployed in pursuance of main objects are in the nature of infrastructure development for the public benefit;

2.16.5 The functioning of the Assessee is administered, controlled and monitored by the State;

2.17 From the above, it is submitted that the Assessee is formed under the policy of the Government of Karnataka and is under the control of Government of Karnataka. Therefore, the Assessee falls under the expression 'other authority' as defined under Article 12 of the Constitution of India. Hence, the Assessee is a 'State' as per Article 12 of the Constitution of India.

2.18 In Waman Rao Deshpande vs. Chairmen, Nirmithi Kendra & Others, in WP No. 11674/2005 (S-DIS), dated 17.03.2010, the Honourable Karnataka High Court has accepted the Nirmithi Kendra as a State and invoked Article 311 of the Constitution.

2.19 Certain observations of the Hon'ble Court are as follows:

1. The Petitioner was initially appointed as a Project Manager in the Nirmithi Kendra, Gulbarga, which is a society registered under the Societies of Registration Act, 1960 which is controlled by the State of Karnataka, Department of Housing and Development and it is a State under Article 12 of the Constitution of India.

2................. The said Kendra is controlled by the Chief Secretary of Zilla Panchayat in his ex-officio capacity and the Deputy Commissioner of District followed by six members as Executive Committee Members.

6..................Obviously this would be in violation of Article 311 of the Constitution of India. The law is settled in this regard. It is not really required for this order to be burdened with catena of decision propounding the proposition of law as envisaged under Article 311 of the Constitution of India. Since the impugned order of termination is without considering the reply to the second show cause notice, I am of the view that Annexure-'K' is liable to be quashed. Indeed the proceedings are required to commence from the date of the petitioner filing his reply to the second show cause notice. Needless to say that the first respondent is required to issue a notice to the petitioner before embarking upon the enquiry into the charges leveled against the petitioner. Indeed it is to be noticed that the Deputy Commissioner also acts as ex-officio Chairman of first respondent-Nirmithi Kendra.

2.20 Article 311(1) provides that no person who is a member of a civil service of the Union or an all-India service or a civil service of a State or holds a civil post under the Union or a State shall be dismissed or removed by an authority subordinate to that by which he was appointed. The Hon'ble Court in the above case not only stated that the Nirmithi Kendra is a State but also invoked Article 311 which would apply to any person employed by the State.

2.21 In Ajay Hasia v. Khalid Mujib Sheravardi [1981] 1 SCC 722, the Court observed as under:

(a) In the early days when the Government had limited functions, it could operate effectively through natural persons constitution its civil service and they were found adequate to discharge Government functions which were of traditional vintage.

(b) But as the tasks of the Government multiplied with the advent of the welfare State, it began to be increasingly felt that the framework of civil service was not sufficient to handle the new tasks which were often specialised and highly technical in character and which collated for flexibility of approach and quick decision making.

(c) The inadequacy of civil service to deal with these new problems came to be realised and it became necessary to forge new problems.

(d) It was in these circumstances and with a view to supplying this administrative need that the corporation came into being as the third arm of the Government and over the years it has been increasingly utilised by the Government for setting up and running public enterprises and carrying out other public functions.

(e) It is fundamental rights along with the directive principles constitute the life force of the Constitution and they must be quickened into effective action by meaningful and purposive interpretation.

(f) If a corporation is found to be a mere agency or surrogate of the Government, "in fact owned by the Government, in truth controlled by the Government and in effect an incarnation of the Government", the Court must not allow the enforcement of fundamental rights to be frustrated by taking the view that it is not the Government and therefore not subject to the constitution limitations.

2.22 In Sukhdev Singh v. Bhagatram [1975] 1 SCC 421, [5 Member Bench], the Honourable Supreme Court held as under:

(a) A company makes rules and regulations in accordance with the provisions of the Companies Act. A statutory body on the other hand makes rules and regulations by and under the powers conferred by the statutes creating such bodies.

(b) Regulations in Table-A of the Companies Act are to be adopted by a company. Such adoption is a statutory requirement.

(c) A company cannot come into existence unless it is incorporated in accordance with the provisions of the Companies Act. A company cannot exercise powers unless the company follows the statutory provisions. The provision in the Registration Act requires registration of instruments. The provisions in the Stamp Act contain provisions for stamping of documents. The non-compliance with statutory provisions will render a document to be of no effect.

(d) The source of the power for making rules and regulations in the case of corporation created by a statute is the statute itself.

(e) A company incorporated under the Companies Act is not created by the Companies Act but comes into existence in accordance with the provisions of the. It is not a statutory body because it is not created by the statute. It is a body created in accordance with the provisions of the statute.

