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2020 (10) TMI 566 - HC - Income TaxExemption u/s 11 - Charitable activity u/s 2(15) - AO came to the conclusion that income of the assessee is business income since such receipts were in the nature of trade or commerce and it exceeds ₹ 25 lakh - HELD THAT - Functions of the respondent assessee are for charitable purposes and for general public utility and therefore, the respondent assessee is entitled to exemption under Section 11 of the Act. Following the judgment of this Court in the case of Ahmedabad Urban Development Authority 2017 (5) TMI 1468 - GUJARAT HIGH COURT present appeal fails and is hereby dismissed. Substantial questions of law as framed are answered in favour of the assessee
Issues Involved:
1. Eligibility of the respondent-assessee for exemptions under Sections 11 and 12 of the Income Tax Act. 2. Validity of the order under Section 263 of the Income Tax Act. 3. Applicability of the proviso to Section 2(15) of the Income Tax Act to the activities of the respondent-assessee. Detailed Analysis: 1. Eligibility for Exemptions under Sections 11 and 12 of the Income Tax Act: The respondent-assessee filed its return for AY 2012-13 declaring NIL income. The Assessing Officer (AO) assessed the total income at ?198,48,79,000/- and concluded that the income was business income since the receipts were in the nature of trade or commerce exceeding ?25 lakh. The AO denied exemptions under Sections 11 and 12, stating that the respondent-assessee was not carrying out charitable activities and was covered by provisos 1 and 2 to Section 2(15) read with Section 13(8) of the Act. The CIT(A) dismissed the appeal, but the Tribunal allowed it, restoring the matter to the AO for re-adjudication. The High Court upheld the Tribunal's decision, noting that the functions of the respondent-assessee, an Urban Development Authority, were for charitable purposes and general public utility, thus entitling it to exemptions under Section 11. 2. Validity of the Order under Section 263 of the Income Tax Act: During the revision proceedings under Section 263, the CIT(A) observed that the respondent-assessee claimed a total deduction of ?272,24,44,078/-. The CIT(A) concluded that the AO's assessment order was erroneous and prejudicial to the interest of the Revenue, as it failed to add back the carry-forward loss of ?42,77,29,078/- to the total income. The CIT(A) set aside the assessment order and directed a de novo assessment. The Tribunal quashed the CIT(A)'s order under Section 263, and the High Court upheld this decision, affirming that the Tribunal was justified in its ruling. 3. Applicability of the Proviso to Section 2(15) of the Income Tax Act: The High Court examined whether the activities of the respondent-assessee, an Urban Development Authority, could be considered in the nature of trade, commerce, or business under the proviso to Section 2(15). The Court referred to the Gujarat Town Planning and Urban Development Act, 1976, which outlines the powers and functions of an Urban Development Authority, including preparation and execution of development plans, town planning schemes, and provision of public amenities. The Court noted that the respondent-assessee's activities were aimed at public utility and not profit-making. It highlighted that any income earned, including from the sale of plots, was used solely for development purposes. The Court concluded that the activities did not amount to trade, commerce, or business, and thus, the proviso to Section 2(15) did not apply. Consequently, the respondent-assessee was entitled to exemptions under Section 11. Conclusion: The High Court dismissed the appeal, holding that the functions of the respondent-assessee were for charitable purposes and general public utility, and it was entitled to exemptions under Section 11. The substantial questions of law were answered in favor of the respondent-assessee and against the Revenue.
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