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Income Tax Appellate Tribunal, A BENCH: BANGALORE
Before: SHRI LAXMI PRASAD SAHU & SHRI KESHAV DUBEY
PER KESHAV DUBEY, JUDICIAL MEMBER:
These appeals at the instance of the assessee are directed against the orders of the ld. CIT(A)/NFAC dated 18.02.2025 vide DIN & Order No.ITBA/NFAC/S/250/2024-25/1073418441(1) for the assessment year 2021-22 and vide Order dated 31.1.2025 with DIN & Order No.ITBA/NFAC/S/250/2024-25/1072790068(1) for the assessment year 2015-16 passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”). Since the issues in both the appeals are similar, these are clubbed together, heard together and disposed of by this common order for the sake of convenience.
& 513/Bang/2025 Karnataka Housing Board, Bangalore Page 3 of 23 3. Brief facts of the case shows that the assessee Karnataka Housing Board (KHB) was established under the Karnataka Housing Board Act, 1962 by the Government of Karnataka as a successor of Mysore Housing Board which was constituted in the year 1956. Further, as per the details furnished, the primary object of Karnataka Housing Board is to make schemes and to carry out such works as are necessary for the purpose of dealing with the need of the housing accommodation in the state of Karnataka. It endeavors to provide houses to the people of Karnataka at an affordable cost. The case for the assessment year 2021-22 was selected for scrutiny through CASS the reason being “large receipts reported by the Trust for Charitable purposes” and accordingly notices u/s 143(2) as well as 142(1) of the Act were issued along with SCN from time to time. During the course of assessment proceedings, the assessee submitted the computation of income from which the AO observed that the main function of the assessee is to procure the land and develop the same into layouts by undertaking land development activities and convert the same into saleable plots/sites. Similarly, the assessee is also engaged in acquisition of land for the construction of houses and sale of the same to the general public.
3.1 Up to the assessment year 2002-03, the assessee was enjoying the benefit of exemption u/s 10(20A) of the Act under which the entire income of the assessee was exempted from tax. However, the above provisions were deleted w.e.f. 1.4.2003 and subsequently from AY 2003-04 onwards, it had opted for exemption u/s 11 & 12 of the Act. The assessee had filed an application before the DIT (Exemptions) seeking registration u/s 12AA of the Act, which was granted on 3.2.2004 vide Reg. No. DIT(E)/12A/VOL1/K- 714/W-1.
3.2 During the course of the assessment proceedings,the AO observed that the substantial receiptsare from the auction of housing sites and shops. As per the ITR, the gross receipts amounting to Rs.282,36,24,802/-, wherein the sale as per the submission of the assessee amounting to Rs.87,16,44,809/- i.e. 30% of the receipt is received from the auction sale on commercial lines. The assessee in its reply submitted that the primary object of the Karnataka Housing Board is to make such schemes and to carry out such works as are necessary for the purpose of dealing with and satisfying the need of housing accommodation. With this directive KHB endeavors to provide housing to the people of Karnataka state at affordable cost and therefore, recognized as the most important agency for housing throughout Karnataka. However, the AO did not accept the contention of the assessee& held that as per section 2(15) of the Act as well as Circular No. 11 dated 19.12.2008 as the substantial portion of receipts are from the auction sale on the commercial lines, the assessee is to be treated as AOP and calculated the taxable income as below:
Gross receipt as per ITR Rs.282,36,24,802/- 2. Less: Total revenue expenditure as Rs.231,08,05,918/- per ITR 3. Surplus Rs.51,28,18,884/- Accordingly, an amount of Rs.51,28,18,884/- was added to the taxable income of the assessee.
