Charitable purpose for urban development authorities survives where public utility functions are genuine and non-commercial despite fees or site disposal.

A statutory urban development authority remained within "charitable purpose" under section 2(15) despite the proviso inserted from 1 April 2009 because its planned development functions served a public utility object, were governed by statute, and lacked a profit motive; charging fees or disposing of sites did not by itself make the activity commercial. Registration under section 12A could not be cancelled under section 12AA(3) merely because the activities were said to fall within the proviso, since cancellation is permitted only where activities are not genuine or are not carried out in accordance with the stated objects. The registration therefore could not be withdrawn on that ground.

---

---

Issues: (i) whether the assessee, a statutory urban development authority, continued to fall within the expression "charitable purpose" under section 2(15) of the Income-tax Act, 1961 despite the proviso inserted with effect from 1 April 2009; (ii) whether registration under section 12A could be cancelled under section 12AA(3) on the ground that the assessee's activities were hit by the proviso to section 2(15).

Issue (i): whether the assessee, a statutory urban development authority, continued to fall within the expression "charitable purpose" under section 2(15) of the Income-tax Act, 1961 despite the proviso inserted with effect from 1 April 2009.

Analysis: The assessee was constituted under the Karnataka Urban Development Authorities Act, 1987 for planned development of urban areas. Its activities were examined in the light of the statutory scheme, including its public object, governmental control, and the duty to act for orderly urban development. The proviso to section 2(15) excludes only activities in the nature of trade, commerce or business for cess, fee or other consideration. The Court found that the assessee's functions were not driven by a profit motive and were directed to public utility. The authority's development activities, including allocation or disposal of sites, did not by themselves convert its public function into commercial activity.

Conclusion: The assessee's objects and activities remained within "charitable purpose" under section 2(15), and the proviso did not apply. The issue was answered in favour of the assessee.

Issue (ii): whether registration under section 12A could be cancelled under section 12AA(3) on the ground that the assessee's activities were hit by the proviso to section 2(15).

Analysis: Section 12AA(3) permits cancellation of registration only if the activities are not genuine or are not carried out in accordance with the objects of the trust or institution. Cancellation cannot rest merely on a change in tax treatment or on a view that the activities fall outside the proviso to section 2(15). Since the assessee's activities were found genuine and consistent with its statutory objects, the statutory conditions for cancellation were not satisfied. The earlier registration therefore could not be withdrawn on the stated ground.

Conclusion: The cancellation of registration was unsustainable, and the Tribunal was right in restoring the registration. The issue was answered against the Revenue and in favour of the assessee.

Final Conclusion: The assessee, being a statutory authority engaged in public development functions, retained charitable character and its registration could not be cancelled on the basis of the proviso to section 2(15). The Revenue's appeal failed.

Ratio Decidendi: A statutory development authority performing public utility functions without a profit motive does not cease to have a charitable purpose merely because it charges fees or disposes of assets, and registration under section 12A can be cancelled under section 12AA(3) only if the activities are not genuine or are not in accordance with its objects.

---