Urban development authority exemption upheld where public infrastructure work and regulatory receipts showed no trade or business motive.

A statutory urban development authority engaged in town planning, infrastructure development and allied public utility functions, with receipts of a regulatory character and no profit motive, is not carrying on trade, commerce or business for the proviso to section 2(15). The available material showed that its income was applied for the public purpose for which it was created, so denial of exemption under sections 11 and 12 was not sustainable. On that basis, the proviso to section 2(15) did not apply and the assessee remained entitled to exemption under section 11.

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Issues: Whether the assessee, being an urban development authority carrying out town planning and allied public utility functions, was hit by the proviso to section 2(15) of the Income-tax Act, 1961, and consequently denied exemption under section 11.

Analysis: The authority was constituted for planned and controlled urban development, with its activities confined to development of infrastructure and public services such as roads, drainage, water supply and allied amenities. Its receipts were regulatory in nature, including government grants and prescribed levies, and the available material showed that the income was applied for the public purpose for which the authority was created. The decision followed binding jurisdictional precedents holding that where a statutory development authority performs its public functions without an element of trade, commerce or business and without profiteering, the proviso to section 2(15) does not apply. On that basis, the denial of exemption under sections 11 and 12 was not sustainable.

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

Ratio Decidendi: A statutory urban development authority engaged in public infrastructure and town-planning functions, collecting regulatory charges without a profit motive, is not carrying on trade, commerce or business for the purposes of the proviso to section 2(15), and its exemption under section 11 cannot be denied on that ground.

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