By TIOL News Service

AHEMDABAD, JULY 20, 2017: THE ISSUE BEFORE THE COURT IS - Whether a statutory corporation constituted for the purposes of establishing commercial centers in connection with establishment & organization of industrial estates, is entitled to exemption u/s 11 of I-T Act. YES is the verdict.

Facts of the case:

The assessee was constituted under the provisions of the Gujarat Industrial Development Act, for the purpose of securing and assisting rapid and orderly establishment and organization of industrial areas and industrial estates in the State of Gujarat, and for the purpose of establishing commercial centers in connection with establishment and organization of such industries. Assessee-Corporation filed its return of income for Assessment Years 2009-2010 to 2011-2012 by claiming itself as a “Charitable Institution” as per Section 2 [15] of Income-tax Act. Assessee had been recognized and granted Certificate u/s 12[a] of I-T Act. Considering proviso to Section 2[15] of the I-T Act and after observing that the assessee is involved in commercial activities, and it also maintains its accounts in the spirit of a commercial organization and as the assessee is enjoying income from business of developing land for industrial purposes and allotting land to industrialists on lease and is also charging consideration for land transferred to them, the AO held that the assessee cannot be said to be a “charitable institution” and/or its activities could not be said to be for charitable purposes, as per Section 2 [15] of the I-T Act. On appeal, the ITAT held that proviso to Section 2 [15] would not be applicable, as the activities of the assessee could be said to be for charitable purposes, and therefore, the assessee was entitled to exemption u/s 11 of the I-T Act.

On appeal, the HC held that,

++ it is seen that as per the statement and object of GIDC Act, 1962, it has been enacted for securing the orderly establishment and organization of industries in industrial areas and industrial estates in the State of Gujarat and for the purpose of establishing commercial centres in connection with the establishment and organization of such industries and for that purpose, to establish an Industrial Development Corporation, and for purposes connected with the aforesaid matters. It cannot be said that the activities carried out by the assessee can be said to be for “advancement of any other object of general public utility”. Considering the object and purpose for which the assessee has been established under the provisions of the Act and the activities carried out by the assessee, it cannot be said that the activities carried out by the assessee can be said to be either in the nature of trade, commerce or business, or rendering any services in relation to any trade, commerce or business for a Cess or Fee or any other consideration so as to attract proviso to Section 2 [15] of the IT Act;

++ in the case of Ahmedabad Urban Development Authority vs. Assistant Commissioner of Income Tax [Exemption] rendered in Tax Appeal No. 423 of 2016, it was held that considering the fact that the assessee is a statutory body Urban Development Authority constituted under the provisions of the Act, constituted to carry out the object and purpose of Town Planning Act and collects regulatory fees for the object of the Acts; no services are rendered to any particular trade, commerce or business; whatever the income is earned / received by the assessee even while selling the plots (to the extent of 15% of the total area covered under the Town Planning Scheme) is required to be used only for the purpose to carry out the object and purpose of Town Planning Act and to meet with expenditure while providing general utility service to the public such as electricity, road, drainage, water etc. and even the entire control is with State Government and even accounts are also subjected to audit and there is no element of profiteering at all, the activities of the assessee cannot be said to be in the nature of trade, commerce and business and therefore, proviso to Section 2(15)of the Act shall not be applicable so far as assessee is concerned and therefore, the assessee is entitled to exemption u/s 11 of the Income Tax Act. Merely because the assessee is collecting cess or fees which is regulatory in nature, the proviso to Section 2(15)of the Act shall not be applicable. As the activities of the assessee is for advancement of any other object of general public utility, the same can be for “charitable purpose” and therefore, the assessee Corporation shall be entitled to exemption u/s 11 of the Act.

(See 2017-TIOL-1337-HC-AHM-IT)