3.3 Further, during the course of assessment proceedings, the AO noticed that the assessee had claimed depreciation of Rs.65,39,240/- for the period under consideration. The AO noted that as per section 11(6) of the Act, which is newly inserted by the Finance (2) Act, 2014 w.e.f. 1.4.2015, where any income is required to be applied or accumulated or set apart for application, then for & 513/Bang/2025 Karnataka Housing Board, Bangalore Page 5 of 23 such purposes, the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year. In view of section 11(6) of the Act, the depreciation claimed by the assessee amounting to Rs.65,39,240/- was also disallowed and taxed accordingly. Thus, the AO completed the assessment proceedings on a total income of Rs.51,93,58,124/- while passing order u/s 143(3) r.w.s. 144B of the Act dated 26.12.2022.
Aggrieved by the aforesaid order of the AO passed u/s 143(3) of the Act, the assessee preferred an appeal before the ld. CIT(A)/NFAC.
The ld. CIT(A)/NFAC partly allowed the appeal of the assessee. The ld. CIT(A)/NFAC by relying on the decision of theco- ordinate “B” Bench of ITAT in the assessee’s own case for the assessment year 2009-10 (ITA No.394/Bang/2013) & AY 2010-11 (ITA No/806/Bang/2014) vide common order dated 11.10.2021 held that the assessee is a taxable entity as it is involved in business activities for profit. Further, all the issues raised by the assessee have been addressed by the Tribunal in the above decision.
5.1 The ld. CIT(A)/NFAC also relied upon the decision of the Apex Court in the case of Ahmedabad Urban Development Authority (Civil Appeal No. 21762 of 2017) dated 19/10/2022 wherein it is held that if the activity is in the nature of trade and commerce and if substantial profits is earned, the charitable organization is not entitled for exemption. On perusal of the various years accounts and nature of activities carried on by the assessee, it is seen that & 513/Bang/2025 Karnataka Housing Board, Bangalore Page 6 of 23 the assessee is doing activities with the motive of profit and also that there is hardly any element of charity involved in the work done by the assessee. Further, the above decision of the Hon’ble Supreme Court was in respect of Local Authority or bodies created by the statute. The assessee is not a Local Authority, it is a body created by statute. The assessee is an AOP created for building houses. The assessee also sells/give lease lands and immovable properties. Apart from building house for the Government, the assessee also purchases land from private parties and construct building for private parties. Thus, the surplus earned by the assessee is liable to be taxed during the year.
5.2 The assessee is not doing any activity that can be treated as charitable in nature and therefore, it is held that the assessee’s profit/surplus generated for the year is liable to be taxed and the benefit of exemption is not available to the assessee. Accordingly, the ld. CIT(A)/NFAC rejected the claim of exemption u/s 11 of the Act.
5.3 Further, with regard to the claim of depreciation, the ld. CIT(A)/NFAC observed that the AO has not bifurcated the claim in respect of assts which have been treated as application of income and in respect of assets that have not been treated as application of income. Further, ld. CIT(A)/NFAC observed that the issue involved verification of records and facts and accordingly directed the AO to recompute the claim and disallow the depreciation claimed in respect of assets, which have not been treated as application of income in the earlier years or present year and with above directions, the grounds were treated as partly allowed.
Again, aggrieved by the order of ld. CIT(A)/NFAC, the assessee has filed the present appeals before this Tribunal.
Before us, ld. A.R. of the assessee vehemently submitted that the ld. CIT(A)/NFAC has grossly erred in following the earlier decision of this Tribunal dated 11.10.2021which is incorrect. The issue is well settled by the Apex Court decision in the case of Ahmedabad Urban Development Authority reported in (2022) 449 ITR 1 vide judgment dated 19/10/2022. Further, the ld. AR submitted that the registration u/s 12A of the Act had been restored by the decision of Hon’ble Karnataka High Court by order dated 12.1.2015. Therefore, the assessee is at present registered u/s 12A of the Act.
The ld. D.R. on the other hand, vehemently supported the orders of the authorities below.
