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2017 (5) TMI 1468 - HC - Income TaxEntitlment to deduction claimed under Section 11 - whether the activities of assessee cannot be said to be for charitable purpose within the definition of Section 2(15)? - Held that - assessee is a statutory body Urban Development Authority constituted under the provisions of the Act, constituted to carry out the object and purpose of Town Planning Act and collects regulatory fees for the object of the Acts; no services are rendered to any particular trade, commerce or business; whatever the income is earned / received by the assessee even while selling the plots (to the extent of 15% of the total area covered under the Town Planning Scheme) is required to be used only for the purpose to carry out the object and purpose of Town Planning Act and to meet with expenditure while providing general utility service to the public such as electricity, road, drainage, water etc. and even the entire control is with State Government and even accounts are also subjected to audit and there is no element of profiteering at all, the activities of the assessee cannot be said to be in the nature of trade, commerce and business The object and purpose for which the assessee is established / constituted under the provisions of the Gujarat Town Planning Act and collection of fees and cess is incidental to the object and purpose of the Act, even the case would not fall under second part of proviso to Section 2(15) of the Act. Considering all we are of opinion that Tribunal has committed a grave error in holding the activities of the assessee in the nature of trade, commerce or business and consequently holding that the proviso to Section 2(15) of the Act shall be applicable and therefore, the assessee is not entitled to exemption under Section 11 of the Act. For the reasons stated above, it is held that the proviso to Section 2(15) of the Act shall not be applicable so far as assessee-AUDA is concerned and as the activities of the assessee can be said to be providing general public utility services, the assessee is entitled to exemption under Section 11 of the Act. Both the questions are therefore, answered in favour of the assessee and against the revenue.
Issues Involved:
1. Whether the activities of the appellant were in the nature of trade, commerce, or business and hence cannot be regarded as activities for charitable purposes under Section 2(15) of the Income Tax Act, 1961. 2. Whether the appellant is entitled to exemption under Section 11 of the Income Tax Act, 1961, and if their income should be assessed under Sections 28 to 44 of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Nature of Activities - Trade, Commerce, or Business: The court examined whether the activities of the Ahmedabad Urban Development Authority (AUDA) could be classified as trade, commerce, or business. The AUDA was constituted under the Gujarat Town Planning and Urban Development Act, 1976, to undertake urban development. The activities of AUDA include preparing development plans, executing town planning schemes, carrying out surveys, guiding local authorities, controlling development activities, executing works for water supply and sewerage, managing property, entering into contracts, and other related functions. The court noted that AUDA's activities are statutory and aimed at public utility. The income generated from selling plots (up to 15% of the total area) is used for urban development purposes such as roads, drainage, lighting, and water supply. The sale of plots by public auction ensures transparency and maximizes revenue for development activities. The court emphasized that these activities are not profit-driven but are meant to fulfill statutory duties and public utility objectives. The court referred to various judgments, including the Supreme Court's decision in Ahmedabad Green Belt Khedut Mandal, which held that the sale of land by urban development authorities to meet development costs does not amount to profiteering. The court also cited decisions from the Delhi High Court and other High Courts, which clarified that activities primarily aimed at public utility and not driven by profit motives do not fall under the definition of trade, commerce, or business. 2. Entitlement to Exemption under Section 11: The court considered whether AUDA is entitled to exemption under Section 11 of the Income Tax Act, which provides tax exemption to entities engaged in charitable activities. The court reiterated that AUDA's activities are statutory and aimed at public utility, which qualifies as charitable purposes under Section 2(15) of the Act. The court referred to the CBDT Circular No. 11 of 2008, which clarified that the proviso to Section 2(15) is intended to exclude entities engaged in commercial activities under the guise of public utility. The court noted that AUDA's activities are genuine public utility services and not commercial activities. The court also cited the Allahabad High Court's decision in Lucknow Development Authority and the Rajasthan High Court's decision in Jodhpur Development Authority, which held that urban development authorities' activities are charitable and not in the nature of trade, commerce, or business. The court concluded that AUDA's activities are not in the nature of trade, commerce, or business, and the proviso to Section 2(15) does not apply. Therefore, AUDA is entitled to exemption under Section 11 of the Income Tax Act. Conclusion: The court quashed the orders of the Income Tax Appellate Tribunal (ITAT) that denied AUDA the exemption under Section 11. The court held that AUDA's activities are for public utility and not for profit, and therefore, AUDA qualifies for tax exemption under Section 11 of the Income Tax Act. The appeals were allowed, and the questions of law were answered in favor of AUDA and against the revenue.
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