Sec. 11 exemption was allowed on Industrial Development Corporation’s infrastructure activities

By RATHI Income Tax Judiciary February 9, 2026

TaxGuru Citation: 2026 taxguru.in 1683
Case Name: CIT (Exemptions) Vs Gujarat Industrial Development Corporation (Gujarat High Court)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Courts: All High Courts, Gujarat High Court

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CIT (Exemptions) Vs Gujarat Industrial Development Corporation (Gujarat High Court)

Conclusion: Since the primary object was the advancement of an object of general public utility without a profit motive, the activities did not constitute “trade, commerce, or business.” Therefore, the restrictions in the proviso to Section 2(15) were not applicable and assessee was held entitled to the exemption under Section 11.

Held: Assessee was a statutory corporation constituted under the Gujarat Industrial Development Act, 1962, engaged in development of industrial estates and infrastructure such as roads, drainage and water supply. For AY 2012–13, it filed its return declaring a loss and claimed exemption under Sections 11 and 12. AO invoked the proviso to Section 2(15) and Section 13(8), holding that assessee was engaged in activities in the nature of trade, commerce or business, particularly due to sale of industrial plots, and denied exemption. CIT(A) initially upheld the assessment. On remand by Tribunal, AO reiterated the denial and assessed substantial taxable income. CIT(A), however, allowed assessee’s appeal and restored the exemption under Sections 11 and 12. Revenue’s appeal before the Tribunal was dismissed by relying on the Supreme Court decision in ACIT v. AUDA. Aggrieved, Revenue preferred the present appeal under Section 260A. Revenue contended that Tribunal misapplied the Supreme Court ruling in ACIT v. AUDA, ignoring later clarifications in the Miscellaneous Application; even statutory bodies advancing general public utility may fall within the proviso to Section 2(15) if their activities generate profits significantly exceeding costs; assessee earned a net profit margin of about 51.46%, which could not be regarded as nominal or incidental surplus; Tribunal failed to examine the issue of mark-up and profit element, as mandated by the Supreme Court. Assessee contended that the issue stood conclusively covered by binding precedents of the Gujarat High Court in the assessee’s own case for earlier assessment years, the Supreme Court in ACIT v. AUDA (Civil Appeal No. 21762 of 2017) had expressly rejected Revenue appeals against GIDC and similar statutory bodies; assessee’s activities were statutory, regulatory and aimed at industrial development, with no profit motive; any surplus was incidental and mandatorily ploughed back into statutory objects. Hence, the proviso to Section 2(15) had no application. It was held that Court held that the issue was no longer res integra, being squarely covered by earlier decisions of the Gujarat High Court in the assessee’s own case and by the Supreme Court in ACIT v. AUDA and allied matters; assessee’s functions under the Gujarat Industrial Development Act, 1962 were statutory in nature and directed towards advancement of general public utility, not trade, commerce or business; collection of fees, cess or consideration and generation of surplus were incidental to statutory objectives and did not indicate a profit-making motive. Tribunal had rightly followed binding precedent, and no error was committed in granting exemption under Sections 11 and 12.

FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT