Commercial activity under tax exemption law excludes statutory receipts tied to a public authority's regulatory and developmental mandate.

Section 10(46) exempts specified income of a public authority unless it is engaged in commercial activity. The Delhi High Court construed "commercial activity" narrowly and held that fees, rent, consideration or sale proceeds collected while performing statutory regulatory and developmental functions do not by themselves amount to commercial activity. The relevant test is whether the receipts arise from activities intrinsically connected with the authority's statutory mandate and whether those activities are carried on on commercial lines with a profit motive. Functions such as planned development, provision of amenities, land acquisition and transfer, and use of receipts for public developmental purposes were treated as regulatory and administrative, not as an independent commercial enterprise.

---

---

Issues: Whether the petitioner authority was engaged in any commercial activity so as to be disqualified under clause (b) of Section 10(46) of the Income-tax Act, 1961 and consequently whether it was entitled to notification of exemption for its specified income.

Analysis: Section 10(46) grants exemption only to specified income of a body or authority established or constituted for regulating or administering an activity for the benefit of the general public, provided it is not engaged in any commercial activity. The Court construed the expression "commercial activity" in the context of the provision and held that it cannot be read as covering every receipt of fee, rent, consideration or sale proceeds generated while performing statutory regulatory and developmental functions. The relevant enquiry is whether the receipts arise directly from activities intrinsically connected with the authority's statutory mandate, and whether those activities are carried on on commercial lines with a profit motive or intent to earn profit. The authority's functions under the State enactment, including planned development, provision of amenities, acquisition and transfer of land, and use of receipts for public developmental purposes, were treated as part of its regulatory and administrative role rather than independent commercial enterprise.

Conclusion: The petitioner was not engaged in commercial activity within the meaning of clause (b) of Section 10(46) and could not be denied exemption notification on that ground.

Ratio Decidendi: For Section 10(46) of the Income-tax Act, 1961, an authority established for public regulatory or administrative purposes is not engaged in commercial activity merely because it charges fees, rents, or consideration for statutory functions having direct nexus with its mandate, unless those activities are carried on on commercial lines with a profit motive.

---