2023 (8) TMI 689 - SCH - Income Tax

Tax exemption for charitable entities providing public utility services clarified by Supreme Court

COMMISSIONER OF INCOME TAX Versus HARYANA WAREHOUSING CORPORATION

The Supreme Court considered the appeal regarding tax exemption for an entity engaged in charitable activities under Section 10(29) of the Income Tax Act. ... Exemption u/s 11 - Exemption u/s 10(29) - Assessment of trust - HELD THAT:- As jointly submitted that these appeals are covered by the judgment of this Court in Ahemdabad Urban Development Authority [2022 (10) TMI 948 - SUPREME COURT] wherein held that amounts or any money whatsoever charged by a statutory corporation, board or any other body set up by the State Governments or Central Government, for achieving what are essentially “public functions/services” (such as housing, industrial development, supply of water, sewage management, supply of food grain, development and town planning, etc.) may resemble trade, commercial, or business activities. However, since their objects are essential for advancement of public purposes/functions (and are accordingly restrained by way of statutory provisions), such receipts are prima facie to be excluded from the mischief of business or commercial receipts. For the period 1-4-2003 to 1-4-2011, a statutory corporation could claim the benefit of Section 2(15) having regard to the judgment of this Court in the Gujarat Maritime Board Case[2007 (12) TMI 7 - SUPREME COURT] Likewise, the denial of benefit under Section 10(46) after 1-4-2011 does not preclude a statutory corporation, board, or whatever such body may be called, from claiming that it is set up for a charitable purpose and seeking exemption under Section 10(23-C) or other provisions of the Ac Also submitted at the Bar that the respondent(s) herein which has been registered for conducting an activity, in the nature of a General Public Utility, which is charitable in nature under Section 10(29) of the Income Tax Act is entitled to exemption from tax under Sections 11 and 12 of the said Act, therefore, appropriate an order may be made in these appeals. Appeal dismissed. Issues:The judgment deals with the applicability of tax exemption under Sections 11 and 12 of the Income Tax Act to entities engaged in charitable activities falling under Section 10(29) of the Act.Summary:The Supreme Court, in a judgment delivered by Hon'ble Mrs. Justice B. V. Nagarathna and Hon'ble Mr. Justice Ujjal Bhuyan, considered the appeal concerning tax exemption for an entity conducting charitable activities under Section 10(29) of the Income Tax Act. The appellant-Revenue and the respondent jointly referred to a previous judgment of the Court in Assistant Commissioner of Income Tax vs. Ahmedabad Urban Development Authority, highlighting that the present appeals are covered by the said decision. The Court noted that entities engaged in public utility services, like the respondent, may be entitled to tax exemption under Sections 11 and 12 of the Act. In its analysis, the Court referred to the nature of activities carried out by entities such as the respondent and cited the observations made in the Ahmedabad Urban Development Authority case. The Court emphasized that amounts charged by statutory bodies for public functions/services are generally excluded from commercial activities due to their essential public purposes. However, assessing authorities must assess whether the charges significantly exceed costs and nominal markups, which would then indicate commercial activities subject to tax limits. The Court clarified the interpretation of terms like 'commercial' in the context of tax exemptions and highlighted the need for case-by-case decisions by the Central Government for bodies notified under Section 10(46) of the Act.Ultimately, the Court found that the principles discussed were directly applicable to the respondent-Corporation in question and dismissed the appeals, with any pending applications being disposed of accordingly.