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Facts
The appellant, Shimoga Urban Development Authority, filed its return of income declaring 'Nil' income and sought to carry forward losses and depreciation. The Assessing Officer denied exemption under Section 11, treating the income as commercial. The CIT(A) confirmed the assessment order.
Held
The Tribunal noted that the appellant's registration under Section 12AA was granted effective from Assessment Year 2020-21, and no prior registration or provisional registration existed for the earlier assessment years. The Tribunal also considered the Supreme Court's decision in ACIT vs. Ahmedabad Urban Development Authority.
Key Issues
Whether the appellant is entitled to exemption under Section 11 for the Assessment Years 2016-17 to 2018-19, considering the timing of its registration under Section 12AA and the nature of its activities.
Sections Cited
11, 12, 13, 2(15), 12AA, 12A, 10(20A), 10(23C), 119(2)(b)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ BENCH : BANGALORE
Before: SHRI PRASHANT MAHARISHI, VICE – & SHRI SOUNDARARAJAN K.
ORDER PER PRASHANT MAHARISHI, VICE – PRESIDENT 1. are for assessment year 2016-17, 2017-18 and 2018-19 filed by Shimoga Urban Development Authority, Shimoga (the Assessee/Appellant) against the order passed by the National Faceless Appeal Centre, Delhi (the Ld. CIT(A)) dated 27.08.2024 in all these cases wherein the appeal filed by the Assessee against the Assessment Order passed by the Assessing Officer are dismissed.
The brief facts shows in all these cases are that the Assessee is an Urban Development Authority for Assessment Year 2016-17, it filed its return of income on 17.10.2016 declaring a total income at Rs. Nil/-. Assessee has sought for carry forward losses and unabsorbed -2120/Bang/2024 Page 2 of 7 depreciation of earlier years against the current year income of Rs. 8.5 crores. The Ld. Assessing Officer, on selection of scrutiny, found that Assessee has claimed exemption u/s. 11 on the basis of the decision of the Hon’ble Gujarat High Court in case of Ahmedasbad Urban Development Authority. The Ld. Assessing Officer in absence of any claim u/s. 11 of the Act declined to allow the Assessee deduction u/s. 11 of the Act. He held that, that income of the Assessee is not exempt and the provisions of the section 11, 12 and 13 does not apply to the Assessee. He further held that major income of the Assessee is commercial in nature. Accordingly, he passed an Assessment Order on 11.12.2018 by the Income Tax Officer, Ward-5, Shimoga determining the total income of the Assessee at Rs. 7,88,94,175/-
When the Appeal was filed before the Ld. CIT (A), he confirmed the Appellate Order as under:-
“4. I have carefully examined the assessment order, the grounds of appeal and the written submission of the appellant in the case. The appellant in its written submission relied on the decision of the Hon'ble Supreme Court in the case of ACIT (Exemptions) vs Ahmadabad Urban Development Authority (supra) and highlighted that the appellant carry out public functions and services and the activities and amounts charged for the services cannot be termed as commercial activity and prima facie excluded from the mischief of the trade, commerce or business or service etc as provided in the proviso to section 2(15) of the Act.
5. For the purpose of claiming exemption under section 11 of the Act, the appellant inter alia must fulfil the condition of registration under section 12AA of the Act, as prescribed under section 12A of the Act. However, in this case, the appellant got registered under section 12AA of the Act to be eligible for claiming exemption under section 11 of the Act vide order of registration (ITBA/EXM/S/12 AA/2020-21/1027091644(1)) dated 14/05/2020 under section 12AA of the Act-Registration No. CIT (EXEMPTIONS) BANGALORE/12 AA/2020-21/A/10043. The order clearly stated that the provisions -2120/Bang/2024 Page 3 of 7 of sections 11 and 12 shall apply in the case from the Assessment Year: 2020-21.
As per sub-section (2) of section 12A of the Act, where an application has been made on or after the 1st day of June 2007, the provisions of section 11 and 12 shall apply in relation to the income of the trust or institution from the assessment year immediately following the financial year in which the application for registration is made. In the appellant case, the application for registration was made on 04/12/2019 (FY 2019-20) and accordingly the registration granted was made applicable with effect from assessment year 2020-21, which was spelt clearly in the above order of registration.
