2023 (8) TMI 780 - HC - Income Tax

High Court Overturns CBDT Decision; Reconsiders Section 10(46) Application Following Supreme Court Judgment on Commercial Activity

Urban Improvement Trust, Udaipur, Versus The Union of India, The Central Board of Direct Taxes,

The HC overturned the CBDT's rejection of the petitioner's application under Section 10(46) of the Income Tax Act, which was initially denied due to the ... Exemption u/s 10(46) - rejection of the application by the CBDT as the petitioner was engaged in a commercial activity - scope and amplitude of the definition “charitable purpose”- HELD THAT:- As said aspect of the matter has now been put to rest by judgment of Ahmedabad Urban Development Authority [2022 (10) TMI 948 - SUPREME COURT] as held that in clause (b) of Section 10(46) of the IT Act, “commercial” has the same meaning as “trade, commerce, business” in Section 2(15) - sums charged by such notified body, authority, Board, Trust or Commission (by whatever name called) will require similar consideration – i.e., whether it is at cost with a nominal mark-up or significantly higher, to determine if it falls within the mischief of “commercial activity”. However, in the case of such notified bodies, there is no quantified limit in Section 10(46). Therefore, the Central Government would have to decide on a case-by-case basis whether and to what extent, exemption can be awarded to bodies that are notified under Section 10(46). For the period 01.04.2003 to 01.04.2011, 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] - Denial of benefit under Section 10(46) after 01.04.2011 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(23C) or other provisions of the Act. Thus the issue raised in the present petition, pertaining to the eligibility of the petitioner to seek exemption under the provisions of Section 10(46) of the Act now stands concluded by judgment (supra) and the subject matter now needs to be examined by the CBDT in the light of the said judgment, the order impugned is set aside and the matter is remanded back to the CBDT to redetermine the aspect of eligibility of the petitioner in seeking exemption under Section 10(46) of the Act in the light of the above judgment. Issues:The judgment deals with the rejection of the petitioner's application for being notified under Section 10(46) of the Income Tax Act, 1961 by the Central Board of Direct Taxes (CBDT) based on the petitioner's engagement in commercial activity.Summary:Issue 1: Rejection of Application under Section 10(46) of the Income Tax ActThe petitioner filed a writ petition challenging the order dated 08.06.2015, where the CBDT rejected the application for notification under Section 10(46) of the Income Tax Act. The petitioner contended that the rejection was due to their engagement in commercial activity, which was considered a hindrance under Sub-clause (b) of Clause 46 provisions of Section 10.Issue 2: Legal Precedent and Remand to CBDTThe petitioner cited a judgment of the Hon'ble Supreme Court in Assistant Commissioner of Income Tax (Exemptions) Vs. Ahmedabad Urban Development Authority, which clarified the eligibility criteria for seeking exemption under Section 10(46). The court noted that the issue raised in the present petition aligns with the decision in the mentioned case and directed the CBDT to reevaluate the petitioner's eligibility in light of the Supreme Court's judgment. The court set aside the impugned order and remanded the matter back to the CBDT for reconsideration.Conclusion:The High Court, after considering the legal precedent set by the Supreme Court, overturned the CBDT's rejection of the petitioner's application under Section 10(46) of the Income Tax Act. The CBDT was instructed to review the petitioner's eligibility promptly, preferably within three months, in accordance with the Supreme Court's ruling in the Ahmedabad Urban Development Authority case.