2.23 In Pradeep Kumar Biswas vs. Indian Institute of Chemical Biology : (2002) 5 SCC 111 the question that arose before the Honourable Constitution Bench was whether CSIR falls under the expression 'State' as defined under Article 12. The Court observed the facts as under:

(a) CSIR was set up by the Department of Commerce, Government of India with the broad objective of promoting industrial growth in this Country;

(b) The Memorandum of Association of CSIR manifestly demonstrate that CSIR was set up in the national interest to further the economic welfare of the society by fostering planned industrial development in the country. Such a function is fundamental to the governance of the country as held in the case of Rajasthan Electricity Board (supra).

(c) Initial capital of Rs. 10 lakhs was made available by the Central Government. According to the statement handed up to the Court on behalf of CSIR the present financial position of CSIR is that at least 70% of the funds of CSIR are available from grants made by the Government of India.

(d) Apart from an internal audit, the accounts of the CSIR are required to be audited by the Controller and Auditor General and placed before the table of both houses of Parliament

2.24 In this context, the Honourable Constitution Bench [7 member], observed the following principles:

(a) The tests formulated in Ajay Hasia v. Khalid Mujib Sehravardi  : (1981) 1 SCC 722 are not a rigid set of principles so that if a body falls within any one of them it must, ex-hypothesis, be considered to be a State within the meaning of Article 12.

(b) The question in each case would be - whether in the light of the cumulative facts as established, the body is financially, functionally and administratively dominated by or under the control of the Government.

(c) Such control must be particular to the body in question and must be pervasive. If this is found, then the body is a State within Article 12. On the other hand, when the control is merely regulatory whether under statute or otherwise, it would not serve to make the body a State.

(d) Dr. B.R. Ambedkar explaining the scope of Article 12 and reason why this Article was placed in the Chapter on Fundamental Rights so spoke in the Constitution Assembly:

"The object of the fundamental rights is two-fold. First, that every citizen must be in a position to claim those rights. Secondly, they must be binding upon every authority I shall presently explain what the word 'authority' means upon every authority which has got either the power to make laws or the power to have discretion vested in it. Therefore, it quite clear that if the Fundamental Rights are to be clear, then they must be binding not only upon the Central Government, they must not only be binding upon the Provincial Government, they must not only be binding upon the Governments established in the Indian States, they must also be binding upon District Local Boards, Municipalities, even village panchayats and taluk boards, in fact, every authority which has been created by law and which has got certain power to make laws, to make laws, or make bye-laws."

(e) While defining the use of 'includes' suggests what follows is not exhaustive, the definition is expansive of the meaning of the term defined.

2.25 The Honourable Court applying the aforesaid principles to the facts of the case of CSIR held that the 'CSIR' is not 'State' on the following basis:

(a) The Government does not hold the entire share capital of CSIR.

(b) The Government funding is about 70% and grant by Government of India is one out of five categories of avenues to derive its funds.

(c) The receipts from other sources, monies received for specific projects and job work, assets of the society, gifts and donations are permissible sources of funding of CSIR without any prior permission/consent/sanction from the Government of India.

(d) Financial assistance from the Government does not meet almost all expenditure of the CSIR and apparently it fluctuates too depending upon variation from its own sources of income.

(e) There is no provision in the rules or the byelaws that the government can issue such directives as it deems necessary to CSIR and the latter is bound to carry out the same.

(f) The functions of the CSIR cannot be regarded as governmental or of essential public importance or closely related to governmental functions or being functions to the life of the people or duties and obligations to public at large.

(g) The functions of entrusted to CSIR can as well be carried out by any private person or organisation.

(h) CSIR is not the offspring or the blood and bones or the voice and hands of the government. The CSIR does not and cannot make law.

2.26 It is submitted that in the aforesaid case, though the Honourable Constitution Bench, held that CSIR is not a 'State', the observations and principles ruled therein would make the Assessee a 'State'.

2.27 The meaning of governmental functions as per Black's Law Dictionary is as under:

"The functions of a municipality which are essential to its existence, in the sense of serving the public at large, and are distinguished from those which are private, which are not necessary to its existence and which ensure to the advantage of its inhabitants. City of New Rochelle, Claimant, v. State 34 Misc. 2d 454, 228 N.Y.S. 2d 279, 282. Activities which are carried on by a city, pursuant to state requirement, in discharge of the state's obligation for the health, safety or general welfare of the public generally, or which are voluntarily assumed by city for the benefit of the public generally rather than for its own citizens, are performed in a governmental capacity and as a governmental function. Sarmiento v. City of Corpus Christi, Tex.Civ.App., 465 S.W. 2d 813, 816, 818."

2.28 The meaning of governmental functions as per Ramantha Aiyer's law lexicon is as under:

"A government agency's conduct that is expressly or impliedly mandated or authorized by constitution, statute, or other law and that is carried out for the benefit of the general public."

