Charitable purpose test under section 2(15): planned urban development authority retained exemption despite surplus and incidental receipts.

A statutory development authority engaged in planned urban development, infrastructure provision, and preservation of environment and water bodies was held not to fall within the proviso to section 2(15) of the Income-tax Act, 1961. The decisive test was the predominant object of the activities: they were carried on to promote planned development of the city, not to carry on trade, commerce or business or to maximise profit. The existence of surplus, and receipts from sale of sites, rentals, interest, and statutory collections, did not by itself establish a profit motive or destroy the charitable character of the objects. The authority therefore remained entitled to exemption under section 11.

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Issues: Whether the assessee's activities were hit by the proviso to section 2(15) of the Income-tax Act, 1961 so as to deny exemption under section 11.

Analysis: The assessee was a statutory development authority whose objects were directed to planned urban development, including development of layouts, provision of infrastructure, and activities such as preservation of environment and water bodies. The proviso to section 2(15) applies only where the activity is not merely for a fee or consideration, but is also in the nature of trade, commerce or business, or rendering service in relation thereto. The existence of surplus by itself does not establish a profit motive. The true test is the predominant object of the activity. On the facts, the activities were undertaken to promote planned development of the city and not with the object of making or maximizing profits. The sale of sites, receipts from rentals, interest, and statutory collections did not alter the essentially charitable character of the assessee's objects.

Conclusion: The proviso to section 2(15) did not apply, and the assessee was entitled to exemption under section 11.

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