Commercial activity defeats charitable exemption as reassessment is upheld and lease receipt taxability is remanded for fresh scrutiny.

A statutory corporation engaged in industrial land development and provision of infrastructure for consideration was treated as carrying on trade, commerce or business within the proviso to section 2(15), so exemption under section 11 was denied and Article 289(1) immunity was not available. Reopening under section 147 was upheld because the recorded reasons showed prima facie material that receipts from sale or long-term lease of industrial plots had escaped assessment, and the challenge as a mere change of opinion failed. The question whether lease premium, rent and interest receipts were taxable required fresh examination in light of a later co-ordinate bench ruling that the land was not owned by the assessee, and the matter was remanded for reconsideration after hearing the assessee.

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Issues: (i) Whether the assessee's activities were commercial in nature so as to attract the proviso to section 2(15) of the Income-tax Act, 1961 and disentitle exemption under section 11, and whether it could claim immunity under Article 289(1) of the Constitution of India; (ii) whether reopening of assessment under section 147 of the Income-tax Act, 1961 was valid; (iii) whether the issue relating to taxability of lease premium, rent and interest receipts required fresh examination.

Issue (i): Whether the assessee's activities were commercial in nature so as to attract the proviso to section 2(15) of the Income-tax Act, 1961 and disentitle exemption under section 11, and whether it could claim immunity under Article 289(1) of the Constitution of India;

Analysis: The assessee was engaged in development and disposal of industrial land and in providing infrastructural facilities for consideration. Its activities were held to be in the nature of trade, commerce or business within the meaning of section 2(15), as the dominant character had shifted from charitable public utility to commercial exploitation. The assessee was also held to be a separate statutory corporation and not part of the State Government for the purposes of Union taxation, so Article 289(1) did not confer immunity.

Conclusion: The issue was decided against the assessee and in favour of the Revenue.

Issue (ii): Whether reopening of assessment under section 147 of the Income-tax Act, 1961 was valid;

Analysis: The notice under section 148 was issued after the original assessment, and the recorded reasons referred to omission to offer receipts from sale or long-term lease of industrial plots as income. The Tribunal found prima facie material for formation of belief that income had escaped assessment and no basis to hold the reopening to be merely a change of opinion.

Conclusion: The reopening was upheld and the issue was decided against the assessee.

Issue (iii): Whether the issue relating to taxability of lease premium, rent and interest receipts required fresh examination;

Analysis: In view of the later co-ordinate bench decision holding that the land was not owned by the assessee and that the receipts could not be assessed in its hands on the footing of ownership, the matter was sent back for reconsideration in accordance with that decision after giving the assessee an opportunity of hearing.

Conclusion: The issue was restored to the Assessing Officer for fresh adjudication.

Final Conclusion: The appeals succeeded only to the limited extent of remand on the receipts issue, while the challenge to the proviso to section 2(15), exemption under section 11, Article 289 immunity, and reopening under section 147 was rejected.

Ratio Decidendi: A statutory corporation engaged in industrial development on commercial lines is not entitled to charitable exemption merely because it performs public functions, and reassessment is sustainable where recorded reasons disclose material indicating escapement of income.

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