Urban Development Authority Entitled to S.11 Exemption: ITAT Rules Fees and Grants Not Commercial Receipts [Read Order]

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) dismissed the Revenue's appeals and held that the statutory fees and government grants received by the authority did not convert its charitable objects of general public utility into commercial activities.

Jamnagar Area Development Authority (assessee) is a local authority constituted under the Gujarat Town Planning and Urban Development Act, 1976. Its primary functions include preparing development plans, executing town planning schemes, and providing essential civil amenities like water supply and sewage disposal.

For the Assessment Years 2016-17 and 2018-19, the assessee filed returns declaring NIL income after claiming exemptions under Section 11. However, the Assessing Officer (AO) denied these exemptions and contended that the authority was involved in commercial activities covered under the provision to Section 2(15) of the Act.

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Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) had deleted several additions made by the AO. These included additions of ₹2,00,00,000 on account of government grants and ₹51,76,845 related to service and amenities fees.

Aggrieved by the CIT(A)’s deletion, the Revenue filed appeals before ITAT. The Revenue argued that these receipts indicated a profit motive, citing the Supreme Court’s decision in Ahmedabad Urban Development Authority.

The two-member bench comprising Dr. B.R.R. Kumar (Vice-President) and Ms. Suchitra Kamble (Judicial Member), examined whether the authority's activities were in the nature of commerce or trade.

It was observed that the assessee is a statutory tool of the State government for coordinated and planned regional development. The bench noted that Statutory authorities mandated to develop housing or infrastructure at subsidized costs cannot be characterized as engaging in business simply because they charge fees.

The Bench held that Fees collected for essential services like water or sewage in the larger public interest were not considered commercial receipts. It also held that Regulatory fee collection in terms of enacted law was per se not commercial in nature.

The tribunal noted that the issue was squarely covered by the Supreme Court’s ruling in the assessee's own case, which clarified that the prohibition on commercial activity under Section 2(15) did not apply to statutory bodies performing their legal mandate.

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It was concluded that there was no change in the factual or legal position that would warrant a different view. The Bench ruled that the CIT(A) was justified in deleting the additions. The appeals of the Revenue were dismissed.

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