2019 (11) TMI 924 - AT - Income Tax

Benefit of exemptions u/s.11 - Charitable purpose u/s 2(15) - planned development in a particular region - whether the activity of the assessee company is in the nature of advancement of any other object of general public utility ? - whether the nature of activity is commercial and akin to trade, commerce or business etc.? - HELD THAT - The object of the assessee authority is to engage in advancing of objects of public utility is not in dispute. The dispute relates to the second limb i.e. whether such object of advancement of general public utility also acquires the character of trade, commerce or business with commercial intent or whether the authority exists solely for advancement of object of public utility and do not exist with a motive to make profit in a commercial spirit. As observed, the assessee is a Government agency and is engaged in co-ordinate and planned development of Jamnagar region which is pre-dominant object of the authority. The authority has been granted registration under s.12A of the Act for claiming deduction/exemption under s.11 of the Act. On similar facts, the in Ahmedabad Urban Development Authority vs. ACIT 2017 (5) TMI 1468 - GUJARAT HIGH COURT held that general public utility services and amenities provided by such authorities would fall within the meaning of charitable purposes as contemplated under s.2(15) of the Act and consequently, the assessee is entitled to claim exemption of income under s.11 of the Act. The issue has already been adjudicated in favour of the assessee in other assessment years by the co-ordinate bench as noted above. We thus see no error in the conclusion drawn by the CIT(A) in favour of the assessee. Once the activity is considered to be charitable in nature, the assessee would be entitled to all consequential benefits flowing to income generated from such activity including the benefits provided under s.11(2) of the Act and 11(1)(a) of the Act towards accumulation of profits without any demur.

Issues Involved:
1. Whether the activities of the assessee fall under the definition of 'charitable purpose' as per Section 2(15) of the Income Tax Act.
2. Whether the assessee is entitled to exemptions under Section 11 of the Income Tax Act.
3. Treatment of specific project grants and their consideration as income.
4. Accumulation of income under Sections 11(1)(a) and 11(2) of the Income Tax Act.
5. Treatment of infrastructure fund receipts and capital expenditure.

Issue-wise Detailed Analysis:

1. Definition of 'Charitable Purpose' under Section 2(15):
The primary issue was whether the activities of the assessee, Jamnagar Area Development Authority (JADA), constituted a 'charitable purpose' under Section 2(15) of the Income Tax Act. The Assessing Officer (AO) argued that the activities were in the nature of trade, commerce, or business and thus did not qualify as charitable. However, the CIT(A) and the Tribunal found that the activities of JADA, which include urban planning and development, were for the advancement of general public utility and not for profit. This conclusion was supported by the Gujarat High Court's decision in the case of AUDA vs. ACIT, which held that such activities fall within the meaning of 'charitable purposes.'

2. Entitlement to Exemptions under Section 11:
Given that JADA's activities were deemed charitable, the next issue was whether JADA was entitled to exemptions under Section 11 of the Income Tax Act. The CIT(A) ruled in favor of JADA, allowing the exemptions. The Tribunal upheld this decision, noting that similar cases had been adjudicated in favor of the assessee in other assessment years. Consequently, JADA was entitled to claim exemptions under Section 11, including benefits for accumulation of income under Sections 11(1)(a) and 11(2).

3. Treatment of Specific Project Grants:
The CIT(A) directed that specific project grants, which are given with explicit directions for their use, should not be treated as income. These grants should be considered capital receipts and part of the balance sheet, not the income statement. This treatment aligns with the Delhi High Court's ruling in DIT vs. Society for Development Alternatives and other similar cases. The AO was instructed to verify and compute the income of JADA accordingly.

4. Accumulation of Income under Sections 11(1)(a) and 11(2):
The CIT(A) provided detailed guidelines for the AO to follow in computing the income and allowing the accumulation of income under Sections 11(1)(a) and 11(2). The AO was directed to verify the nature of grants and ensure that only those grants without specific directions could be considered as income. The CIT(A) also clarified that capital expenditure and depreciation could be claimed as application of income, provided the funds were not from project-specific grants.

5. Treatment of Infrastructure Fund Receipts and Capital Expenditure:
The CIT(A) addressed the issue of infrastructure fund receipts and capital expenditure, directing the AO to treat these receipts as income unless they were specific project grants. The CIT(A) emphasized that capital expenditure incurred from operational income or generic grants should be allowed as application of income. The AO was instructed to verify the facts and compute the income accordingly.

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue, upholding the CIT(A)'s decisions. The Tribunal confirmed that JADA's activities were charitable in nature, entitling it to exemptions under Section 11. The Tribunal also supported the CIT(A)'s detailed guidelines for treating specific project grants, infrastructure fund receipts, and capital expenditure. The appeals for the assessment years 2009-10, 2010-11, 2011-12, and 2014-15 were all dismissed, affirming the CIT(A)'s orders.

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