2024 (8) TMI 558 - HC - Income Tax

Exemption u/s 11 - activities of the assessee are charitable or not? - HELD THAT - In view of the law laid down in Ahmedabad Urban Development Authority 2022 (10) TMI 948 - SUPREME COURT the substantial question No.1 is answered against the Department as held Authorities, Corporation, or bodies established by statute. The amounts or any money whatsoever charged by a statutory corporation, board or any other body set up by the State Government or Central Governments, for achieving what are essentially public functions/services (such as housing, industrial development, supply of water, sewage management, supply of food grain, development and town planning, etc.) may resemble trade, commercial, or business activities. However, since their objects are essential for advancement of public purposes/functions (and/are accordingly restrained by way of statutory provisions), such receipts are prima-facie to be excluded from the mischief of business or commercial receipts. As in every case the Assessing Authorities would have to apply their mind and scrutinize the record, to determine if, and to what extent, the consideration or amounts charged are significantly higher than the cost and the nominal mark-up. If such is the case, then the receipts would indicate that the activities are in fact in the nature of trade, commerce or business and as a result, would have to comply with the quantified limit (as amended from time to time) in the proviso to Section 2(15) of the IT Act.

Summary

Issues:
1. Dismissal of appeal by the Income Tax Appellate Tribunal.
2. Eligibility of the respondent for exemption under Section 11 of the Income Tax Act, 1961.
3. Consideration of substantial questions of law.
4. Interpretation of relevant legal provisions.
5. Decision based on the law laid down by the Supreme Court.

Detailed Analysis:
The judgment by the Rajasthan High Court pertains to an appeal filed against the order of the Income Tax Appellate Tribunal (the Tribunal) dismissing the Department's appeal. The respondent-assessee, engaged in developing areas and providing civic amenities, filed an income tax return for the assessment year 2009-2010 declaring losses. Subsequently, proceedings under Section 147 of the Income Tax Act culminated in an order making an addition of Rs.79,76,39,913, with the respondent deemed ineligible for exemption under Section 11 of the Act. The Commissioner of Income Tax (Appeals) allowed the appeal, which was later dismissed by the Tribunal, leading to the present appeal before the High Court.

The High Court considered substantial questions of law, including whether the ITAT erred in allowing exemption under Section 11 of the Act and whether the benefits of set apart under Section 11(2) should be granted. The respondent's counsel cited a Supreme Court decision to support their position, contending that the ITAT's decision was in line with the law. The appellant's counsel, unable to distinguish the cited decision, did not provide a strong argument against it.

The Court referenced the Supreme Court's ruling in a similar case, emphasizing that receipts from activities essential for public purposes should be excluded from commercial activities. The judgment highlighted the need for assessing authorities to scrutinize the nature of activities to determine if they fall within the scope of trade, commerce, or business. The Court's interpretation of relevant legal provisions underscored the distinction between activities serving public functions and those resembling commercial ventures.

Based on the law laid down by the Supreme Court, the High Court ruled against the Department on the first substantial question of law. The second question, regarding the treatment of income under Section 11(3) of the Act, was deemed consequential and required no further adjudication. Consequently, the appeal was dismissed, affirming the decision in favor of the respondent.