2.29 The meaning of sovereign functions as per Ramanathan Aiyer's law lexicon:

"Welfare measure also partake character of sovereign functions. Duty to provide telecommunication service is a sovereign function. Hence, it is not an industry. (Sub-Divisional Inspector of Post, Vaikari v. Theyyam Joseph,  AIR 1996 SC 1271). [Industrial Disputes Act (14 of 1947), S. 2(j)]"

2.30 In K.V. Panduranga Rao vs. Karnataka Dairy Development Corporation, it was held that the federation has undertaken and is exercising functions which were earlier discharged by the Government and which are public obligations of the State. Hence, the Federation as it is presently stands, is an agent and instrumentality of the State and is therefore a 'State' within the meaning of Article 12 of the Constitution.

2.31 From the above, it is submitted that the Assessee is carrying out governmental function. Therefore, the applicability of the definition of 'State' should not be restricted to Article 12 forming part of Part III of the Constitution of India.

2.32 Therefore, it is submitted that the Assessee falls within the expression 'local or other authority' under Article 12 of the Constitution of India. Hence, the Assessee to be regarded as a 'State' as per Article 12 of the Constitution of India.

2.33 Article 289(1) of the Constitution of India reads as follows:

The property and income of a State shall be exempt from Union taxation.

2.34 Thus, it is submitted that the Assessee being a State is exempted from levy of tax from Union Taxation.

2.35 Therefore, it is submitted that no income tax shall be levied on the Assessee.

10.1. The Ld. D.R. submitted as follows:-

Claim of being a State:

10.2. On verification of the submissions made by the ld. AR, it was noticed by AO that the Nirmithi Kendras are formed as per 'Centrally Sponsored Scheme for setting up of Building Centers'-Guidelines dated 12-08-1988 of Ministry of Urban Development, Government of India. Under the said guidelines KARNIC i.e. Karnataka Rajya Nirmithi Kendra was registered as a society under KSR Act, 1960, and the same was established in June 1991. Under such scheme, the Assessee Nirmithi Kendra was established. Totally there are about 30 Nirmithi Kendras in the state and KARNIC monitors and regulates the activities of these 30 district Nirmithi Kendras in Karnataka.

10.3. From the above, it is clear that it is a society and hence it is to be assessed as an AOP/Trust and not as a State. Further it is to be noted that the scheme envisages patronage of prominent local architects, engineers, entrepreneurs, industry associations and NGOs in providing greater status and popular acceptability of such bodies in the society (Ref: Para 5 in internal page 8 of Activity Book and Page 225 of the Paper Book dtd. 10-09-2020.) Further internal page 13 of theivity Book (Pg 230 of Paper Book) mentions about Role of State Governments and Agencies. It is clearly mentioned that the State Governments may consider taking up of certain supporting actions in the interest of achieving the technology transfer objectives of National Housing Policy i.e. From Lab to Land. Nowhere it is mentioned that the Nirmiti Kendra is established by the Statute and it functions like a State Department, to accept the contention of the assessee.

10.4. According to Ld. D.R., the ld. AR has not provided any specific evidence to show that the Assessee is a State. His arguments are based on theivity Book produced by him which mentions that it is established to forward the object of popularizing housing technology which was initiated by Ministry of Urban Development. The Governments promote and support various activities and certain kind of support will be provided to such entities to augment such objects of the Government. However, such entities/organizations/concerns cannot be termed State just because they are established to take forward certain projects of the government.

10.5. Regarding reliance placed by the ld. AR the Ld. D.R. submitted that the case law relied upon by the ld. AR cannot be considered as a precedent to hold that the Assessee is a State as the facts are totally different. The decision is on a different pretext. It cannot be applied to Taxation Law.

10.6. In view of above, it is clear that the assessee is not a State but it is registered as a Society and hence it is to be treated as an AOP or Trust for the purpose of Taxation.

10.7. We have heard the rival submissions and perused the materials available on record. The argument of the Ld. A.R. is totally misconceived. We have also gone through the Article 289 of the Constitution, which provides for exemption of property of income of a state from Union taxation. For clarity, we will mention the Article 289 of the Constitution, which reads as under:-

(1) "The property and income of a State shall be exempt from Union taxation.

(2) Nothing in clause (1) shall prevent the Union from imposing, or authorising the imposition of, any tax to such extent, if any, as Parliament may by law provide in respect of a trade or business of any kind carried on by, or on behalf of, the Government of a State, or any operations connected therewith, or any property used or occupied for the purposes of such trade or business, or any income accruing or arising in connection therewith.

(3) Nothing in clause (2) shall apply to any trade or business, or to any class of trade or business, which Parliament may by law declare to be incidental to the ordinary functions of government."

