2021 (4) TMI 443 - AT - Income Tax

Exemptions u/s.11 and 12 - Charitable activity u/s 2(15) - assessee is AOP (Trust), which was constituted by the Government of Gujarat by enacting the Gujarat Housing Board Act, 1961 for the purpose of undertaking the housing scheme. The assessee is engaged in the sale of flats/house of various kinds which are available for all income group namely higher income group, middle income group, lower income group and economically weaker section - Accordingly, the AO was of the view that the activities of the assessee are commercial in nature and the AO disallowed the claim of the assessee under section 11 - HELD THAT - As decided in own case 2018 (11) TMI 1121 - ITAT AHMEDABAD object and purpose for which the assessee is established/constituted under the provisions of the Gujarat Town Planning Act and collection of fees and cess is incidental to the object and purpose of the Act, even the case would not fall under second part of proviso to Section 2(15) of the Act. We deem it fit and proper to hold that the authorities below were in error in invoking proviso to Section 2(15) and declining the benefit of Section 11 to the assessee. We see no point in remitting the matter to the file of the Assessing Officer for examination de novo, in the light of the above legal position as was the decision of the coordinate bench in immediately preceding assessment year, since all the related facts are on record and, unlike in the immediately preceding assessment year, it is not a case of ex parte best judgment assessment order. Such an exercise will unnecessarily delay the matter reaching finality. In any case, no specific points, on which further examination is required, were pointed out to us. The grievances of the assessee are thus upheld and the Assessing Officer is directed to allow the benefits of exemption under section 11 to the assessee. The assessee gets the relief accordingly. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the CIT(A) erred in law and on facts in allowing the exemption under section 11 of the Income Tax Act, 1961.
2. Whether the activities of the assessee are covered by the first and second proviso to section 2(15) of the Act.
3. Whether the CIT(A) erred in allowing exemptions under section 11 in view of the judgments of the Gujarat High Court in the cases of Ahmedabad Urban Development Authority and GIDC.

Detailed Analysis:

Issue 1: Exemption under Section 11 of the Income Tax Act, 1961
The core issue revolves around whether the CIT(A) erred in allowing the exemption under section 11 to the assessee, a trust constituted by the Government of Gujarat for undertaking housing schemes. The AO disallowed the exemption on the grounds that the activities of the assessee are commercial in nature. However, the CIT(A) allowed the exemption, leading to the present appeal by the Revenue.

Issue 2: Activities Covered by Section 2(15) of the Act
The AO's contention was that the activities of the assessee, which involve the sale of flats/houses to various income groups, are commercial in nature and thus fall under the first and second proviso to section 2(15) of the Act. The Tribunal examined whether the construction and sale of dwelling units by the assessee constitute activities in the nature of trade, commerce, or business. It was noted that the assessee is a trust set up under State Government legislation, engaged in providing affordable accommodation, which is a commendable public utility service. The Tribunal referred to the Punjab & Haryana High Court's ruling in CIT Vs. Moga Improvement Trust, which held that such activities do not constitute business activities as they are carried out with the larger objective of public utility.

Issue 3: Judgments of Gujarat High Court
The Tribunal also considered the Gujarat High Court's judgments in the cases of Ahmedabad Urban Development Authority and GIDC. These judgments emphasized that the activities of such trusts, even if they generate surplus, are primarily for public utility and not for profit-making. The Tribunal noted that the revenue's reliance on these judgments was misplaced as the predominant objective of the assessee's activities was public utility, not profit-making. The Tribunal cited the Gujarat High Court's observation that the sale of plots by public auction to meet the expenditure for providing infrastructural facilities does not amount to profiteering.

Conclusion:
The Tribunal concluded that the activities of the assessee, which include the construction and sale of dwelling units, do not constitute business activities as long as the predominant objective is public utility. The Tribunal upheld the CIT(A)'s decision to allow the exemption under section 11, dismissing the Revenue's appeal. The Tribunal emphasized that merely generating surplus does not imply a profit motive if the activities are carried out to serve the public utility. The Tribunal directed the AO to allow the benefits of exemption under section 11 to the assessee. The appeal filed by the Revenue was dismissed.