2020 (10) TMI 720 - HC - Income Tax

Court rules Urban Development Authority's activities are charitable, qualifying for tax exemptions under Section 11.

The Commissioner Of Income Tax (Exemptions) Versus Jamnagar Area Development Authority

The court held that the activities of the Urban Development Authority were charitable and not commercial, as they were solely for urban development ... Exemption u/s 11 - AO came to the conclusion that assessee was engaged in the Area Development and Town Planning and carrying out the activity of general public utility not carrying out any charitable activities and was squarely covered by proviso 1 & 2 to Section 2(15) r/w Section 13(8) - HELD THAT:- Functions of the respondent assessee are for charitable purposes and for general public utility and therefore, the respondent assessee is entitled to exemption under Section 11 of the Act. Following the judgment of this Court in the case of Ahmedabad Urban Development Authority [2017 (5) TMI 1468 - GUJARAT HIGH COURT]present appeal fails and is hereby dismissed. Substantial questions of law as framed are answered in favour of the assessee. Issues Involved:1. Whether the activities of the assessee are in the nature of trade, commerce, or business under Section 11 & 12 of the Income Tax Act.2. Whether the assessee is justified in claiming exemptions under Section 11(1)(a) of the Act for capital receipts/grants from the Government.3. Whether the assessee is justified in claiming exemptions under Section 11 of the Act for receipts towards the development fund.4. Whether the assessee is justified in claiming exemptions under Section 11 of the Act for capital expenditure.Issue-wise Detailed Analysis:1. Nature of Activities:The primary issue was whether the activities of the assessee, an Urban Development Authority, could be considered as trade, commerce, or business, thus disqualifying it from being considered as charitable under the proviso to Section 2(15) of the Income Tax Act. The court referred to the case of Ahmedabad Urban Development Authority vs. Assistant Commissioner of Income Tax (Exemption), where it was determined that the activities of the Urban Development Authority, which include development plans, town planning schemes, and providing public utilities, are not in the nature of trade, commerce, or business. The court emphasized that the entire amount realized by the assessee is used solely for urban development purposes and not for profit. Therefore, the activities of the assessee were deemed charitable and not commercial.2. Exemption for Capital Receipts/Grants:The Revenue contended that the Tribunal erred in allowing exemptions under Section 11(1)(a) for Rs. 26,89,11,833/- being capital receipts/grants from the Government. The court held that since the activities of the assessee are for charitable purposes and general public utility, the exemptions under Section 11 are justified. The court reiterated that the funds received are used for public utility purposes and not for profit, aligning with the charitable objectives.3. Exemption for Development Fund Receipts:The Revenue also challenged the exemption of Rs. 52,10,391/- being receipts towards the development fund. The court, following the precedent set in the Ahmedabad Urban Development Authority case, held that the collection of such fees is incidental to the main objective of urban development and public utility. Therefore, these receipts are eligible for exemption under Section 11 of the Act.4. Exemption for Capital Expenditure:Lastly, the Revenue questioned the exemption of Rs. 6,45,38,452/- being capital expenditure. The court maintained that since the capital expenditure is incurred for the development of urban areas and providing public utilities, it falls under the charitable activities of the assessee. Hence, the exemption under Section 11 is applicable.Conclusion:The court concluded that the activities of the assessee are for charitable purposes and general public utility, thus entitling it to exemptions under Section 11 of the Income Tax Act. The appeal by the Revenue was dismissed, and the substantial questions of law were answered in favor of the assessee.