We have heard the rival submissions and perused the materials available on record. The only issue raised in this appeal is with regard to the denial of the exemption under section 11 of the Act. The brief facts of the case clearly shows that similar case came before this co-ordinate Bench of Tribunal for consideration in & 169 to 171/Bang/2025 for the AYs 2011- 12, 2012-13, 2013-14 & 2017-18 in assessee’s own case, wherein the Tribunal has held as under:
15 We have carefully considered the rival contentions and perused the orders of the ld. lower authorities. The brief facts of the case clearly show that assessee is established as per Karnataka Housing Board Act, 1962 by the Government of Karnataka as a successor of Mysore Housing Board which was constituted in the year 1956. The primary objects of the Karnataka Housing Board is to carry out such scheme and carry out such work as are necessary for the purposes of dealing with and satisfying the need of housing accommodation in the State of Karnataka at affordable cost. Undoubtedly the provisions of section 10(20A) of the Income Tax Act [the Act] were deleted from the statute w.e.f. AY 2003-04 onwards and thereafter the assessee is claiming the benefit of section 11 & 12 of the Act which was granted to the & 513/Bang/2025 Karnataka Housing Board, Bangalore Page 8 of 23 assessee originally on 3.2.2004. Subsequently registration was cancelled on 28.10.2011 for the reason that assessee was found to be carrying on trade, commerce activities which were considered to be not charitable purposes as provided in section 2(15) of the Act. Subsequently w.e.f. 200910 onwards, the exemption claimed by the assessee u/s. 11 & 12 of the Act were denied. The rejection application was challenged before the coordinate Bench and subsequently ended before the Hon’ble Karnataka High Court and therefore the assessee was denied the benefit of section 11 & 12 of the Act.
From the appellate order passed in the case of assessee in for AY 2009-10 at para 2.2.1, it is mentioned that the registration u/s. 12A of the Act has been restored by the decision of the Hon’ble Karnataka High Court by order dated 12.1.2015. Therefore, assessee is at present registered u/s. 12A of the Act. The only question that remains is that whether the assessee is entitled to benefit of section 11 & 12 of the Act or not, which has been denied by the ld. AO.
The Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority [TS-814-SC-2022][2022] 449 ITR 1 (SC) has categorically considered this aspect. The brief facts before the Hon’ble Supreme Court was the correct interpretation of the provisions of section 2(15) of the Act introduced by the amendment w.e.f. 1.4.2009. The issue was with respect to the residual purpose included by the definition is “advancement of any other object of general public utility”. On page 98 in para 176 onwards, the Hon’ble Supreme Court dealt with the issues about the taxability of certain income or receipts which may not be characterized as derived from trade, commerce, business or in relation to such activities for a consideration. In para 190, the Hon’ble Supreme Court has laid down as under:- (b)Summary in relation to statutory authorities/corporations 190. In light of the above discussion, this court is of the opinion that: (i) The fact that bodies which carry on statutory functions whose income was eligible to be considered for exemption under Section 10(20A) ceased to enjoy that benefit after deletion of that provision w.e.f. 01.04.2003, does not ipso facto preclude their claim for consideration for benefit as GPU category charities, under Section 11 read with Section 2(15) of the Act. (ii) Statutory Corporations, Boards, Authorities, Commissions, etc. (by whatsoever names called) in the housing development, town planning, industrial development sectors are & 513/Bang/2025 Karnataka Housing Board, Bangalore Page 9 of 23 involved in the advancement of objects of general public utility, therefore are entitled to be considered as charities in the GPU categories. (iii) Such statutory corporations, boards, trusts authorities, etc. may be involved in promoting public objects and also in the course of their pursuing their objects, involved or engaged in activities in the nature of trade, commerce or business. (iv) The determinative tests to consider when determining whether such statutory bodies, boards, authorities, corporations, autonomous or self-governing government sponsored bodies, are GPU category charities (a) Does the state or central law, or the memorandum of association, constitution, etc. advance any GPU object, such as development of housing, town planning, development of industrial areas, or regulation of any activity in the general public interest, supply of essential goods or services - such as water supply, sewage service, distributing medicines, of food grains (PDS entities), etc.; (b) While carrying on of such activities to achieve such objects (which are to be discerned from the objects and policy of the enactment; or in terms of the controlling instrument, such as memorandum of association etc.), the purpose for which such public GPU charity, is set-up - whether for furthering the development or a charitable object or for carrying on trade, business or commerce or service in relation to such trade, etc.; (c) Rendition of service or providing any article or goods, by such boards, authority, corporation, etc., on cost or nominal mark-up basis would ipso facto not be activities in the nature of business, trade or commerce or service in relation to such