2023 (6) TMI 1212 - AT - Income Tax

Supreme Court affirms urban development trust's exemption eligibility under Income Tax Act

The Dy. Commissioner of Income-tax (Exemptions), Circle-1, Ahmedabad Versus Ahmedabad Urban Development Authority Sardar Vallabhbhai Patel Sankul, Ahmedabad And Ahmedabad Urban Development Authority Sardar Vallabhbhai Patel Sankul, Ahmedabad Versus The ACIT (Exemption) Circle-1, Ahmedabad

The Supreme Court affirmed that the assessee trust engaged in urban development qualifies for exemption under Sections 11 and 12 of the Income Tax Act. ... Exemption u/s. 11 - Charitable activity u/s 2(15) - Assessee trust is an autonomous body which is established under 5/2 of the Gujarat Town Planning and Urban Development Act, 1976 made there under carrying Planned Development of areas as defined and designed by the Government of Gujarat and also infrastructural activities relating thereto such as construction of roads, bridges, drainage system, water connection for the benefit of public at large - HELD THAT:- We hold that the activities of the assessee for advancement of any other object of ‘General Public Utility’ for charitable purpose and therefore the assessee corporation shall be entitled to exemption u/s. 11 of the Act. Hon’ble Supreme Court in ACIT vs. Ahmedabad Urban Development Authority [2022 (11) TMI 255 - SUPREME COURT] wherein it has been clearly held that the Revenues Appeals are dismissed as far as statutory Corporations/Boards - Decided in favour of assessee. Issues Involved:1. Applicability of Proviso to Section 2(15) of the Income Tax Act.2. Eligibility for Exemption under Sections 11 and 12 of the Income Tax Act.3. Treatment and Computation of Grants and Income.4. Depreciation on Fixed Assets.5. Accumulation and Carry Forward of Deficits.6. Levy of Interest and Penalty Proceedings.Summary of Judgment:1. Applicability of Proviso to Section 2(15):The primary issue was whether the activities of the assessee trust, which is engaged in urban development and town planning, fall under the proviso to Section 2(15) of the Income Tax Act, thereby disqualifying it from claiming exemption under Sections 11 and 12. The Tribunal referred to the Gujarat High Court's judgment, which held that the assessee's activities are for the general public utility and not in the nature of trade, commerce, or business. The Supreme Court also dismissed the Revenue's appeal, affirming that statutory bodies like the assessee are eligible for exemption under Section 11.2. Eligibility for Exemption under Sections 11 and 12:The Tribunal upheld the Gujarat High Court's decision that the assessee trust's activities are charitable in nature, aimed at providing general public utility services. Consequently, the assessee is entitled to exemption under Sections 11 and 12 of the Income Tax Act. The Revenue's grounds challenging this were dismissed as the Supreme Court had already settled the issue in favor of the assessee.3. Treatment and Computation of Grants and Income:The Commissioner of Income Tax (Appeals) [CIT(A)] had directed the Assessing Officer (AO) to verify and compute the income of the assessee as per guidelines, including issues related to grants, depreciation, and application of income. The Tribunal found that the CIT(A)'s directions were in line with the Supreme Court's judgment, which clarified that grants received for specific purposes should be treated accordingly, and the assessee's claims for accumulation and application of income should be allowed as per the law.4. Depreciation on Fixed Assets:The Tribunal allowed the assessee's claim for depreciation on fixed assets created out of grants, following the Supreme Court's judgment in CIT vs. Rajasthan & Gujarati Charitable Foundation Poona. The Tribunal held that depreciation is allowable even if the expenditure on acquiring the capital assets was treated as application of income for charitable purposes.5. Accumulation and Carry Forward of Deficits:The Tribunal addressed the issue of whether the application of income should precede accumulation. It referred to the decisions of various benches, which held that excess application of income over receipts (deficits) could be carried forward to subsequent years. The Tribunal set aside the CIT(A)'s order on this count, allowing the assessee to carry forward the deficits.6. Levy of Interest and Penalty Proceedings:The Tribunal noted that the issues of levy of interest under Sections 234B and 234C and initiation of penalty proceedings are consequential and do not require separate adjudication since the main appeal was allowed in favor of the assessee.Conclusion:The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, granting exemptions and allowing claims for depreciation, accumulation, and carry forward of deficits, in line with the Supreme Court's and Gujarat High Court's judgments.