General public utility activities with only incidental surplus do not become business; section 11 exemption remained available.

A statutory development authority's development, allotment and sale of sites and flats did not fall within the proviso to section 2(15) because the dominant purpose remained advancement of general public utility. The Tribunal applied the test of whether the activity was undertaken with a profit motive, holding that incidental surplus from layouts, infrastructure and allied facilities did not by itself amount to trade, commerce or business. Its statutory objects, earlier charitable recognition and allotment to economically weaker sections supported the conclusion that the activity was not profit-making. The proviso to section 2(15) therefore did not apply, and exemption under section 11 was available.

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Issues: Whether the assessee's activities of development, allotment and sale of sites and flats were hit by the proviso to section 2(15) of the Income-tax Act, 1961 so as to deny exemption under section 11 for the assessment years in question.

Analysis: The assessee was a statutory development authority whose objects under its governing Act were directed to planned development of the city and allied public purposes. The proviso to section 2(15) excludes from charitable purpose only those activities for advancement of general public utility that involve trade, commerce or business, or service in relation thereto, for consideration. The decisive test was whether the activity was undertaken with a profit motive or whether any surplus was merely incidental to the larger public object. The Tribunal followed its earlier decision for the assessee's own case, noting that development of layouts, provision of infrastructure, creation of facilities, and allotment to economically weaker sections were in furtherance of public utility and that surplus by itself did not convert the activity into business. It also treated the earlier recognition of the assessee's charitable status and the nature of its statutory objects as supporting the conclusion that the predominant purpose was not profit-making.

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

Ratio Decidendi: For an engaged in advancement of an object of general public utility, incidental surplus does not by itself establish trade, commerce or business; the controlling test is whether the predominant purpose of the activity is charitable rather than profit-making.

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