2020 (10) TMI 623 - HC - Income Tax

Exemption u/s 11 - Charitable activity u/s 2(15) - assessee was engaged in the Area Development and Town Planning and carrying out the activity of general public utility - According to the AO, the respondent -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. Validity of reassessment proceedings.
2. Nature of activities as charitable or commercial.
3. Classification of urban development activities.
4. Deletion of additions to fixed assets.
5. Deletion of General Development Expenditure Fund.
6. Allowance of accumulation under Section 11.
7. Deletion of addition on housing project expenditure.
8. Allowance of carry forward of surplus.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings:
The Revenue contended that the Tribunal erred in declaring the reassessment proceedings void ab initio. The Tribunal held that the reassessment was invalid due to improper recording of reasons and lack of valid information.

2. Nature of Activities as Charitable or Commercial:
The core issue was whether the activities of the respondent-assessee, an Urban Development Authority, were in the nature of trade, commerce, or business, thus disqualifying it from being considered as a charitable organization under Section 2(15) of the Income Tax Act. The Tribunal and CIT(A) concluded that the activities were charitable, focusing on general public utility. The High Court referenced the case of Ahmedabad Urban Development Authority vs. Assistant Commissioner of Income Tax (Exemptions), which established that urban development activities aimed at public utility do not constitute trade, commerce, or business.

3. Classification of Urban Development Activities:
The respondent-assessee's activities included preparation and execution of development plans and town planning schemes, guiding local authorities, and providing infrastructure like water supply, sewerage, and roads. The High Court emphasized that these activities are for public utility and not for profit, thus qualifying as charitable under Section 2(15).

4. Deletion of Additions to Fixed Assets:
The Tribunal deleted an addition of ?39,600/- to fixed assets, which the Revenue argued amounted to double deduction. The High Court upheld the Tribunal’s decision, noting that the addition was previously allowed as an application of income.

5. Deletion of General Development Expenditure Fund:
The Tribunal deleted the addition of ?6,34,81,654/- to the General Development Expenditure Fund, which the Revenue claimed should be capital receipt. The High Court supported the Tribunal, stating that the fund was utilized for the assessee’s objectives and not for profit.

6. Allowance of Accumulation under Section 11:
The Tribunal allowed the accumulation of ?20,00,00,000/- under Section 11(2) and 15% of ?6,37,77,889/- under Section 11(1)(a). The Revenue argued that once Section 2(15) proviso applied, Section 11 benefits could not be granted. The High Court disagreed, citing the public utility nature of the activities, thus allowing the accumulation.

7. Deletion of Addition on Housing Project Expenditure:
The Tribunal deleted an addition of ?5,92,358/- related to housing project expenditure. The Revenue contended it should be a capital receipt. The High Court upheld the Tribunal’s decision, recognizing the expenditure as part of the assessee’s charitable activities.

8. Allowance of Carry Forward of Surplus:
The Tribunal allowed the carry forward of a surplus of ?18,82,29,775/-. The Revenue argued there was no express provision for this in the Act. The High Court upheld the Tribunal’s decision, allowing the carry forward in line with the public utility nature of the activities.

Conclusion:
The High Court dismissed the appeal, holding that the respondent-assessee’s activities were charitable and for general public utility, thus entitling it 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. The larger question of reopening was kept open. No costs were awarded.

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