2017 (1) TMI 945 - AT - Income Tax

Eligibility to exemption u/s 11 - charitable activity - objects to achieve - Held that - The advancement of any object of benefit to the public or a section of the public as distinguished from individual and group of individuals would be a charitable purpose. An object of public utility need not be an object in which the whole of the public is interested. It is sufficient if well defined section of the public benefits by the objects which means that the expression object of general public utility is not restricted to objects beneficial to the whole mankind. An object beneficial to a section of the public is an object of general public utility. After considering the entire facts in totality, in the light of the decisions discussed hereinabove and also drawing support from the speech of the Hon ble Finance Minister and subsequent clarifications issued by the CBDT within the frame work of the amended provisions of Sec. 2(15) of the Act, in our considered view, there was no material which may suggest that the appellant company was conducting its affairs solely on commercial lines with a motive to earn profit. There is also no material brought on record which could suggest that the appellant company deviated from its objects for which it has been constituted. In our humble opinion and understanding of law, the proviso to Sec. 2(15) of the Act is not applicable on the facts of the case. - Decided in favour of assessee

Issues Involved:
1. Applicability of the proviso to Section 2(15) of the Income Tax Act.
2. Eligibility for exemption under Section 11 of the Income Tax Act.
3. Interpretation of the Gujarat Industrial Development Act, 1962.
4. Relevance of judicial precedents and legislative intent.

Detailed Analysis:

1. Applicability of the Proviso to Section 2(15) of the Income Tax Act:
The core issue is whether the activities of the appellant company constitute "carrying on of any activity in the nature of trade, commerce or business" to come within the purview of the proviso to Section 2(15) of the Act. The proviso to Section 2(15) excludes activities from being considered charitable if they involve trade, commerce, or business for a fee or consideration.

The Tribunal analyzed whether the appellant's activities, such as developing and leasing land, qualify as business activities. It concluded that the appellant's activities are not conducted with a predominant profit motive, thus not falling under the proviso to Section 2(15).

2. Eligibility for Exemption under Section 11 of the Income Tax Act:
The appellant claimed exemption under Section 11, which pertains to income from property held for charitable or religious purposes. The Assessing Officer (A.O.) and the Commissioner of Income Tax (Appeals) [CIT(A)] denied this exemption, arguing that the appellant's activities were commercial in nature.

The Tribunal, however, found that the appellant's activities align with its charitable objectives and are not conducted solely for profit. Therefore, the appellant is eligible for exemption under Section 11, as its activities are for the advancement of an object of general public utility.

3. Interpretation of the Gujarat Industrial Development Act, 1962:
The appellant company was constituted under the Gujarat Industrial Development Act, 1962, to promote and assist in the rapid and orderly establishment of industries in Gujarat. The Tribunal emphasized that the appellant's activities are in line with the objectives of the Act, which includes planning and developing industrial areas, providing amenities, and facilitating industrial growth.

The Tribunal referred to the Hon'ble Supreme Court's judgment in the appellant's own case (227 ITR 414) and the Maharashtra Industrial Development Act, which is similar to the Gujarat Act. It concluded that the appellant is not a trading corporation but a body created for public utility and development purposes.

4. Relevance of Judicial Precedents and Legislative Intent:
The Tribunal considered various judicial precedents, including the Hon'ble Supreme Court's decision in the appellant's own case and other relevant judgments. It also referred to the legislative intent behind the amendments to Section 2(15) and the Finance Minister's speech, which clarified that genuine charitable organizations would not be affected by the amendments.

The Tribunal noted that the appellant's activities are not conducted with a profit motive and are aligned with its charitable objectives. It also considered the CBDT Circular No. 11/2008, which clarified that the proviso to Section 2(15) applies only to entities engaged in trade, commerce, or business.

Conclusion:
The Tribunal concluded that the appellant's activities do not fall under the proviso to Section 2(15) of the Income Tax Act, and the appellant is eligible for exemption under Section 11. The Tribunal directed the A.O. to decide the claim of deductions made by the appellant in light of this finding. The appeals filed by the appellant were allowed.

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