10.8. In the case of Adityapur Industrial Area Development Authority 153 Taxman 107, a similar question arose regarding interpretation of Article 289 of the Constitution of India, as well as Section 17 of the Bihar Industrial Area Development Authority Act, 1974. The Hon'ble Supreme Court at Paragraph Nos. 8 and 9 has dealt with this matter. It is appropriate to take note of the exact words used by the Hon'ble Supreme Court, which are as under:-

"8. A mere perusal of Article 289(1) discloses that a claim of exemption under it must proceed on the foundation that the exemption is claimed in respect of property and income of a State. Once it is held that the property and such extent as Parliament may by law provide, in respect of a trade or business of any kind carried on by, or on behalf of, the Government of a State, or any operation connected therewith. Thus, even the income of the State within the meaning of Clause (1) of Article 289 may be taxed by law made by the Parliament, if such income is derived from a trade or business of any kind carried on by or on behalf of the Government of a State or any operations connected therewith. Clause (1) of Article 289, therefore empowers Parliament to frame law imposing a tax on income of a State which is earned by means of trade or business of any kind carried by or on behalf of the State Government.

9. It is true, as submitted by Sri Venugopal, that Clause (2) of Article 289 empowers the Parliament to make a law imposing a tax on income earned only from trade or business of any kind carried by or on behalf of the State. It does not authorize the Parliament to impose a tax on the income of a State if such income is not earned in the manner contemplated by Clause (2) of Article 289. This, to our mind, does not answer the question which arises for our consideration in this appeal. Clause (2) of Article 289 presupposes that the income sought to be taxed by the Union is the income of the State, but the question to be answered at the threshold is whether in terms of Clause (I) of Article 289, the income of the assessee/Authority is the income of the State. Having regard to the provisions of the Bihar Industrial Areas Development Authority Act, 1974, particularly Section 17 thereof, we have no manner of doubt that the income of the assessee/Authority constituted under the said Act is its own income and that the assessee/Authority manages its own funds. It has its own assets and liabilities. It can sue or be sued in its own name. Even corporate, as distinct from the State. Section 17 of thefurther clarifies that only upon its dissolution its assets, funds and liabilities devolve upon the State Government. Necessarily therefore, before its dissolution, its assets, funds and liabilities are its own. It is, therefore, futile to contend that the income of the assessee/Authority is the income of State Government, even though the Authority is constituted under an Act enacted by the State Legislature by issuance of a Notification by the Government thereunder."

10. ..................................

11. It is further appropriate to take note of the exact words under by the Statute which was under consideration before the Hon'ble Supreme Court in the aforesaid reported case, i.e. Section 17 of the Bihar Industrial Area Development Authority Act, 1974. It reads as under:-

"17. When the State Government is satisfied that the purpose for which the Authority was established under this Act has been substantially achieved so as to render the continuance of the Authority unnecessary, the Government may by notification in the official Gazette, declare that the Authority shall be dissolved with effect from such date as may be specified in the notification and the authority shall be deemed to be dissolved accordingly from the said date and all the properties, funds and dues realizable by the authority alongwith its liabilities shall devolve upon the State."

10.9. Thus, in our opinion, the assessees Dakshina Kannada Nirmithi Kendra & Udupi Nirmithi Kendra are separate entities and distinct from state, having its own legal identity. It could sue or be sued in its own name. It has its own assets & liabilities. But only when the State Government decides that purpose of Nirmithi Kendra has been achieved and there is no need to continuation of this Nirmithi Kendra, then it may pass the order of dissolution of the same. In that event, the income, assets, liabilities of the Nirmithi Kendra will be vested with the State Government and not otherwise. Thus, it is apparent from the record that the Hon'ble Supreme Court has already dealt with this matter and we are completely agreeing with the argument of Ld. D.R. and the Article 289 of the Constitution cannot be applied to the assessee's case. Accordingly, this additional ground of the assessee is dismissed.

11. In the assessment year 2013-14 in ITA No. 2089/Bang/2018 the assessee has raised ground with regard to the depreciation.

11.1. In this regard assessee through his written submissions, submitted as follows:-

9. As regards depreciation denied on the basis that Assessee gained double benefit up to earlier assessment years: [Ground No. 3] [For the AY 2013-14]

9.1 It is submitted that the Learned Commissioner (Appeals) is not justified in denying depreciation to the extent of Rs. 2,34,685/- on the basis that the Assessee gained double benefit upto earlier AY 2012-13.

9.2 In CIT vs. Rajasthan & Gujarati Charitable Foundation Poona : [2018] 402 ITR 441 (SC), the Hon'ble Supreme Court held that depreciation is allowable as deduction even though expenditure incurred for acquisition of capital assets was treated as application of income for charitable purposes under section 11(1)(a). Further, it was held that it does not amount to giving double benefit to the assessee.

