2020 (4) TMI 755 - AT - Income Tax

Exemption u/s 11 - Charitable activities u/s 2(15) - assessee is a regulatory body created by State Government u/s 22 of Gujarat Town Planning and Urban Development Act (GTPUDA), 1976 for proper development of specified area in the state as ensured by the State Government - HELD THAT - As relying on GUJARAT INDUSTRIAL DEVELOPMENT CORPORATION 2017 (7) TMI 811 - GUJARAT HIGH COURT and GANDHINAGAR URBAN DEVELOPMENT AUTHORITY VERSUS THE DCIT, GANDHINAGAR CIRCLE, GANDHINAGAR 2019 (7) TMI 1608 - ITAT AHMEDABAD we find merit in the plea raised on behalf of the assessee for holding the activities of assessee to be for charitable purposes under s.2(15) of the Act and consequence eligibility of benefits under s.11 section 12 of the Act. The order of the CIT(A) is thus set aside and the AO is directed to grant relief claimed under ss.11(2) and 11(1)(a) of the Act to the assessee in accordance with law. - Decided in favour of assessee.

Issues Involved:
1. Entitlement to the benefit of sections 11 and 12 of the Income-tax Act, 1961.
2. Applicability of the first and second proviso to section 2(15) of the Act.
3. Disallowance of exemption claimed under section 11(2) of the Act.
4. Deduction claimed on account of income under section 11(1)(a) of the Act.

Issue-wise Detailed Analysis:

1. Entitlement to the benefit of sections 11 and 12 of the Income-tax Act, 1961:
The assessee, Surat Urban Development Authority (SUDA), argued that it is a regulatory body created by the State Government under the Gujarat Town Planning and Urban Development Act (GTPUDA), 1976, for the development of specified areas in the state. The assessee claimed that its activities fall under the definition of "charitable purposes" as per section 2(15) of the Income-tax Act, 1961, which includes relief of the poor, education, medical relief, preservation of the environment, and advancement of any other object of general public utility. The Tribunal found merit in the assessee's plea, referencing the Hon'ble Gujarat High Court's decision in the case of Ahmedabad Urban Development Authority v. Asstt. CIT [2017] 396 ITR 323, which held that activities similar to those of SUDA are considered charitable and thus eligible for exemption under section 11 of the Act.

2. Applicability of the first and second proviso to section 2(15) of the Act:
The first proviso to section 2(15) states that the advancement of any other object of general public utility shall not be a charitable purpose if it involves carrying on any activity in the nature of trade, commerce, or business, or any activity of rendering any service in relation to trade, commerce, or business for a fee or any other consideration. The assessee contended that its activities do not fall under this proviso as they are not in the nature of trade, commerce, or business. The Tribunal agreed, citing the Gujarat High Court's ruling that the activities of urban development authorities, such as SUDA, do not constitute trade, commerce, or business and are aimed at public welfare, thereby not attracting the proviso to section 2(15).

3. Disallowance of exemption claimed under section 11(2) of the Act:
The Assessing Officer (AO) had disallowed the exemption of ?37,50,00,000 claimed under section 11(2) of the Act, arguing that the assessee's activities were non-charitable. However, the Tribunal found that the assessee had complied with the conditions of section 11(2), which allows income to be accumulated or set apart for charitable purposes if certain conditions are met. The Tribunal directed the AO to grant the exemption as claimed by the assessee, in accordance with the law.

4. Deduction claimed on account of income under section 11(1)(a) of the Act:
The AO had also disallowed the deduction of ?9,10,65,153 claimed under section 11(1)(a) of the Act, which allows income derived from property held under trust for charitable or religious purposes to be excluded from the total income to the extent it is applied to such purposes in India. The Tribunal found that the assessee was eligible for the deduction, as it had applied the income for charitable purposes as defined under section 2(15) of the Act. The Tribunal directed the AO to allow the deduction as claimed by the assessee.

Conclusion:
The Tribunal allowed the assessee's appeal in ITA No. 955/Ahd/2016, directing the AO to grant the reliefs claimed under sections 11(2) and 11(1)(a) of the Act. The Tribunal dismissed the Revenue's appeals in ITA Nos. 2432 & 2433/Ahd/17, upholding the assessee's entitlement to the benefits of sections 11 and 12 of the Income-tax Act, 1961.

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