business, trade or commerce; (d)where the controlling instrument, particularly a statute imposes certain responsibilities or duties upon the concerned body, such as fixation of rates on pre-determined statutory basis, or based on formulae regulated by law, or rules having the force of law, setting apart amenities for the purposes of development, charging fixed rates towards supply of water, providing sewage services, providing food-grains, medicines, and/or retaining monies in deposits or government securities and drawing interest therefrom or charging lease rent, ground rent, etc., per se, recovery of such charges, fee, interest, etc. cannot be characterized as “fee, cess or other consideration” for engaging in activities in the nature of trade, commerce, or business, or for providing service in relation in relation thereto; (e) Does the statute or controlling instrument set out the policy or scheme, for how the goods and services are to be distributed; in what proportion the surpluses, or profits, can be permissively garnered; are there are limits within which plots, & 513/Bang/2025 Karnataka Housing Board, Bangalore Page 10 of 23 rates or costs are to be worked out; whether the function in which the body is engaged in, is normally something a government or state is expected to engage in, having regard to provisions of the Constitution and the enacted laws, and the observations of this court in NDMC; whether in case surplus or gains accrue, the corporation, body or authority is permitted to distribute it, and if so, only to the government or state; the extent to which the state or its instrumentalities have control over the corporation or its bodies, and whether it is subject to directions by the concerned government, etc.; (f) As long as the concerned statutory body, corporation, authority, etc. while actually furthering a GPU object, carries out activities that entail some trade, commerce or business, which generates profit (i.e., amounts that are significantly higher than the cost), and the quantum of such receipts are within the prescribed limit (20% as mandated by the second proviso to Section 2(15)) – the concerned statutory or government organisations can be characterized as GPU charities. It goes without saying that the other conditions imposed by the seventh proviso to Section 10(23C) and by Section 11 have to necessarily be fulfilled. (v) As a consequence, it is necessary in each case, having regard to the first proviso and seventeenth proviso (the latter introduced in 2012, w.e.f 01.04.2009) to Section 10(23C), that the authority considering granting exemption, takes into account the objects of the enactment or instrument concerned, its underlying policy, and the nature of the functions, and activities, of the entity claiming to be a GPU charity. If in the course of its functioning it collects fees, or any consideration that merely cover its expenditure (including administrative and other costs plus a small proportion for provision) - such amounts are not consideration towards trade, commerce or business, or service in relation thereto. However, amounts which are significantly higher than recovery of costs, have to be treated as receipts from trade, commerce or business. It is for those amounts, that the quantitative limit in proviso (ii) to Section 2(15) applies, and for which separate books of account will have to be maintained under other provisions of the IT Act.
18.Further in para 253 onwards, the Hon’ble Supreme Court has dealt with the findings with respect to statutory corporation which are as under:- IV. Summation of conclusions 253. In view of the foregoing discussion and analysis, the following conclusions are recorded regarding the interpretation of the changed definition of “charitable purpose” (w.e.f. 01.04.2009), as well as the later amendments, and other related provisions of the IT Act. A. General test under Section 2(15)
A.1. It is clarified that an assessee advancing general public utility cannot engage itself in any trade, commerce or business, or provide service in relation thereto for any consideration (“cess, or fee, or any other consideration”); A.2. However, in the course of achieving the object of general public utility, the concerned trust, society, or other such organization, can carry on trade, commerce or business or provide services in relation thereto for consideration, provided that (i) the activities of trade, commerce or business are connected (“actual carrying out…” inserted w.e.f. 01.04.2016) to the achievement of its objects of GPU; and (ii) the receipt from such business or commercial activity or service in relation thereto, does not exceed the quantified limit, as amended over the years (Rs. 10 lakhs w.e.f. 01.04.2009; then Rs. 25 lakhs w.e.f. 01.04.2012; and now 20% of total receipts of the previous year, w.e.f. 01.04.2016); A.3. Generally, the charging of any amount towards consideration for such an activity (advancing general public utility), which is on cost-basis or nominally above cost, cannot be considered to be “trade, commerce, or business” or any services in relation thereto. It is only when the charges are markedly or significantly above the cost incurred by the assessee in question, that they would fall within the mischief of “cess, or fee, or any other consideration” towards “trade, commerce or business”. In this regard, the Court has clarified through illustrations what kind of services or goods provided on cost or nominal basis would normally be excluded from the mischief of trade, commerce, or business, in the body of the judgment.