9.3 It is submitted that the Assessee relies on the below said decisions of various courts which reiterate that trust is eligible to claim depreciation on the basis of commercial principles:

• CIT vs. Society of the Sisters of St. Anne  : [1984] 146 ITR 28 (Kar.-HC);

• DDIT vs. Cutchi Memon Union,  [2013] 38 taxmann.com 276 (Bang.-ITAT). The above said decision was relied in the case of Karnataka State Muslim Federation vs. DIT 2013-TIOL-973-ITAT-Bang;

• CIT vs. Institute of Banking Personnel Selection (IBPS) : [2003] 264 ITR 110 (Bom.-HC);

• CIT vs. Shri Gujrati Samaj 2012] 204 Taxman 151 (MP) (Mag.);

• CIT vs. Sheth Manilal Ranchhoddas Vishram Bhavan Trust : [1992] 198 ITR 598 (Guj);

• CIT vs. Raipur Pallottine Society  [1989] 180 ITR 579 (MP);

• CIT vs. Tiny Tots Education Society : [2011] 330 ITR 21 (P & H);

• CIT vs. Desh Bhagat Memorial Education Trust  [2011] 200 Taxman 172 (P & H) (Mag.);

• G.K.R. Charities vs. DDIT  [2012] 51 SOT 538 (Chennai);

• DIT (Exemption) vs. G.K.R. Charities (2013) 214 Taxman 555 (Bombay);

9.4 The Learned Assessing Officer sought to rely on the decision of the Hon'ble Kerala High Court in Lissie Medical Institutions vs. CIT : [2012] 348 ITR 344 to deny depreciation on assets which have been claimed as application of income. The Hon'ble Kerala High Court had relied on the decision of the Hon'ble Supreme Court in Escorts Ltd. vs. UOI  (1993) 199 ITR 43 (SC). It is submitted that the ratio of the decision of Hon'ble Supreme Court in Escorts Ltd. vs. UOI : (1993) 199 ITR 43 (SC) is not applicable in the present context. The said decision has been distinguished in the below referred decisions:

• Karnataka Reddy Janasangha in ITA No. 220/Bang/2011, ITAT-Bangalore Bench;

• CIT vs. Market Committee, Pipli (2011) 330 ITR 16 (Punjab & Haryana) (HC);

9.5 Without prejudice to the above, it is submitted that the Finance (No. 2) Act, 2014 has amended section 11 by way of insertion of sub-section (6). Section 11(6) reads as under:

(6) In this section where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year.

9.6 The Circular No. 1/2015 : dated 21.01.2015 explains the rationale behind amendments made to the by the Finance (No. 2) Act, 2014. The relevant extract is as under:

7.5 The second issue which had arisen was that the existing scheme of section 11 as well as section 10(23C) of the Income-tax Act provided exemption in respect of income when it is applied to acquire a capital asset. Subsequently, while computing the income for purposes of these sections, notional deduction by way of depreciation etc. was being claimed and such amount of notional deduction was not being applied for charitable purpose. As a result, double benefit was being claimed by the trusts and institutions. Therefore, these provisions were required to be rationalised to ensure that double benefit is not claimed and such notional amount does not get excluded from the condition of application of income for charitable purpose.

7.5.1 Accordingly, the Income-tax Act has been amended to provide that under section 11 and section 10(23C), income for the purposes of its application shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under these sections in the same or any other previous year.

7.6 Applicability:-These amendments take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent assessment years.

9.7 The above would show that section 11(6) is effective from 01.04.2015 and applies to AY 2015-16 and subsequent assessment years. It is not applicable to assessment years commencing before 01.04.2015. Therefore, it is submitted that for the assessments years prior to and including AY 2013-14 the depreciation needs be allowed in respect of those assets, the acquisition of which has been claimed as application.

9.8 The Jurisdictional Karnataka High Court in the following cases, has held that section 11(6) is prospective and applicable to AY 2015-16 and subsequent assessment years:

• PCIT vs. Sri Sri Adichunchanagiri Shikshana Trust : [2016] 241 Taxman 289 (Karnataka);

• DIT (E) vs. Al-Ameen Charitable Fund Trust  [2016] 383 ITR 517 (Karnataka);

• CIT(E) vs. Bangalore Baptist Hospital Society [2016] 240 Taxman 567 (Karnataka);

9.9 Therefore, it is our submission that depreciation of Rs. 2,34,685/- to be allowed.

11.2. Ld. D.R. relied on the order of the lower authorities.

11.3. We have heard both the parties and perused the materials available on record. In our opinion, this issue squarely covered by the judgment of jurisdictional High Court in the case of DIT(E) Vs. Al-Ameen Charitable Fund Trust reported in  : 383 ITR 517 (Karnataka), wherein it was held as under:-

"Held accordingly, dismissing the appeals, that the arguments advanced by the Department apprehending double deduction was misconceived. Section 11(6) of thewas prospective in nature and operated with effect from April 1, 2015. The Appellate Tribunal was right in holding that depreciation was allowable under section 11 of theand that there was no double claim of capital expenditure."

