2020 (10) TMI 567 - HC - Income Tax

Exemption u/s 11 - Charitable activity u/s 2(15) - AO came to the conclusion that assessee was engaged in the Area Development and Town Planning and carrying out the activity of general public utility assessee was not carrying out any charitable activities and was squarely covered by proviso 1 2 to Section 2(15) r/w Section 13(8) - 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. Whether the activities of the assessee are in the nature of trade, commerce, or business under Section 2(15) of the Income Tax Act.
2. Whether the assessee is entitled to exemptions under Sections 11 and 12 of the Income Tax Act.
3. Whether the Tribunal was justified in deleting the addition of capital receipts.
4. Whether the Tribunal was justified in allowing the benefit of exemptions on capital expenditure.

Detailed Analysis:

1. Nature of Activities of the Assessee:
The core issue was whether the activities of the assessee, an Urban Development Authority, could be classified as trade, commerce, or business, and thus not eligible for exemptions under Sections 11 and 12 of the Income Tax Act. The court referenced the case of Ahmedabad Urban Development Authority vs. Assistant Commissioner of Income Tax (Exemption) and examined the provisions of the Gujarat Town Planning and Urban Development Act, 1976. The court noted that the assessee's functions, such as preparing and implementing town planning schemes, providing public utilities like roads, water supply, and drainage, were for public utility and not for profit. The court emphasized that the income generated from selling plots (up to 15% of the total area) was used solely for urban development and not for profit-making.

2. Entitlement to Exemptions under Sections 11 and 12:
The court held that the activities of the assessee were charitable in nature and for the general public utility. It was noted that the income earned, including from selling plots, was used for public purposes like infrastructure development. The court reiterated that the assessee's activities did not amount to trade, commerce, or business, and thus, the proviso to Section 2(15) of the Act was not applicable. Consequently, the assessee was entitled to exemptions under Sections 11 and 12 of the Income Tax Act.

3. Deletion of Addition of Capital Receipts:
The Tribunal's deletion of the addition of ?64,99,534/- as capital receipts was upheld. The court found that the assessee's activities, including the receipt of capital funds, were aligned with its charitable objectives and public utility functions. Therefore, these receipts were not subject to tax under the provisions of Section 2(15) read with Section 13(8) of the Act.

4. Exemptions on Capital Expenditure:
The Tribunal's decision to allow the benefit of exemptions on capital expenditure amounting to ?1,53,00,676/- was also upheld. The court confirmed that the capital expenditure was incurred for public utility services, such as infrastructure development, which aligned with the assessee's charitable purposes. Hence, the exemptions under Section 11 of the Act were applicable.

Conclusion:
The court concluded that the functions of the respondent assessee were for charitable purposes and for general public utility. The appeal was dismissed, affirming that the assessee was entitled to exemptions under Section 11 of the Income Tax Act. The substantial questions of law were answered in favor of the assessee and against the Revenue, with no costs awarded.

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