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Page 1 of 20 (Tax Case No.81/2019)
2025:CGHC:17353-DB
AFR HIGH COURT OF CHHATTISGARH AT BILASPUR TAXC No. 81 of 2019 {Arising out of order dated 16-4-2018 passed by the Income Tax Appellate Tribunal, Raipur Bench, Raipur, in ITA No.212/RPR/2014} Order reserved on: 17-3-2025 Order delivered on: 15-4-
2025
The Dy. Commissioner of Income Tax, 1(1) Raipur, Chhattisgarh
... Appellant versus Raipur Development Authority, Bajrang Market, G.E. Road, Raipur, Chhattisgarh
... Respondent For Appellant : Mr. Amit Chaudhary and Mr. Vijay Chawla, Advocates. For Respondent : Mr. Ashish Shrivastava, Senior Advocate with Mr. Rohishek Verma, Mr. Rahul Ambast, Mr. Udit Khatri and Mr. Ashutosh Shrivastava, Advocates. Division Bench: - Hon'ble Shri Sanjay K. Agrawal and Hon'ble Shri Sanjay Kumar Jaiswal, JJ.
SISTA SOMAYAJULU Digitally signed by SISTA SOMAYAJULU Date: 2025.04.16 18:04:36 +0530
Page 2 of 20 (Tax Case No.81/2019) C.A.V. Order Sanjay K. Agrawal, J. 1. This tax appeal preferred under Section 260A of the Income Tax Act, 1961 was admitted for hearing on 15-3-2023 by formulating the following two substantial questions of law: - “1. Whether on facts and in the circumstances of the case, the ITAT was justified in law in holding that the proviso to Section 2(15) of the Act is not applicable in the case, even though the activities of the assessee society are commercial in nature? 2. Whether on facts and in the circumstances of the case, the ITAT was justified in law in holding the first proviso to Section 2(15) is not applicable in the case of the assessee wherein as per records, the assessee is engaged in business of buying, developing and selling of lands, plots, flats and developed properties rendering the order perverse?” 2. The aforesaid questions of law have arisen for consideration on the following factual background: - 3. The Raipur Development Authority, the respondent herein / assessee, is a statutory authority constituted by the State of Chhattisgarh in accordance with the provisions contained in Section 38(1) of the Chhattisgarh Nagar Tatha Gram Nivesh Adhiniyam, 1973 (for short, ‘the Act of 1973’). The Act of 1973 was enacted to make provision for planning and development and use of land; to make better provision for the
Page 3 of 20 (Tax Case No.81/2019) preparation of development plans and zoning plans with a view to ensuring town planning schemes are made in a proper manner and their execution is made effective, to constitute Town and Country Planning Authority for Proper implementation of town and country development plan, to provide for the development and administration of special areas through Special Area Development Authority, to make provision for the compulsory acquisition of land required for the purpose of the development plans and for purposes connected with the matters aforesaid. The duties of the statutory authority so constituted have been provided in sub- sections (2) and (3) of Section 38 of the Act of 1973, which state as under: - “(2) The duty of implementing the proposal in the development plan, preparing one or more town development schemes and acquisition and development of land for the purpose of expansion or improvement of the area specified in the notification under sub-section (1) shall, subject to the provision of this Act vest in the Town and Country Development Authority established for the said area. Provided that the duty imposed on the Town and Country Development Authority shall, till that authority is established for any area under sub-section (1), be performed by the local authority having jurisdiction over such area as if it were a Town and Country Development Authority established under this Act.
Page 4 of 20 (Tax Case No.81/2019) (3) On the establishment of the Town and Country Development Authority for the area to which the proviso to sub-section (2) applies, the following consequences shall ensue in relation to that area, namely:— (i) all assets and liabilities acquired and incurred by the local authority in the discharge of the duty under the proviso to sub-section (2) shall belong to and be demand to be the assets and liabilities of the Town and Country Development Authority established in place of such local authority; (ii) all records and papers belonging to the local authority referred to in clause (i) shall vest in and be transferred to the Town and Country Development Authority established in its place.” 4. Furthermore, Chapter IX of the Act of 1973 deals with Control. By virtue of Section 72 of the Act of 1973, the State Government shall have power of superintendence and control over the acts and proceedings of the officers appointed under Section 3 and the authorities constituted under the Act of 1973. Section 73 provides power of State Government to give directions. Section 76 provides for dissolution of authorities. Sub-section (1) of Section 76 states that whenever in the opinion of the State Government the continued existence of any authority constituted under the Act is unnecessary or undesirable, the State Government may, by notification, declare that such authority shall be dissolved from such date as may be
Page 5 of 20 (Tax Case No.81/2019) specified therein and the authority shall stand dissolved accordingly. 5. The respondent/assessee filed return of income declaring total income as nil for the assessment year 2011-12. Return was processed under Section 143(1) of the Income Tax Act, 1961 on 30-3-2013 and the case was selected for scrutiny under compulsory criteria with the approval of the Chief Commissioner of Income Tax, Raipur. Accordingly, notice under Section 143(2) of the IT Act was issued on 26-9-2012 and further notice under Section 142(1) was issued on 26-12- 2013 with a questionnaire upon which in response to the said notice, the assessee through its representative attended the hearing and ultimately, on 30-3-2014, order under Section 143(3) of the IT Act was passed by the Assessing Officer (AO) wherein the AO had made addition of 21,62,94,042/- as per ₹ the provisions contained in Section 2(15) read with Section 13(8) of the IT Act taking into account the objects of the assessee Authority as contained in the Act of 1973. The respondent/assessee was granted its registration under Section 12AA of the IT Act on 16-1-2008.