11.4. Respectfully following the above judgment, we allow the ground taken by the assessee.

12. The next ground in ITA No. 2089/Bang/2018 for the AY 2013-14 is with regard to disallowance u/s. 43B of the. The AO disallowed an amount of Rs. 4,98,427/- in respect of expenditure claimed towards labour cess outstanding as on 31.3.2013.

12.1. Ld. A.R. submitted as follows:-

10. As regards disallowance of expenses claimed as labour cess under the provisions of section 43B of the: {Ground No. 4.1 & 4.2} [For the AY 2013-14]

10.1 It is submitted that assessee claimed deduction of labour cess amounting to Rs. 4,98,427/- which was incurred but outstanding as on 31.03.2013. The said liability was paid to the credit of Central Government on 21.03.2014.

10.2 It is submitted that Learned Assessing Officer denied expenses claimed towards labour cess outstanding as on 31.03.2013 by invoking the provisions of section 43B of the.

10.3 It is submitted that action of Learned Assessing Officer is wholly unjustified in law.

10.4 It is submitted that the lower authorities have failed to appreciate the difference between application of income and claim of expenditure.

10.5 It is submitted that the lower authorities have misdirected themselves between application of income and computation of income on commercial principles. There are 2 steps in computation of income in the case of a charitable trust. First, computation of income on commercial principles and second, application of income so computed.

10.6 The income of the trust is to be computed on commercial basis i.e. as per normal accounting. The normal accounting principles clearly provide for deduction of labour cess to arrive at income. The income so arrived at (after deducting the labour cess) is to be applied for charitable purpose. Deduction towards labour cess is a necessary concomitant of the process of computation of income. While computing income, deduction towards labour cess is a necessary charge applying commercial principles. The question of application of income arises only after the computation of income. The application of income is a necessary precondition for claiming exemption under section 11. Such application of income has got nothing to do with labour cess.

10.7 It is submitted that as the income for the purposes of section 11(1) has to be computed in normal commercial manner, the amount of labour cess debited in the books is deductible while computing such income and the same is accepted as per normal accounting principles.

10.8 It is submitted that even the Board has approved the commercial principle for determining the income derived from the trust and under such principle of accounting, the labour cess is a necessary outgoing. In this regard a reference is made to Board Circular No. 5-P (LXX-6) of 1968, dated 19.06.1968, the relevant extract reads as follows:

4. Where the trust derives income from house property interest on securities, capital gains, or other sources, the word "income" should be understood in its commercial sense, i.e., book income, after adding back any appropriations or applications thereof towards the purposes of the trust or otherwise, and also after adding back any debits made for capital expenditure incurred for the purposes of the trust or otherwise. It should be noted, in this connection, that the amounts so added back will become chargeable to tax under section 11(3) to the extent that they represent outgoings for purposes other than those of the trust. The amounts spent or applied for the purposes of the trust from out of the income, computed in the aforesaid manner, should be not less than 75 per cent of the latter, if the trust is to get the full benefit of the exemption under section 11(1).

10.9 He relied on the following decisions:

• CIT vs. Society of the Sisters of St. Anne : [1984] 146 ITR 28 (Kar.-HC);

• DDIT vs. Cutchi Memon Union,[2013] 38 taxmann.com 276 (Bang.-ITAT). The above said decision was relied in the case of Karnataka State Muslim Federation vs. DIT 2013-TIOL-973-ITAT-Bang;

• CIT vs. Institute of Banking Personnel Selection (IBPS)  [2003] 264 ITR 110 (Bom.-HC);

• CIT vs. Shri Gujrati Samaj,012] 204 Taxman 151 (MP) (Mag.);

10.10 It is submitted that provisions of section 11, 12 & 13 fall under Chapter III which deals with incomes which do not form part of total income subject to certain conditions. The provisions of section 43B fall under chapter IV-D which deals with computation of profits and gains from business or profession. The profits and gains from business or profession are computed under section 28. As per the provisions of section 29, income under the head profits and gains of business or profession is computed in accordance with the provisions of Section 28 to Section 43B. Therefore, the provisions of section 43B are relevant, if income is computed under the head profits and gains of business or profession and not under chapter III where the income is computed on commercial principles.

10.11 In CIT & another vs. Sri Adichunchanagiri Shikshana Trust ITA No. 209 of 2010/TS-56-HC-2019 (KAR), dated 07.01.2019, it was held that in respect of professional charges paid to doctors without deducting TDS, section 40(a)(ia) is not applicable.

10.12 In CIT vs. Rao Bahadur Calavala Cunnan Chetty Charities [1982] 135 ITR 485 (MAD.), it was held has follows:

"The Tribunal has in a way mixed up the notion of total income in understanding the expression "income from property held under trust". Section 14 occurs in the chapter "Computation of total income". It provides that all income for the purposes of charge of income-tax and computation of total income be classified under certain heads. Therefore, the computation under the different categories or heads arises only for the purposes of ascertaining the total income for the purposes of charge. Those provisions cannot be introduced to find out what the income derived from the property held under trust to be excluded from the total income is, for the purpose of the exemptions under Chap. III.

