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2019 (6) TMI 429 - AT - Income TaxExemption u/s 11 - charitable activity u/s 2(15) - Bangalore Development Authority (BDA) - real estate developer - scope of amendment of section2(15) w.e.f. 01.04.2009 - existence for Charitable Purpose objects of the assessee as per BDA Act, was to develop the City of Bangalore and areas adjacent thereto - as per AO focus of the Assessee has been more on selling sites by auction to the highest bidder and was not for providing affordable housing to the public - HELD THAT - As decided in assessee's own case 2019 (3) TMI 1300 - ITAT BANGALORE the fact of surplus or shortfall is not to be reckoned as the test for applicability of the proviso to section 2(15); but rather, whether the activity is embarked upon solely with the view to earn profit or not; which the AO and CIT(A) have not done. We hold that the activities of the assessee, i.e., Bangalore Development Authority are not hit by the proviso to section 2(15) of the Act. Having held so, we direct the AO to allow the assessee the benefits of section 11 while giving effect to this order. Consequently, grounds raised by the assessee on this issue are allowed.
Issues Involved:
1. Applicability of the proviso to Section 2(15) of the Income Tax Act, 1961. 2. Determination of whether the assessee's activities constitute charitable purposes. 3. Assessment of the assessee's entitlement to exemptions under Section 11 of the Act. 4. Evaluation of the assessee's income and its treatment by the Assessing Officer (AO). Issue-wise Detailed Analysis: 1. Applicability of the Proviso to Section 2(15) of the Income Tax Act, 1961: The primary issue was whether the revenue authorities were justified in concluding that the assessee's activities were in the nature of trade or business, thus disqualifying it from being recognized as a charitable organization under the proviso to Section 2(15) of the Act. The proviso stipulates that the advancement of any other object of general public utility shall not be considered a charitable purpose if it involves activities in the nature of trade, commerce, or business, or services related to such activities for a fee or consideration. 2. Determination of Whether the Assessee's Activities Constitute Charitable Purposes: The assessee, a statutory body constituted under the Bangalore Development Authority Act, 1976, claimed exemption under Section 11 of the Act, arguing that its activities fell under the definition of charitable purposes as per Section 2(15). The AO, however, held that the assessee's activities, which included the systematic acquisition, development, and sale of land and properties, were commercial in nature. The AO noted that the assessee generated significant profits from these activities and did not apply these profits towards charitable activities such as relief of the poor or education. 3. Assessment of the Assessee's Entitlement to Exemptions Under Section 11 of the Act: The Tribunal referenced a prior decision in the assessee's case for the assessment year 2012-13, where it was concluded that the assessee's activities were charitable in nature. The Tribunal noted that the objects of the assessee involved promoting the development of the Bangalore Metropolitan Area, which included environmental preservation and providing affordable housing, thus qualifying as charitable purposes. The Tribunal also emphasized that relief to the poor does not necessarily mean providing free services but can include services at concessional rates. 4. Evaluation of the Assessee's Income and Its Treatment by the Assessing Officer (AO): The AO computed the assessee's total income for the assessment years 2013-14 and 2014-15, treating the surplus from its activities as taxable income. The AO's conclusion was based on the observation that the assessee's activities were akin to those of real estate companies and that the profits were not applied towards charitable activities. The Tribunal, however, held that the generation of surplus in itself does not imply a profit motive and that the primary objective of the assessee's activities was planned urban development, not profit-making. Conclusion: The Tribunal concluded that the assessee's activities should be regarded as charitable in nature and that the assessee was entitled to the benefits of Section 11 of the Act for the assessment years 2013-14 and 2014-15. The Tribunal's decision was based on the precedent set in the assessee's case for the assessment year 2012-13 and similar cases involving other urban development authorities. Consequently, the appeals by the assessee were allowed, and the appeals by the revenue were dismissed. The AO was directed to compute the total income on the basis that the assessee is entitled to the benefits of Section 11, resulting in no taxable income.
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