2023 (9) TMI 986 - HC - Income Tax

Exemptions u/s.11 and 12 - charitable activity u/s 2(15) - As per revenue assessee is involved in widespread commercial activities in nature of business and the activity of the assessee is covered under proviso to section 2(15) - HELD THAT - It is not in dispute that the issue has now been settled in the case of Ahmedabad Urban Development Authority 2022 (10) TMI 948 - SUPREME COURT fact that bodies which carry on statutory functions whose income was eligible to be considered for exemption under Section 10(20A) ceased to enjoy that benefit after deletion of that provision w.e.f. 01.04.2003, does not ipso facto preclude their claim for consideration for benefit as GPU category charities, under Section 11 read with Section 2(15) of the Act. Statutory Corporations, Boards, Authorities, Commissions, etc. (by whatsoever names called) in the housing development, town planning, industrial development sectors are involved in the advancement of objects of general public utility, therefore are entitled to be considered as charities in the GPU categories. The determinative tests to consider when determining whether such statutory bodies, boards, authorities, corporations, autonomous or self-governing government sponsored bodies, are GPU category charities - As long as the concerned statutory body, corporation, authority, etc. while actually furthering a GPU object, carries out activities that entail some trade, commerce or business, which generates profit (i.e., amounts that are significantly higher than the cost), and the quantum of such receipts are within the prescribed limit (20% as mandated by the second proviso to Section 2(15)) the concerned statutory or government organisations can be characterized as GPU charities. It goes without saying that the other conditions imposed by the seventh proviso to Section 10(23C) and by Section 11 have to necessarily be fulfilled. In the course of its functioning it collects fees, or any consideration that merely cover its expenditure (including administrative and other costs plus a small proportion for provision) - such amounts are not consideration towards trade, commerce or business, or service in relation thereto. However, amounts which are significantly higher than recovery of costs, have to be treated as receipts from trade, commerce or business. It is for those amounts, that the quantitative limit in proviso (ii) to Section 2(15) applies, and for which separate books of account will have to be maintained under other provisions of the IT Act. Reading the aforesaid paras would indicate that it is now concluded that the respondent is an authority involved in the advancement of objects of general public utility, and therefore, is not precluded from claiming exemption. The appeal is, accordingly, dismissed.

Issues Involved:
1. Eligibility for exemptions under Sections 11 and 12 of the Income Tax Act.
2. Applicability of provisos to Section 2(15) of the Income Tax Act.
3. Reliance on previous High Court decisions pending appeal before the Supreme Court.
4. Claim for carry forward of capital expenditure.
5. Impact of pending SLP before the Supreme Court on the decision.

Summary of Judgment:

Issue [A] and [B]: Eligibility for Exemptions and Applicability of Provisos to Section 2(15)
The court examined whether the Appellate Tribunal was justified in holding that the assessee is eligible to claim exemptions under Sections 11 and 12 of the Income Tax Act, despite the assessee being involved in activities that could be considered commercial. The court referred to the Supreme Court's decision in Civil Appeal No. 21762 of 2017, which concluded that statutory authorities involved in the advancement of objects of general public utility are not precluded from claiming exemptions under Sections 11 and 12. The court held that the respondent's activities fall under the category of general public utility, thus making them eligible for the exemptions.

Issue [C]: Reliance on Previous High Court Decisions
The court considered whether the Appellate Tribunal was justified in relying on previous decisions of the High Court, which are currently under appeal before the Supreme Court. The court upheld the Tribunal's reliance on these decisions, noting that the principles established in those cases remain applicable until overturned by the Supreme Court.

Issue [D]: Claim for Carry Forward of Capital Expenditure
The court addressed whether the Appellate Tribunal erred in allowing the assessee's claim for carry forward of capital expenditure. The court noted that there is no express provision in the Income Tax Act allowing such a claim and that permitting it would result in a double benefit to the assessee. However, the court did not find sufficient grounds to overturn the Tribunal's decision on this matter.

Issue [E]: Impact of Pending SLP Before the Supreme Court
The court examined whether the Tribunal's decision to allow exemptions under Sections 11 and 12 should be reconsidered in light of a pending Special Leave Petition (SLP) before the Supreme Court. The court concluded that the pending SLP does not affect the current applicability of the exemptions, as the principles established in the existing judgments remain valid.

Conclusion:
The court dismissed the appeal, affirming that the respondent is an authority involved in the advancement of objects of general public utility and is therefore eligible for exemptions under Sections 11 and 12 of the Income Tax Act. The court's decision is based on the principles established by the Supreme Court and existing High Court judgments.

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