There is one further error in the order of the Tribunal. The Tribunal has proceeded on the basis that the receipts from rents amounting to Rs. 1,31,412 during the year ending with 31st of March, 1965, would have to be considered under the head "Income from house property" and the net income arrived at under that head. In the view that he explained above, the determination of the income as if the sum of Rs. 1,31,412 relates to house property and would, therefore, have to be considered in the context of the provisions of ss. 22 to 27, would not be correct. Those provisions enact certain technical rules for the purpose of the ascertainment of income for the particular head for purposes of charge and as seen already that cannot be imported into the determination of the income of the property held in trust for the purpose of s. 11 which excludes that income from the computation of total income. The view that he has taken above is also consistent with the circular of the Central Board of Direct Taxes dated 19th June, 1968, reproduced in V.S. Sundaram's Law of Income Tax in India, 11th Edn., p. 798.

The result is that the first question is answered as follows: The income from the properties held under trust would have to be arrived at in the normal commercial manner without reference to the provisions which are attracted by s. 14. Twenty-five percent, thereof will have to be ascertained and if the assessee had accumulated more than twenty-five per cent, then the consequences contemplated by s. 11 will follow. The remand made by the Tribunal will, therefore, have to stand and theO will compute the income in the light of the above."

10.13 In ITO vs. Mother Theresa Educational Society : [2016] 158 ITD 473 (Visakhapatnam - Trib.), it was held as follows:

"In the present case on hand, the income of the assessee is eligible for exemption under sec. 11 of the by virtue of registration under sec. 12A. The income of any trust/society, enjoying exemption u/s. 11, is exempt from tax, subject to certain conditions. If, such conditions are fulfilled, the whole income of such trust is exempt from tax. The concept of computation of income under section 11 is real income concept, which is computed on the principles of real income generated from property held under trust and not notional income like under other provisions of the. Section 11(1)(a) provides for application of income for charitable purpose, therefore, the question of application of income arise only when income is available for application. If any expenditure is disallowed by invoking the provisions of section 40(a)(ia) and 43B, it leads to a situation where assessee income available for application is enhanced without being any real income for application for charitable purpose, which leads to an absurd situation where the trusts/societies enjoying exemption u/s. 11 have to pay taxes. This is because, the assessee claiming exemption u/s. 11, shall apply 85% of income for the purpose of objects of the Trust. The legislature in its wisdom has kept separate provisions which are independent from any other provisions of the for computation of income of trusts claiming exemption u/s. 11 of the. Therefore, Ld. A.R. is of the opinion that, when income is computed under sec. 11 of the, the provisions of sec. 40(a)(ia) & 43B are not applicable."

10.14 In Maharashtra Academy of Engineering & Educational Research vs. DCIT  [2017] 88 taxmann.com 864 (Pune-Trib.), it was held as follows:

"161. Since in the instant case the Tribunal has restored the registration u/s. 12A to the assessee trust, therefore, the income in our opinion has to be computed u/s. 11. It has been held in various decisions that the income u/s. 11 has to be computed in a commercial manner and not as per the provisions of I.T. Act. The various heads of income u/s. 11 are not relevant in case of a charitable trust and therefore Ld. AR find merit in the argument of the Ld. Counsel for the assessee that while computing the income u/s. 11 the various disallowances/additions u/ss. 40A(3), 40A(7) and 43B etc. cannot be made u/s. 28 to 43.

162. Ld. AR find the Hon'ble Madras High Court in the case of Rao Bahadur Calavala Cunnan Chetty Charities (supra) has held that income for purposes of section 11(1)(a) has to be computed on normal commercial basis without reference to provisions attracted by section 14. The ground raised by the assessee on this issue for the respective assessment years under appeal are accordingly allowed.

10.15 Explanation 3 to section 11(1) as inserted by Finance Act, 2018 coming into effect from 01.04.2019 (i.e. AY 2019-20) provides that for the purposes of determining the amount of application under section 11(1)(a) or 11(1)(b), the provisions of sections 40(a)(ia) and 40A(3) and 40A(3A), shall, mutatis mutandis, apply as they apply in computing the income chargeable under the head "Profits and gains of business or profession. This provision does not relate to computation of income but only determination of amount of application. As held in CIT vs. Rajasthan And Gujarati Charitable Foundation  (2018) 402 ITR 441 (SC) there is a difference between computation of income and application of income.

10.16 Even otherwise, the aforesaid Explanation does not deal with section 43B. Further, the said Explanation is effective only from AY 2019-20 onwards. In this regard, He relied on the decision in CIT & another vs. Sri Adichunchanagiri Shikshana Trust ITA No. 209 of 2010/TS-56-HC-2019 (KAR), dated 07.01.2019."

