Case Law Details
Commissioner of Income Tax Exemptions Vs Jaipur Development Authority (Rajasthan High Court)
In the case of Commissioner of Income Tax Exemptions vs. Jaipur Development Authority, the Rajasthan High Court dismissed the Income Tax Department’s appeal, which challenged the exemption claimed by the Jaipur Development Authority (JDA) under Section 11 of the Income Tax Act for the assessment year 2009-2010. The department had initially added Rs. 79.76 crore to JDA’s income, arguing that the authority was not eligible for the exemption due to its commercial activities. The Income Tax Appellate Tribunal (ITAT) had earlier ruled in favor of JDA, holding that its activities were charitable. The Rajasthan High Court, relying on the Supreme Court’s ruling in a similar case involving the Ahmedabad Urban Development Authority, upheld ITAT’s decision. The court found that JDA’s activities were aimed at public service, thus qualifying for exemption under Section 11. As the primary question of law was resolved in favor of JDA, the secondary question regarding the addition of unspent income under Section 11(3) did not require separate adjudication.
FULL TEXT OF THE JUDGMENT/ORDER OF RAJASTHAN HIGH COURT
1. This appeal is filed against the order of the Income Tax Appellate Tribunal Jaipur (for short ‘the Tribunal’) dismissing the appeal of the Department.
2. The brief facts are that respondent-assessee is engaged in developing the area, providing civic amenities and allotment of lands. The income tax return for the assessment year 2009-2010 was filed declaring losses. The proceedings under Section 147 of the Income Tax Act, 1961 (for short ‘the Act’) culminated in order dated 23.03.2015 making an addition of Rs.79,76,39,913/-. It was held that the respondent was not eligible to claim exemption under Section 11 of the Act. The CIT(A) allowed the appeal on 25.07.2016. On dismissal of appeal of appellant by the Tribunal on 11.01.2017, the present appeal is filed.
3. Earlier this appeal was dismissed by this Court vide order dated 18.10.2016, the Supreme Court vide order dated 08.08.2022 remitted the matter back for consideration afresh and decision in accordance with law.
4. While admitting the appeal, the following substantial questions of law were formulated:-
“i) Whether on the facts and circumstances of the case and in law the Hon’ble ITAT has erred in law in allowing the exemption u/s 11 of the Act by holding that the activities of the assessee are charitable in nature even though the amended provision of section 13(8) r.w. 1st and 2nd proviso of section 2(15) are attracted?
ii) Whether on the facts and in circumstances of the case and in law the Hon’ble ITAT has erred in law in allowing the benefits of set apart u/s 11(2) of the Act, deleting the additions of Rs. 79,76,39,913/- as unspent amount in spite of the fact that the provision of section 11(2) r.w.s. 11(3)
(c) are attracted as assessee is not granted exemption u/s 11 & 12 of the Act.?
iii) Any other question of law as deemed fit in the facts and circumstances of the case may also be framed by the Hon’ble Court in the interests of justice.”
5. Learned counsel for the respondent submits that the substantial question No.1 is covered by the decision of the Supreme Court in the case of Assistant Commissioner of Income Tax (Exemption) Vs. Ahmedabad Urban Development Authority reported in [(2022) 449 ITR 1 (SC)].
6. Learned counsel for the appellant is not in a position to distinguish the decision cited.
7. The relevant portion of the judgment is reproduced below:-
“B. Authorities, Corporation, or bodies established by statute.
B.1. The amounts or any money whatsoever charged by a statutory corporation, board or any other body set up by the State Government or Central Governments, for achieving what are essentially ‘public functions/services’ (such as housing, industrial development, supply of water, sewage management, supply of food grain, development and town planning, etc.) may resemble trade, commercial, or business activities.
However, since their objects are essential for advancement of public purposes/functions (and/are accordingly restrained by way of statutory provisions), such receipts are prima-facie to be excluded from the mischief of business or commercial receipts. This is in line with the larger bench judgments of this Court in Ramtanu Cooperative Housing Society and NDMC (supra).
B.2 However, at the same time, in every case the Assessing Authorities would have to apply their mind and scrutinize the record, to determine if, and to what extent, the consideration or amounts charged are significantly higher than the cost and the nominal mark-up. If such is the case, then the receipts would indicate that the activities are in fact in the nature of “trade, commerce or business” and as a result, would have to comply with the quantified limit (as amended from time to time) in the proviso to Section 2(15) of the IT Act.
B.3 In clause B of Section 10 (46) of the IT Act, “Commercial” as the same meaning as “trade, commerce, business” in Section 2(15) of the IT Act. Therefore, 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 the nominal mark-up or significantly higher, to determine if false within the mischief of “commercial activities”. 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).
B.4 for the period 01.04.2003 to 01.04.2011, are statutory corporation should claim the benefit of Section 2(15) having regard to the judgment of this Court in the Gujarat Maritime Board case (supra). Likewise, the 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.”
8. In view of the law laid down by the Supreme Court in Assistant Commissioner of Income Tax (Exemption) Vs. Ahmedabad Urban Development Authority (supra), the substantial question No.1 is answered against the Department.
9. The question No.2 arose as the Assessing Officer after having held that the respondent was not eligible for exemption under Section 11 of the Act, proceeded to treat the income to be taxable under Section 11(3) of the Act. Since the first question has been decided in favour of the respondent, the second question being consequential needs no adjudication.
10. The appeal is dismissed.
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