2019 (4) TMI 1800 - AT - Income Tax

Exemption u/s 11 and 12 - Charitable activity u/s 2(15) - HELD THAT - Activities carried out by the assessee are like advancement of any other object of general public utility, and therefore the assessee is eligible for exemptions u/s 11. As the facts of the case on hand are identical to the facts as discussed above, therefore respectfully following the same we hold that the activities of the assessee are not in the nature of commerce/ trade. As such the activities carried out by the assessee are in the nature of advancement of general public utility. The judgment above being of Jurisdictional High Court is binding on us. Therefore we do not find any force in the argument of the learned DR as discussed above. Exemption u/s 11 - There is no ambiguity that the AO did not verify the calculation for the exemption under section 11 of the Act during the assessment proceedings. Therefore we are inclined to restore this issue to the file of the AO for the limited purpose of the verification of the exemptions to be allowed under section 11 of the Act. Hence the ground of appeal of the assessee is partly allowed for statistical purposes.

Issues Involved:
1. Denial of exemption under Sections 11 and 12 of the Income Tax Act.
2. Application of the first proviso to Section 2(15) and Section 13(8) of the Income Tax Act.
3. Enhancement of income by ?4,16,12,646/- by the CIT(A).
4. Consideration of various receipts as income.
5. Treatment of receipts from Advance for Solid Waste Management as income.
6. Entitlement to accumulate income under Section 11(2) if the amounts are treated as income.

Issue-wise Detailed Analysis:

1. Denial of Exemption under Sections 11 and 12 of the Income Tax Act:
The assessee, Jamnagar Area Development Authority (JADA), claimed exemptions under Sections 11 and 12 of the Act, arguing that its activities were for the "advancement of any other object of general public utility". The Assessing Officer (AO) denied this exemption, viewing JADA's activities as trade/commerce/business due to the receipt of various fees and development charges. This decision was upheld by the CIT(A), who also applied the first proviso to Section 2(15) and Section 13(8) of the Act, reinforcing the denial of exemptions.

2. Application of the First Proviso to Section 2(15) and Section 13(8) of the Income Tax Act:
The AO and CIT(A) applied the first proviso to Section 2(15) and Section 13(8), concluding that JADA's activities were commercial in nature. The CIT(A) emphasized that merely being constituted under the Gujarat Town Planning and Urban Development Act, 1976 (GTPUD Act) does not automatically exempt JADA from these provisions.

3. Enhancement of Income by ?4,16,12,646/- by the CIT(A):
The CIT(A) enhanced JADA's income by ?4,16,12,646/-, considering additional receipts not shown in the income and expenditure account. This included Development Fund, Public Contribution, Services and Amenities Fees, and Advance for Solid Waste Management Project.

4. Consideration of Various Receipts as Income:
JADA argued that certain receipts, such as fees for development work, public contributions, and service and amenities fees, should not be considered income as they were meant to cover costs and were recognized as liabilities. The CIT(A) disagreed, treating these receipts as income and enhancing the total taxable income.

5. Treatment of Receipts from Advance for Solid Waste Management as Income:
The CIT(A) treated the receipt of ?53,07,250/- for the Solid Waste Management Project as income without giving JADA an opportunity to explain. JADA contended that this amount was a grant from the State Government for a specific purpose and should not be treated as income.

6. Entitlement to Accumulate Income under Section 11(2):
JADA argued that if the amounts considered for enhancement by the CIT(A) are treated as income, it should be allowed to accumulate income under Section 11(2). The CIT(A) did not address this argument directly.

Judgment:
The Tribunal referred to the judgment of the Hon’ble Gujarat High Court in the case of Ahmedabad Urban Development Authority v/s ACIT, which held that activities similar to those of JADA are not in the nature of trade, commerce, or business and are eligible for exemptions under Section 11. The Tribunal found the facts of JADA's case identical to the Ahmedabad Urban Development Authority case and concluded that JADA's activities are for the advancement of general public utility. Therefore, the Tribunal held that JADA is entitled to exemptions under Sections 11 and 12 of the Act.

Verification of Exemption Calculation:
The Tribunal noted that the AO did not verify the calculation for the exemption under Section 11 during the assessment proceedings. Consequently, the Tribunal restored this issue to the AO for verification of the exemption calculation.

Conclusion:
The Tribunal partly allowed JADA's appeal for statistical purposes, directing the AO to verify the exemption calculations under Section 11 of the Act. The Tribunal's decision emphasized that JADA's activities are not in the nature of trade, commerce, or business, and thus, it is entitled to the claimed exemptions.

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