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TMI Blog2025 (4) TMI 910X X X X Extracts X X X X X X X X Extracts X X X X ..... egally allowable by virtue of the provision of section 11 and 12, on the basis of facts and circumstances of the appellant case. 3. CIT appeal fails to appreciate that the assessee is legally eligible for exemption u/s 11 and 12 of the act and the activity of the assessee is not covered u/s 2(15) of the Income tax act 1961. 4. CIT appeal erred in considering the activity of the Planning authority is business activity by virtue of section 13(8). 5. CIT appeal and LAO erred in considering the activity of the planning authority as business in lieu of the fact that they are governed by the guidelines issued by the government of Karnataka for collecting and utilisation of the various fees and cess from the citizen for carrying out planned development. 6. LAO and CIT appeal erred in considering the receipt of various fees like Betterment fees, lake Development fees, and other cess for specific purpose, where in the Assessee does not have any right of fixation and usge power in the hands of the Authority. 7. LAO and CIT appeal erred in appreciating the fact that the amount collected by the planning authority is as per the guidelines fixed by the government and to be used only af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see by holding that the activities done by the assessee is in the nature of trade and hit by proviso to Section 2(15) of the Act and therefore the said exemption claimed u/s. 11 is not eligible. The AO also not accepted the assessee as a local authority. As against the said order, the assessee filed an appeal before the Ld.CIT(A) and contended that the assessee had got registration u/s. 12A of the Act and their activities could not be termed as trade and therefore they are eligible for exemption u/s. 11 of the Act irrespective of the proviso to section 2(15) r.w.s. 13(8) of the Act. The Ld.CIT(A) had considered the issue and confirmed the order of the AO by holding that the activities undertaken by the assessee is an adventure in the nature of trade and hence proviso to section 2(15) would apply. The Ld.CIT(A) further observed that the issue as to whether the assessee's activity is akin to business or otherwise had not attained finality and confirmed the denial of exemption u/s. 11 of the Act. As against the said orders, the assessee is in appeal before this Tribunal. 5. At the time of hearing, the Ld.AR took us through the various activities carried out by the assessee and also t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finition of "Charitable Purpose" in Sec.2(15) of the Act, viz., (i) Relief of the poor, (ii) Education, (iii) Medical relief, (iv) Preservation of environment (including watersheds, forests and wildlife) and (v) Preservation of monuments or places or objects of artistic or historic interest). Though the five limbs are not specifically provided for in section 14 of the BDA Act, the objects enunciated involved preservation of environment, preservation of water bodies, preservation of forest areas, etc., appears to have merit; for it is a fact that planned urban development cannot take place or be done without due consideration being given to the preservation of the environment, water bodies like lakes, streams, etc., and forest areas. In coming to the above conclusion, the Tribunal found that from the financial statements of the assessee it was evident that it has expended an amount of Rs. 2095.24 lakhs on planting of one crore seedlings in the green belt area for improvement of the environment. The Assessee has expended a sum of Rs. 2997.42 lakhs towards development of lakes. The Tribunal therefore held that the Assessee carried out the activity of preservation of environment and wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 295 wherein it was held one has to see whether the predominant object of the activity is to make profit or whether the predominant object of the activity is to carry out charitable purposes and not profit making. The Tribunal also referred to the decision of the Hon'ble Apex Court in the case of Surat Art Silk Organisation Vs. CIT (121 ITR 1), wherein it was held that a charitable organization cannot be expected to balance its accounts in such a manner that the income for the year matches exactly with its expenditure. It is inevitable that in carrying on the activities, certain surplus may ensue. The earning of such surplus, in itself, would not mean that the organization existed for profit. The Hon'ble Apex Court went on to observe that every Association requires funds for expanding the range of its activities (for example; an Educational Institution may require additional infrastructure under which more class rooms can be set up / created). If profits are generated to support and expand these activities, then it cannot, in the view of the Hon'ble Apex Court, be held that there is a profit motive involved to deny the exemption. From the above ratio of the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r shortfall is not to be reckoned as the test for applicability of the proviso to section 2(15) of the Act; but rather, whether the activity is embarked upon solely with the view to earn profit or not; which the AO and CIT(A) have not done. 5. The Tribunal took note of the fact that in the case of similar urban development authorities in India, such as the Assessee, the revenue took a similar stand that those urban development authorities cannot be regarded as existing for "Charitable Purpose" after introduction of the proviso to Sec.2(15) of the Act and such approach has been held to be incorrect by the various judicial forums in the following cases: (i) Ahmedabad Urban Development Authority Vs. ACIT (Exemptions) (2017) 396 ITR 323 (Guj.); (ii) Jaipur Development Authority Vs. CIT (2014) 52 taxmann.com 25 (Jaipur - Trib.) (iii) Haridwar Development Authority Vs. CIT (2015) 57 taxmann.com 6 (Delhi - Trib.) (iv) CIT Vs. Lucknow Development Authority (2013) 38 taxmann.com 246 (Allahabad) (v) CIT Vs. Jodhpur Development Authority (2017) 79 Taxmann 361 (Raj.). 6. The Tribunal also held that the AO's reliance on the following decisions in support of his conclusion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's findings, the ruling remains binding in cases with identical facts. 13.4 We further observe that the assessee operates under stringent Government regulation. All its receipts and expenditures are deposited into the Magadi Planning Authority Fund, and the budget is subject to approval by the State Government. The assessee's accounts are audited annually by Government agencies, and any surplus or assets, upon dissolution, revert to the State Government. These factors unequivocally demonstrate the non-commercial character of the assessee's activities. We, accordingly, concur with the assessee's argument that the imposition of income tax on its operations would contradict statutory mandate and undermine its role as a state instrumentality serving public welfare. 13.5 The AO's invocation of Section 13(8) of the Act, citing that the assessee's fee-earning activities constitute trade or business, lacks sufficient merit. The activities cited by the AO--such as layout plan approvals, betterment fees, and lake conservation fees--are intrinsic to the assessee's statutory responsibilities and do not exhibit the characteristics of a profit-driven enterprise. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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