INCOME TAX ACT, 1961

Section 11 Section 2(15), proviso

Charitable trust - Exemption under section 11 - Charitable purpose under section 2(15) - Whether Trade, commerce or business with commercial intent to earn profit

Assessee [Jamnagar Area Development Authority (JADA)] had been constituted on 30-10-1978 under the provisions of Gujarat Town Planning and Urban Development Act, 1976. It was an authority wholly owned and controlled by the State Government of Gujarat. The authority was a tool of the State government for coordinated and planned development in a particular region. The authority also carries out work relating to construction of roads, sewerage, parks, play grounds, provide plots for educational, health and cultural institution for over all development of the community. The revenue generated through these activities was also finally utilized for the benefit of the public and while performing these activities, the intention of the authority was not to earn profit but recover the cost of the establishment as well as other expenditure to implement its objects. The authority had been granted registration under section 12A. AO while framing the assessment held that the nature of activity of authority was towards advancement of objects of general public utility and the same was in the nature of trade, commerce or business. AO accordingly, denied the benefit of exemption under section 11 on the profits generated by the assessee authority and carried disallowances of benefits claimed by assessee under section 11(2)/11(1)(a) towards accumulations, etc. CIT(A) found merits in the plea of the assessee and held the activity of assessee authority to be charitable in nature. Held: The first issue that the object of the assessee authority was to engage in advancing of objects of public utility was not in dispute. The dispute relates to the second limb, i.e., whether such object of advancement of general public utility also acquires the character of trade, commerce or business with commercial intent or whether the authority exists solely for advancement of object of public utility and do not exist with a motive to make profit in a commercial spirit. The assessee was a Government agency and was engaged in co-ordinate and planned development of Jamnagar region which was pre-dominant object of the authority. The authority has been granted registration under section 12A for claiming deduction/exemption under section 11. On similar facts, the Gujarat High Court in Ahmedabad Urban Development Authority v. ACIT (2017) 83 taxmann.com 78 (Guj) held that general public utility services and amenities provided by such authorities would fall within the meaning of 'charitable purposes' as contemplated under section 2(15) and consequently, the assessee was entitled to claim exemption of income under section 11. The issue had already been adjudicated in favour of the assessee in other assessment years by the co-ordinate bench thus there was no error in the conclusion drawn by the CIT(A) in favour of the assessee. Once the activity was considered to be charitable in nature, the assessee would be entitled to all consequential benefits flowing to income generated from such activity including the benefits provided under section 11(2) and 11(1)(a) towards accumulation of profits without any demur.

Followed:assessee's own case ITA. No. 102/Rjt/2016 concerning assessment year 2012-13, Tribunal in assessment year 2013-14 ITA. No. 435/Ahd/2018 and Ahmedabad Urban Development Authority v. Asstt. CIT (2017) 83 Taxmann.com 78 (Guj).

SUBSCRIBE FOR FULL CONTENT