2020 (11) TMI 483 - HC - Income Tax

Exemption u/s 11 - Profit motive - Tribunal while allowed the exemption held that the proviso to Section 2(15) is not applicable to assessee - HELD THAT - State Government acquires the land for the scheme of the assessee and hand over the same to the assessee after the acquisition for the development of the industrial area. The Tribunal has further held that the profit making is not the driving force or objective of the assessee. The Tribunal has therefore, recorded the conclusion that the assessee is engaged in the charitable activity through advancement of an object of general public utility and therefore, has concluded that the Proviso to section 2(15) of the Act is not applicable to the case of the assessee and has further held that the assessee is entitled to benefit of Section 11 of the Act. It has also been noticed that the Assessing officer has not disputed that the assessee fulfills the conditions, which is necessary for allowing the exemption of the deductions applicable under the Act except Proviso to Section 2(15) of the Act. Thus, the Tribunal has held that the Proviso to section 2(15) of the Act is not applicable to the case of the assessee. The order passed by the Tribunal, in our considered opinion, is based on the meticulous appreciation of materials on record and by no stretch of imagination can be said to be perverse. The issue with regard to the perversity is not raised on behalf of the revenue. Appeal dismissed.

Summary

Issues:
Interpretation of Section 2(15) of the Income-tax Act, 1961 for a statutory body engaged in commercial activities.

Analysis:

Issue 1: Interpretation of Section 2(15) of the Income-tax Act, 1961
The case involved an appeal under section 260-A of the Income-tax Act, 1961 concerning the Assessment year 2009-10. The central question was whether the Proviso to Section 2(15) of the Act applied to the assessee, a statutory body engaged in commercial activities. The assessing officer initially denied the exemption to the assessee under Section 2(15) of the Act, considering the profits earned from land sales and commercial activities. The Commissioner of Income-tax (Appeals) upheld this decision, leading to an appeal before the Income-tax Appellate Tribunal, which ruled in favor of the assessee, holding that the Proviso to Section 2(15) did not apply.

Issue 2: Application of Proviso to Section 2(15)
The revenue contended that the assessee's activities were commercial in nature, exceeding the prescribed limit for profits and therefore, the Proviso to Section 2(15) should apply. The revenue argued that the Tribunal misinterpreted relevant circulars and case law, urging that the matter be remitted for fresh consideration. The revenue highlighted the commercial nature of the assessee's activities, including land sales generating substantial profits, and the cancellation of registration under section 12A of the Act.

Issue 3: Charitable Purpose and No Profit-No Loss Basis
On the other hand, the assessee argued that no substantial question of law was involved, emphasizing the charitable nature of its activities and the absence of profit motive. The Tribunal found that the assessee primarily derived income from interest and operated on a 'No Profit-No Loss' basis, aiming to promote industrial development in the state. The Tribunal concluded that the assessee's activities were charitable in nature, not driven by profit-making, and thus, the Proviso to Section 2(15) did not apply.

Conclusion:
The High Court analyzed the provisions of the Karnataka Industrial Area Development Act, emphasizing the public purpose and control by the State Government over the assessee. It upheld the Tribunal's decision, stating that the assessee's activities were charitable, in line with the objectives of industrial development. The Court found no merit in the revenue's appeal, citing consistent views of various High Courts on similar matters. Consequently, the appeal was dismissed, and the substantial question of law was answered against the revenue.