A.4. Section 11(4A) must be interpreted harmoniously with Section 2(15), with which there is no conflict. Carrying out activity in the nature of trade, commerce or business, or service in relation to such activities, should be conducted in the course of achieving the GPU object, and the income, profit or surplus or gains must, therefore, be incidental. The requirement in Section 11(4A) of maintaining separate books of account is also in line with the necessity of demonstrating that the quantitative limit prescribed in the proviso to Section 2(15), has not been breached. Similarly, the insertion of Section 13(8), seventeenth proviso to Section 10(23C) and third proviso to Section 143(3) (all w.r.e.f. 01.04.2009), reaffirm this interpretation and bring uniformity across the statutory provisions.
B. Authorities, corporations, or bodies established by statute & 513/Bang/2025 Karnataka Housing Board, Bangalore Page 12 of 23 B.1The 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 minds and scrutinize the records, to determine if, and to what extent, the consideration or amounts charged are significantly higher than the cost and a 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” has 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 a nominal markup or significantly higher, to determine if it falls within the mischief of “commercial activity”. 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, a statutory corporation could 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.”
In para B.4 it is categorically held that it does not preclude the statutory Boards and Corporations from claiming it to be set up for charitable purposes. Thus, it is now clear that the assessee is entitled to the benefit of provisions of section 2(15) subject to verification about the activities whether they are trade, commerce or business or not.
Both the parties confirmed that the ld. lower authorities did not have the benefit of decision of the Hon’ble Supreme Court. Therefore, now we restore the whole issue back to the file of ld.AO to decide it in accordance with the decision of Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority[ Supra] The ld. AO is further directed to look into the decision of the Hon’ble Supreme Court in CIT v. Haryana Warehousing Corporation dated 9.8.2023 in Civil Appeal No.1665/2012 & 1666-1667/2012 wherein the Hon’ble Supreme Court relying on the decision of the Hon’ble Supreme Court in CIT v. Gujarat Maritime Board, allowed exemption u/s. 11 & 12 of the Act to that assessee.
In the result, the appeals filed by the assessee is allowed with the above directions.
Facts and circumstances of other captioned appeals are also same, therefore, for similar reasons, those appeals are also allowed as indicated above.”
9.1 Keeping in view of the above recent decision of this Tribunal in assessee’s own case, the matter is remitted back to the file of AO to allow the exemption u/s 11 of the Act subjected to verification about the activities whether they are trade, commerce or business or not.
Now we take up assessee’s appeal in for the assessment year 2015-16 for adjudication. The assessee has raised the following grounds of appeal:
& 513/Bang/2025 Karnataka Housing Board, Bangalore Page 23 of 23 12. Since the ground related to the denial of the exemption u/s 11 of the Act as raised by the assessee in the assessment year 2015-16 is similar to that of the ground raised in earlier appeal, the result/finding given in also. Further with regard to other grounds of Appeal as raised by the assessee, we are remitting the same back to the file of the AO with a direction to decide afresh in accordance with law after first taking into consideration the eligibility of the assessee for claiming the exemption u/s 11 of the Act. Needless to say a reasonable opportunity of being heard must be granted to the assessee. Thus, this appeal is also on the same lines, partly allowed for statistical purposes.