2023 (7) TMI 734 - AT - Income Tax

Exemption u/s. 11 and 12 - applicability of proviso of section 2(15) - activities of the assessee advancement of any other object of general public utility - HELD THAT - We hold that the activities of the assessee for advancement of any other object of General Public Utility for charitable purpose and therefore the assessee corporation shall be entitled to exemption u/s. 11 - As further clarified in case of ACIT vs. Ahmedabad Urban Development Authority 2022 (11) TMI 255 - SUPREME COURT wherein it has been clearly held that the Revenues Appeals are dismissed as far as statutory Corporations/Boards. Decided against revenue. Violations of provisions of Section 11(5) with regard to the investments made in Gujarat Alkalies and Chemicals Ltd. (GACL) and Gujarat Lease Finance Ltd. (GLFL) thereby attracting provisions of section 11(1)(d) - As in the case of Gujarat Maritime Board 2023 (4) TMI 32 - ITAT AHMEDABAD after considering the case of Fr. Mullers Charitable Institutions 2014 (2) TMI 1033 - KARNATAKA HIGH COURT , S.P. Memorial Trust 2014 (11) TMI 1111 - GUJARAT HIGH COURT and Sheth Mafatlal Gagalbhai Foundation Trust 2000 (10) TMI 26 - BOMBAY HIGH COURT allowed the issue in favour of the assessee as held only the relevant income falling within the mischief of section 13(1)(d) of the Act will lose the benefit of exemption under section 11 and 12 of the Act and the balance of the total income of the trust will remain eligible for the benefit of exemption under section 11 of the Act. Violation of section 13(1)(d) cannot lead to denial of exemption under section 11 and 12 of the Act, to the total income of the trust. The grounds raised by the assessee is hereby allowed. As there is no new investments made by the assessee both in GACL and GLFL during the present assessment year, the disallowance shall be restricted only to the dividend income of Rs. 2.26 crores only and exemption u/s. 11 and 12 of the Act cannot be denied to the assessee. Thus the ground no. 3 raised by the assessee is allowed.

Summary

Issues Involved:
1. Applicability of Section 2(15) and eligibility for exemption under Sections 11 and 12 of the Income Tax Act.
2. Computation of income and treatment of specific receipts.
3. Violation of Section 11(5) and its impact on exemption under Sections 11 and 12.

Summary:

Issue 1: Applicability of Section 2(15) and Eligibility for Exemption under Sections 11 and 12
The primary issue was whether the assessee's activities constituted a "charitable purpose" under Section 2(15) of the Income Tax Act, making it eligible for exemptions under Sections 11 and 12. The Assessing Officer (AO) had treated the assessee's activities as commercial, denying the exemptions. However, the Hon'ble Gujarat High Court and the Supreme Court, in the case of ACIT vs. Ahmedabad Urban Development Authority, held that statutory corporations engaged in development activities are not trading concerns and are eligible for exemptions. The Supreme Court clarified that receipts from statutory functions should not be characterized as commercial receipts if they are essential services provided at cost or nominal mark-up.

Issue 2: Computation of Income and Treatment of Specific Receipts
The AO had re-computed the income of the assessee, treating it as business income and denying exemptions under Sections 11 and 12. The CIT(A) directed the AO to compute the income as per the provisions applicable to charitable institutions, considering the Gujarat High Court's judgment. The Tribunal upheld this view, dismissing the Revenue's appeal and confirming that the assessee's activities were for the advancement of general public utility and eligible for exemption under Section 11.

Issue 3: Violation of Section 11(5) and its Impact on Exemption under Sections 11 and 12
The assessee was found to have violated Section 11(5) by investing in Gujarat Alkalies & Chemicals Limited and Gujarat Lease Finance Limited. The CIT(A) restricted the disallowance to the dividend income from these investments. The Tribunal, following precedents from various High Courts, held that violation of Section 13(1)(d) results only in the taxation of income from such investments and does not deny the entire exemption under Sections 11 and 12. The Tribunal allowed the assessee's appeal, restricting the disallowance to the dividend income and maintaining the exemption for the rest of the income.

Conclusion:
The Tribunal dismissed the Revenue's appeals, confirming the eligibility of the assessee for exemptions under Sections 11 and 12, and allowed the assessee's appeal in part, restricting the disallowance to the dividend income from non-compliant investments.