2022 (7) TMI 490 - AT - Income Tax

Assessee's Charitable Activities Qualify for Tax Exemption

M/s. Varanasi Development Authority Versus Assistant Commissioner of Income Tax, Circle-3, Varanasi, U.P.

The Tribunal held that the assessee's activities are charitable in nature, qualifying for exemption under Sections 11 and 12 of the Income-tax Act, 1961. ... Exemption u/ 11 - claim denied as assessee is maximizing profits by selling the properties by auction, where the person offering maximum bid price is sold the property, and hence the assessee is a commercial enterprise existing solely for profits, and is not a charitable entity within the meaning of Section 2(15) - perusal of the audited accounts of the assessee will reveal that it is engaged in business - assessee is a State Government body constituted by separate Act of State Government - object of the assessee are of general public utilities for management, regulation and control of infrastructure falling within Varanasi - HELD THAT:- As the assessee is rendering various services for which necessary charges are recovered by assessee, which are in discharge of onerous and vast responsibilities entrusted to the assessee under the 1973 State Act, more particularly sub-division of property, plan charges, receipt against map sanction and regularization, compounding charges, strengthening charges, development charges sewerage charges, water charges, Malwa fees, land use conversion, F.A.R Fees, map charges etc. - The assessee has also earned income from allotted properties, which obviously is part of its activities to sell properties under various schemes,to carry out planned development of the development area under its jurisdiction. Much is said by Revenue as to earning of interest income by the assessee which as per Revenue shows that the assessee is earning income on commercial lines and thus now entitled for exemption u/s 11, as is reflected in its audited accounts for the year under consideration (placed in paper book filed by the assessee, which is now placed on record in file) The assessee, like, LDA in the case of Lucknow Development Authorit [2013 (9) TMI 570 - ALLAHABAD HIGH COURT] was also constituted under the provisions of 1973 State Act, and its activities are paramateria with the activities of LDA.Thus, it could be said based on detailed analysis of the 1973 State Act, activities carried on by the assessee and ratio of aforesaid decisions, that the assessee is engaged in the advancement of object of general public utility, the predominant object being town planning and development of development area under its jurisdiction, in a planned manner, and not otherwise, with no profit motive, while sale of properties etc. being ancillary objects to its predominant object and the assessee is not engaged in any business, trade or commerce. The assessee authority is also constituted under same statute viz. 1973 State Act, and after perusing the vast and onerous responsibilities assigned to the assessee-authority under the 1973 State Act, its audited financial statements and activities carried on by the assessee as elaborately discussed in the preceding para’s of this order, we are also of the considered view that the assessee authority predominant purpose is to tackle problems of town planning and urban development in a planned manner, and not otherwise, with no profit motive as its object, while sale of properties etc. are merely ancillary objects for attainment of main and predominant objects, and it could be said that the assessee is not engaged in any trade, commerce or business. Thus we hold that the assessee is a charitable entity u/s 2(15) of the 1961 Act, being engaged in the advancement of object of general public utility, with the predominant object of tackling problems of town planning and urban development in a planned manner, and shall be eligible for exemption u/s 11 of the 1961 Act. Thus, the appeal filed by the assessee stand allowed. Issues Involved:1. Whether the activities of the assessee fall under the definition of 'charitable purpose' as per Section 2(15) of the Income-tax Act, 1961.2. Whether the assessee is entitled to exemption under Sections 11 and 12 of the Income-tax Act, 1961.3. Whether the activities carried out by the assessee are in the nature of trade, commerce, or business.4. Whether the assessee's activities are hit by the proviso to Section 2(15) of the Income-tax Act, 1961.5. Whether the assessee's income from various sources, such as interest from banks and realization from allotted properties, affects its claim for exemption.6. Whether the assessee's registration under Section 12A of the Income-tax Act, 1961, entitles it to exemption under Sections 11 and 12.7. Whether the dissolution provisions of the Uttar Pradesh Urban Planning and Development Act, 1973, affect the assessee's claim for exemption.8. Whether the assessee's activities are comparable to those of private developers or colonizers.Issue-wise Detailed Analysis:1. Definition of 'Charitable Purpose' under Section 2(15):The assessee's primary object is to promote and secure the development of the development area according to the plan, which includes acquiring, holding, managing, and disposing of land and other property, as well as providing amenities such as water, electricity, and sewage disposal. The Tribunal observed that these activities fall under the category of 'advancement of any other object of general public utility' as defined in Section 2(15) of the Income-tax Act, 1961.2. Entitlement to Exemption under Sections 11 and 12:The Tribunal held that the assessee is entitled to exemption under Sections 11 and 12 of the Income-tax Act, 1961, as its activities are charitable in nature. The assessee is registered under Section 12A, and the income generated is used for the development of infrastructure and other public utilities within the development area.3. Nature of Activities - Trade, Commerce, or Business:The Tribunal noted that the assessee's activities, such as the realization from allotted properties, interest from banks, and other receipts, are not carried out with a profit motive. The activities are aimed at the planned development of the area and providing public utilities, which are incidental to the main object of public welfare. Therefore, the activities do not fall under the category of trade, commerce, or business.4. Applicability of Proviso to Section 2(15):The Tribunal observed that the proviso to Section 2(15) is not applicable to the assessee's case. The assessee's activities are not conducted on commercial lines with the motive to earn profit. The income generated from various sources is used for the development of the area and providing public utilities, which aligns with the charitable purpose.5. Impact of Income from Various Sources:The Tribunal held that the income from various sources, such as interest from banks and realization from allotted properties, does not affect the assessee's claim for exemption. These receipts are incidental to the main object of public welfare and are used for the development of infrastructure and other public utilities.6. Effect of Registration under Section 12A:The Tribunal emphasized that the registration under Section 12A signifies that the conditions laid down in Section 12A are fulfilled. The registration indicates the genuineness of the activities and the charitable nature of the objects of the trust or institution. Therefore, the assessee is entitled to exemption under Sections 11 and 12.7. Dissolution Provisions of the Uttar Pradesh Urban Planning and Development Act, 1973:The Tribunal noted that the dissolution provisions under Section 58 of the Uttar Pradesh Urban Planning and Development Act, 1973, do not affect the assessee's claim for exemption. On dissolution, the assets and properties of the assessee vest in the State Government, which is a non-taxable entity. The funds generated during the charitable period are used for public welfare and not for commercial purposes.8. Comparison with Private Developers or Colonizers:The Tribunal distinguished the assessee's activities from those of private developers or colonizers. The assessee is a statutory authority constituted under the Uttar Pradesh Urban Planning and Development Act, 1973, with the primary object of planned development and public welfare. The activities are carried out under the supervision and control of the State Government, and any surplus generated is used for public utilities and infrastructure development.Conclusion:The Tribunal concluded that the assessee's activities are charitable in nature, falling under the definition of 'advancement of any other object of general public utility' as per Section 2(15) of the Income-tax Act, 1961. The assessee is entitled to exemption under Sections 11 and 12, and its activities are not hit by the proviso to Section 2(15). The income from various sources is incidental to the main object of public welfare, and the registration under Section 12A confirms the genuineness of the charitable activities. The dissolution provisions and comparison with private developers do not affect the assessee's claim for exemption.