The appellant in the ground above, referred to the proviso to sub-section (2) of section 12A of the Act, claiming the benefit of registration granted above in respect of pending assessment of earlier years. However, the above proviso provides for the benefit of exemption under section 11 & 12 from the assessment year for which the earlier registration was granted or provisional registration was granted. In the appellant case no such provisional or earlier registration was granted prior to the above order dated 14/05/2020 granting the registration. Further, as observed by the assessing officer the appellant had not filed its return of income in ITR 7 making any claim of exemption under section 11 of the Act. In view of the above, as the appellant has failed to fulfil the conditions laid down for claiming exemption under section 11 of the Act, I do not find any merit in the appellant claim for exemption under section 11 of the Act. Therefore, the above ground of the appellant is dismissed.
The appellant relied on the decisions of the Hon'ble Karnataka High Court in the case of CIT, Hubli Vs Hubli Dharwad urban Development Authority (ITA Number 593 of 2015) and The Belgaum Urban Development Authority and CIT Belgaum (ITA 5020 of 2012) in support of its claim for exemption under section 11 of the Act. However, the assessees in those cases were granted registration under section 12AA of the Act and does not apply to appellant's case.
7. Besides the above claim of exemption under section 11 of the Act, the appellant had not made any substantive argument in -2120/Bang/2024 Page 4 of 7 support of the grounds relating to the set off of the brought forward losses of earlier years and depreciation losses as presented in Form 35. With regard to the same, I am to note that the assessing officer had already considered the above issue pertaining to the set-off of the losses and determined the eligible losses for set off for the detailed reasons given in the assessment order. Accordingly, the above grounds are dismissed.
In the result the appeal is dismissed.”
The facts of the other Assessment Years 2017-18 and 2018-19 are also similar. Therefore, Assessee is in appeal before us.
The Ld. Authorized Representative has submitted that the Hon’ble Supreme Court in 449 ITR 1, in case of ACIT v/s. Ahmedabad Urban Development Authority has passed an order on 19.10.2022 which needs to be considered by the Ld. Assessing Officer. It was further submitted that Assessee has also made an application before the CIT, Shimoga on 11.08.2025 requesting condonation of delay in filing of form no. 10AB for Assessment Year 2016-17 to 2020-21. Therefore, the issue may be restored back to the file of the Ld. Assessing Officer to decide the issue. Therefore, after the decision of the CIT, Shimoga on registration of the trust for Assessment Year 2016-17 to 2020-21 and thereafter decide the issue based on the decision of the Hon’ble Supreme Court.
6. The Ld. CIT-DR also agreed with the above aspect.
We have carefully considered the rival contentions and perused the orders of the Ld. lower authorities. The facts clearly show that Assessee has made an application for registration u/s. 12A of the Act for AY 2016-17 to 2020-21 . It is stated in the condonation request that Assessee has been granted registration under 12A for Assessment Year 2021-22. The condonation petition dated 11.08.2025 u/s. -2120/Bang/2024 Page 5 of 7 119(2)(b) of the Act filed on 18.08.2025 is pending before the Ld. CIT (Exemptions).
8. Meanwhile honourable supreme court in case of Assistant Commissioner of Income-tax (Exemptions) vs. Ahmedabad Urban Development Authority [2022] 143 taxmann.com 278 (SC)/[2023] 291 Taxman 11 (SC)/[2022] 449 ITR 1 (SC)[19-10-2022] has held that :- "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. 1-4-2003, 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 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: 9. (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, -2120/Bang/2024 Page 6 of 7 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, 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 -2120/Bang/2024 Page 7 of 7 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.
Further as the application for registration with condonation prayer is also pending before the concerned authority, in the interest of justice we restore all these three appeals back to the file of the ld AO with a direction to make assessment in view of the decision of the Honourable supreme court in case of Ahmedabad development Authority [ supra] after the decision of the concerned authority u/s 119 (2) (b) of the act with respect to condonation of delay petition for registration u/s 12AA of the Act.
In the result all the three appeals are allowed for statistical purposes.
Order pronounced in the open court on 5th December 2025.