2024 (5) TMI 1020 - AT - Income Tax

Exemption u/s 11 - true meaning of the expressions fee, cess or consideration - charitable activity or not - As per AO objects of the assessee is to earn profits, thus is not eligible for claim of benefit u/s 11 12 - assessee undertakes activities like preparation of development plans for the development of area, preparation of town planning schemes, levy and collection of fees as prescribed by regulations for scrutiny of documents for permission for development, execute works in connection with supply of water, disposal of sewage and provision of other services and activities etc. HELD THAT - Issue under consideration is now covered in favour of the assessee by the decision of the Ahmedabad Urban Development Authority (AUDA) 2022 (10) TMI 948 - SUPREME COURT in which as decided the issue in favour of the assessee as held Fee, cess and any other consideration has to receive a purposive interpretation, in the present context. If fee or cess or such consideration is collected for the purpose of an activity, by a state department or entity, which is set-up by statute, its mandate to collect such amounts cannot be treated as consideration towards trade or business. Therefore, regulatory activity, necessitating fee or cess collection in terms of enacted law, or collection of amounts in furtherance of activities such as education, regulation of profession, etc., are per se not business or commercial in nature - statutory boards and authorities, who are under mandate to develop housing, industrial and other estates, including development of residential housing at reasonable or subsidized costs, which might entail charging higher amounts from some section of the beneficiaries, to cross-subsidize the main activity, cannot be characterized as engaging in business. The character of being 'state', and such corporations or bodies set-up under specific laws (whether by states or the centre) would, therefore, not mean that the amounts are 'fee' or 'cess' to provide some commercial or business service. In each case, at the same time, the mere nomenclature of the consideration being a fee or cess , is not conclusive. If the fee or cess, or other consideration is to provide an essential service, in larger public interest, such as water cess or sewage cess or fee, such consideration, received by a statutory body, would not be considered trade, commerce or business or service in relation to those. Non-statutory bodies, on the other hand, which may mimic regulatory or development bodies - such as those which promote trade, for a section of business or industry, or are aimed at providing facilities or amenities to improve efficiencies, or platforms to a segment of business, for fee, whether charged by subscription, or specific fee, etc., may not be charitable; when they claim exemption, their cases would require further scrutiny. Appeal of the assessee is allowed.

Summary

Issues:
1. Denial of exemptions claimed under Section 11 of the Income Tax Act.
2. Condonation of delay in filing the appeal before the Ld. CIT(A).
3. Determination of total income by the Assessing Officer.
4. Interpretation of the provisions of the Gujarat Town Planning and Urban Development Act, 1976.
5. Application of the first and second provisos to Section 2(15) of the Income Tax Act.

Analysis:

1. The appellant, a local authority under the Gujarat Town Planning and Urban Development Act, claimed exemptions under Section 11 of the Income Tax Act. The Assessing Officer denied the exemptions, alleging profit motive in the authority's activities. The appellant argued that its functions align with charitable activities as defined under Section 2(15) of the Act. The Tribunal considered the nature of the authority's operations, emphasizing urban development, infrastructure provision, and community welfare activities. The Tribunal noted the authority's registration under Section 12A and cited precedents supporting similar entities' eligibility for exemptions under Section 11.

2. The appellant faced a delay of 13 days in filing the appeal before the Ld. CIT(A). Despite submitting a condonation request, the CIT(A) rejected it, leading to the dismissal of the appeal. The appellant contended that the delay was unintentional and should not have resulted in the dismissal. The Tribunal reviewed the circumstances of the delay and the CIT(A)'s decision. The appellant's argument, supported by legal precedents, highlighted the need for a fair opportunity to present the case on merits, invoking principles of natural justice.

3. The Assessing Officer finalized the assessment, determining the appellant's total income at Rs. 1,64,24,034 after disallowing exemptions under Sections 11 & 12 of the Income Tax Act. The appellant challenged this determination, asserting compliance with the provisions of the Act and the authority's charitable nature. The Tribunal examined the assessment process, focusing on the Assessing Officer's rationale for denying exemptions and the impact on the appellant's declared income. Legal interpretations of relevant sections and precedents were crucial in assessing the validity of the income determination.

4. The Tribunal delved into the provisions of the Gujarat Town Planning and Urban Development Act, 1976, to ascertain the nature of the appellant's activities. The Act's objectives, including urban development, infrastructure planning, and community services, were central to determining the authority's eligibility for tax exemptions. The Tribunal analyzed the statutory framework governing the appellant's functions and its alignment with charitable purposes under the Income Tax Act. The Act's provisions played a pivotal role in defining the authority's operations and their tax implications.

5. The application of the first and second provisos to Section 2(15) of the Income Tax Act was crucial in assessing the appellant's eligibility for exemptions. The Tribunal scrutinized the provisions to determine if the authority's activities fell within the scope of trade, commerce, or business. Legal interpretations of the provisos, coupled with case law references, guided the Tribunal's decision on whether the appellant's operations qualified as charitable under the Act. The provisos' implications on the appellant's tax status were pivotal in resolving the dispute.

This detailed analysis of the judgment highlights the key issues, legal arguments, and decisions made by the Tribunal concerning the appellant's tax exemptions and the procedural aspects of the case.