2019 (7) TMI 1608 - AT - Income Tax

Exemption claimed u/s. 11 - Charitable object u/s 2(15) - assessee is a authority established by the Government of Gujarat u/s. 27 of the Gujarat Town Planning Act with an object to develop Gandhinagar Urban Area in controlled and disciplined manner - HELD THAT - Following the decision of Ahmedabad Urban Development Authority vs. ACIT 2017 (5) TMI 1468 - GUJARAT HIGH COURT and CIT Vs. Gujarat Industrial Development Corporation 2017 (7) TMI 811 - GUJARAT HIGH COURT wherein the claim of the assessee has been allowed Considering the fact that the assessee was a statutory body, an Authority constituted under the provisions of the Act, to carry out the object and purpose of Town Planning Act and collected regulatory fees for the object of the Acts, no services were rendered to any particular trade, commerce or business; and whatever income was earned by the assessee even while selling the plots (to the extent of 15% of the total area covered under the Town Planning Scheme) was required to be used only for the purpose to carry out the object and purpose of the Town Planning Act and to meet the expenditure of providing general utility service to the public such as electricity, road, drainage, water etc. and the entire control was with the State government and accounts were also subjected to audit and there was no element of profiteering at all. The activities of the assessee could not be said to be in the nature of trade, commerce and business and therefore, the proviso to Section 2(15) of the Act was not applicable so far as the assessee was concerned. Therefore, the assessee was entitled to exemption under section 11 - Decided in favour of assessee.

Summary

Issues involved:
1. Interpretation of provisions of section 2(15) of the Income Tax Act, 1961.
2. Determination of whether the activities of the assessee trust qualify for exemption under section 11 of the Act.
3. Application of interest under sections 234A, 234B, and 234C of the Act.

Analysis:

Issue 1: Interpretation of provisions of section 2(15) of the Income Tax Act, 1961
The case involved the interpretation of section 2(15) of the Income Tax Act, which defines the term "charitable purpose." The assessing officer contended that the activities of the assessee trust, an urban development authority, were in the nature of trade, commerce, or business, thereby disqualifying it from claiming exemption under section 11 of the Act. The assessing officer argued that the trust's collection of fees for providing infrastructural facilities to the public did not fall within the purview of section 2(15).

Issue 2: Qualification for exemption under section 11 of the Act
The primary contention of the assessee trust was that it was established by the Government of Gujarat under the Gujarat Town Planning Act to develop the Gandhinagar Urban Area in a controlled manner. The trust's main source of income was grants from the government and various fees collected for public projects. The trust argued that its activities were not in the nature of trade, commerce, or business, but aimed at public utility and development. The trust sought exemption under section 11 of the Act, which allows for deductions in case of income derived from property held for charitable or religious purposes.

Issue 3: Application of interest under sections 234A, 234B, and 234C of the Act
The assessing officer had imposed interest under sections 234A, 234B, and 234C of the Act on the assessee. However, the appellate tribunal, after considering relevant judicial pronouncements and the nature of the trust's activities, allowed the appeal of the assessee. The tribunal relied on decisions of the Jurisdictional High Court and the Co-ordinate Bench of the ITAT, which held that the trust's activities were not in the nature of trade, commerce, or business. Consequently, the tribunal quashed the disallowance of exemption claimed by the assessee under section 11 of the Act, leading to the deletion of the addition made on this count.

In conclusion, the appellate tribunal allowed the appeal of the assessee based on the interpretation of relevant legal provisions and judicial precedents. The tribunal held that the trust's activities were not commercial in nature, thus entitling it to exemption under section 11 of the Income Tax Act. The imposition of interest under sections 234A, 234B, and 234C was set aside in favor of the assessee.