12.2. The Ld. D.R. relied on the order of the lower authorities.

12.3. We have heard the rival submissions and perused the materials available on record. We have gone through the section 43B of the. As per this Act, certain payments could be claimed as expenses in the year in which they have been paid and not in the year in which the liability to pay such sum was incurred. In other words, certain statutory expenses are allowed to be claimed in the year of payment only. In the case of this payment of Rs. 4,98,427/-, it has not been paid within the due date of filing return of income and which was paid only on 21.3.2014 and the said payment cannot be allowed as in the assessment year under consideration. Accordingly, we dismiss this ground of the assessee in AY 2013-14. However, the assessee has liberty to claim on actual basis in the year in which it was paid.

13. The assessees have raised another additional ground in both assessees cases that activities carried out by the assessee were within the object clause mentioned in the Trust Deed and the department's case is that the assessee has not carried out any activity as envisaged in the objects of the MOA are perverse and contrary to the facts.

13.1. We have carefully gone through the activities carried on by the assessee along with object clause of the Trust Deed in the case of Dakshina Kannada Nirmithi Kendra. The object clause of the assessee is as under:-

1. Serve as a Seminal Agency to generate and propagate innovative ideas on housing

2. A cleaning house of information and data bank on housing which would bring the fruits of research from lab to land.

3. A training house to impact skills to local workmen in innovative housing technique and create of trained workers in all blocks in the district.

4. A nodal agency to serve as a catalyst in the field of housing ensuring horizontal co-ordination in implementation of housing programme.

5. An agency to arrange for financial assistance for house construction.

6. A forum to organize exhibitions seminars, orientation programmes, demonstration on housing and publish useful data and literature on housing and allied activities.

7. A Research and Development institution and a consultant in the field of housing.

8. Without prejudice to the generality of the above and for effectively carrying out these objectives the Kendra shall have power to acquire hold and receive property of any kind, including securities and negotiable instruments and maintain buildings including the right to alter and improve them and to equip them suitably to manage, sell transfer or otherwise dispose for deal with property of any kind belonging to the Kendra to enter into contracts for or in connection with any of the purpose of the Kendra and on its behalf to raise moneys and funds in such manner as may be deemed fit for on behalf of the Kendra and

9. To do all such things and to perform all such acts as may be necessary or appropriate for the achievement of any of all the above objects."

13.2. However, the assessee carried out the activities in the field of civil contract, where the assessee has undertaken following activities:-

1. Concretizing of Roads

2. Road repairs

3. Fixing of interlock blocks

4. Repairs to Footpath & Drainage

5. Building repairs

6. Tiles fixing

7. White Washing & colour painting

8. Construction of Compound wall

9. Blocked Drainage repairs

10. Construction of commercial buildings (Schools, Library, Commercial complex, etc)

11. Doing fencing work for forest department etc.

13.3. This is with reference to the Dakshina Kannada Nirmithi Kendra. Similar is the position with Udupi Nirmithi Kendra. As such, the AO in para 6.6 in the case of Udupi Nirmithi Kendra in AY 2016-17 observed as under:-

"6.6 In view of the above, it is proved without any shadow of doubt that the actual activities carried out by the assessee are in the nature of pure commercial activity carried out by any Contractor. The work/activity carried out by the assessee during the entire year can only be described as carrying out Civil Construction Work. If the assessee's contention of carrying on Charitable Activity on accounting of having built roads, nallas, commercial buildings is accepted just because it is funded out of MP/MLA Local development funds or any work allocated by a temple or department then every Civil Work Contractor would be entitled to claim that they are carrying out Charitable activities. As the activities carried out by the assesse'6-are clearly hit by the 1st Proviso to Clause (15) of Section 2 of the Income Tax Act, 1961, the assessee's claim for deduction U/s. 11 is hereby rejected as per the provisions of Section 13(8) r.w.s. 2(15) of the Income Tax Act, 1961."

13.4. Similar observation has been in the case of Dakshina Kannada Nirmithi Kendra for the AY 2016-17.

13.5. Being so, we do not find any infirmity in the order of the lower authorities in observing that the assessees' herein carried out activities not in accordance with the object clauses mentioned in Trust Deed. Accordingly, this additional grounds in both cases are also dismissed.

14. In view of the above order of the Tribunal, taking a consistent view on the above issues, we dismiss all the grounds of the assessees' appeal in all assessees' appeals except in ITA No. 2089/Bang/2018 for the AY 2013-14, which is partly allowed.

15. In the result, all appeals filed by the assessees in all the assessees' appeals are dismissed except for assessment year 2013-14 in ITA No. 2089/Bang/2018, the assessee's appeal is partly allowed.