Public utility status for statutory development bodies remains intact where receipts are incidental to town-planning functions, not commercial activity.

A statutory urban development authority performing development and town-planning functions under State control remains within public utility activity where fees, cess, grants, and limited land sales are statutorily earmarked for infrastructure and amenities. Incidental surplus or receipts do not by themselves convert the authority's mandate into trade, commerce, or business; the proviso to section 2(15) applies only if the predominant activity is commercial, so exemption under section 11 is not denied on these facts.

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Issues: Whether the assessee, a statutory urban development authority, was carrying on activities in the nature of trade, commerce or business so as to attract the proviso to section 2(15) of the Income-tax Act, 1961 and deny exemption under section 11.

Analysis: The assessee was constituted under the Gujarat Town Planning and Urban Development Act, 1976 for development and redevelopment of urban areas and for implementing town planning schemes. Its constitution, functions, and finances remained under State control, and the amounts collected by way of fees, cess, grants, or sale of a limited portion of land were statutorily earmarked for development of the urban area. The sale of plots was only to generate resources for infrastructure and public amenities, and the mere existence of receipts or incidental surplus did not convert the statutory functions into commercial activity. The proviso to section 2(15) is attracted only where the predominant activity is trade, commerce, business, or services in relation thereto, and not where the entity is discharging public utility functions under a statutory mandate.

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

Ratio Decidendi: A statutory authority created to perform public development functions does not lose charitable status merely because it earns regulatory fees or incidental surplus, unless its predominant activity is trade, commerce, business, or services in relation thereto.

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