2018 (3) TMI 227 - HC - Income Tax

Rejecting request for issue of notification of exemption u/s 10(46) - Held that - Petitioner was to provide amenities and facilities in industrial estate and in industrial area in the form of road, electricity, sewage etc. As 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. Resultantly, the writ petition is allowed and the impugned order is set aside and quashed. The petitioner s activities, it is held, are not commercial activity within the meaning of clause (b) to Section 10(46) of the Act. Directions are issued to the respondents to accordingly issue the necessary notification under the aforesaid Section in respect of the specified income within a period of three months from the date a copy of this order is received.

Issues Involved:
1. Whether the petitioner was/is carrying on "any commercial activity" and therefore does not fulfill the negative stipulation of clause (b) to Section 10(46) of the Income Tax Act.
2. Interpretation of the term "commercial activity" under Section 10(46) of the Income Tax Act.
3. Whether the petitioner’s activities qualify for exemption under Section 10(46) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Whether the petitioner was/is carrying on "any commercial activity" and therefore does not fulfill the negative stipulation of clause (b) to Section 10(46) of the Income Tax Act:

The petitioner, Greater Noida Industrial Development Authority, filed a writ petition to set aside the order dated 8th June 2015, which rejected their request for exemption under Section 10(46) of the Income Tax Act. The respondents contended that the petitioner was engaged in commercial activities, making huge profits from the sale and lease of land, and thus did not qualify for exemption under Section 10(46)(b). The petitioner argued that their activities were not commercial but were performed for the benefit of the general public, as mandated by the Uttar Pradesh Industrial Area Development Act, 1976.

2. Interpretation of the term "commercial activity" under Section 10(46) of the Income Tax Act:

The term "commercial activity" is not defined in the Act. The court emphasized the need for a contextual interpretation, considering the legislative intent. The court referred to various definitions and judicial interpretations of "commerce" and "commercial activity." It was noted that the term could have a broad or narrow meaning, depending on the context. The court highlighted that commercial activity typically involves transactions with a profit motive. However, in the context of Section 10(46), the court held that the term should be interpreted in a manner that aligns with the primary objective of the provision, which is to exempt specified income of bodies established for the benefit of the general public.

3. Whether the petitioner’s activities qualify for exemption under Section 10(46) of the Income Tax Act:

The court examined the statutory mandate and objectives of the petitioner, which include planned development of industrial areas and provision of municipal services. The court noted that the petitioner’s activities, such as acquiring and selling land, providing infrastructure, and collecting fees, were integral to their regulatory and administrative functions. These activities were not undertaken with a profit motive but were necessary for fulfilling their statutory obligations. The court concluded that the petitioner’s activities did not constitute "commercial activity" within the meaning of Section 10(46)(b). Consequently, the court set aside the impugned order and directed the respondents to issue the necessary notification for exemption under Section 10(46) within three months.

Conclusion:

The writ petition was allowed, and the impugned order dated 8th June 2015 was quashed. The court held that the petitioner’s activities were not "commercial activity" within the meaning of Section 10(46)(b) of the Income Tax Act and directed the respondents to issue the necessary notification for exemption under the said section.

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