Page 6 of 20 (Tax Case No.81/2019) 6. Feeling dissatisfied with the order of the Assessing Officer making an addition of 21,62,94,042/-, the assessee preferred ₹ an appeal before the CIT (Appeals) and ultimately, after hearing the parties, the CIT (Appeals) by order dated 3-7-2014 allowing the appeal held that the assessee is not carrying out operations on commercial lines as envisaged under the proviso to Section 2(15) of the IT Act and thus, the benefit of the proviso to Section 2(15) was not available to the assessee, and directed the Assessing Officer to allow exemption of Sections 11 and 12 of the IT act as per law and accordingly, directed for deleting the addition of 21,62,94,042/- made by the ₹ Assessing Officer. 7. The Revenue challenging the order dated 3-7-2014 passed by the CIT (Appeals), preferred an appeal before the Income Tax Appellate Tribunal (ITAT) and by the impugned order, the ITAT dismissed the appeal upholding the order of the CIT (Appeals) holding that there is no material which may suggest that the respondent assessee was conducting the affairs solely on commercial lines with a motive to earn profit. The ITAT further held that there is also no material brought on record which could suggest that the assessee deviated from its objects for
Page 7 of 20 (Tax Case No.81/2019) which it has been constituted and finally held that the proviso to Section 2(15) of the IT Act is not applicable in the case of the assessee and answered the question against the Revenue leading to filing of the present appeal in which two substantial questions of law have been formulated which have been catalogued in the opening paragraph of this judgment. 8. Mr. Amit Chaudhary, learned counsel appearing for the appellant herein/Revenue, would submit that the CIT (Appeals) and the ITAT, both, have concurrently erred in holding that the proviso to Section 2(15) of the IT Act would not be applicable in the case of the assessee/respondent herein and the ITAT has failed to appreciate that institution of public importance like schools, community centres are created/ developed, the assessee is charging the cost of it from the public at large and the money is coming from the jury of the Government. He would further submit that objects/activities of the assessee are more of commercialised nature and no charity is involved in it and at the time, if these facilities are not provided, then nobody will purchase a plot. The objects of the assessee, though claimed to be charitable, but actually are of purely commercial nature where profit motive is involved. He
Page 8 of 20 (Tax Case No.81/2019) would rely upon the decision of the Supreme Court in the matter of Assistant Commissioner of Income Tax (Exemptions) v. Ahmedabad Urban Development Authority1 to buttress his submission and would also submit that the substantial questions of law be answered in favour of the Revenue and against the assessee and the appeal be allowed. 9. Mr. Ashish Shrivastava, learned Senior Counsel appearing for the respondent herein/assessee Raipur Development Authority, would submit that the two authorities – CIT (Appeals) and the ITAT have concurrently and rightly held that the proviso to Section 2(15) of the IT Act would not be applicable as the assessee Authority is constituted under Section 38(1) of the Act of 1973 and its functions are enumerated in Section 38(2) of the Act of 1973 and the State Government has complete control over the assessee Authority and it is not conducting its affairs solely on commercial line with a motive to earn profit and there is not an iota of evidence brought on record to hold that the assessee Authority is involved in the commercial activity with a motive to earn profit. He would further submit that it is a case where without there being any basis, the Assessing Officer by suggesting amendment in Sections 1 (2023) 4 SCC 561
Page 9 of 20 (Tax Case No.81/2019) 10(23C), 13 and 143 of the IT Act, directed addition of ₹ 21,62,94,042/- which has rightly been set-aside by the appellate authority – CIT (Appeals) and further rightly been affirmed by the ITAT and as such, the appeal deserves to be dismissed by answering the substantial questions of law in favour of the assessee and against the Revenue. 10. We have heard learned counsel for the parties and considered their rival submissions made herein-above and also went through the record with utmost circumspection. 11.Undisputedly, the assessee/respondent herein RDA was constituted under Section 38(1) of the Act of 1973 and the duty of the assessee Authority is to implement the proposal in the development plan, to prepare one or more town development schemes and acquisition and development of land for the purpose of expansion or improvement of the area specified in the notification under Section 38(1). By virtue of Section 72 of the Act of 1973, the State Government has power of superintendent and control over the acts and proceedings of the officers of the respondent/assessee Authority appointed under Section 3 and the authorities constituted under the Act. Similarly, by virtue of Section 73 of the Act of 1973, the State
Page 10 of 20 (Tax Case No.81/2019) Government has power to give directions and also to dissolve it if its continuance is unnecessary or undesirable by virtue of Section 76(1) of the said Act and the functioning of the assessee Authority is statutory in nature and in accordance with the Act of 1973. 12.In order to consider the plea raised at the Bar, it would be appropriate to notice Section 2(15) of the IT Act. Section 2(15) – which had been amended last, in 19832, was again amended, by the Finance Act, 2008, w.e.f. 1-4-2009. Some other amendments too were made, with effect from the same date by the Finance Act, 2009 and Finance Act, 2010. With the said amendments, as on 1-4-2009, the provision read as follows: - “2. (15) “charitable purpose” includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forest and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility; Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of 2 Deletion of the expression “not involving the carrying on of any activity for profit” and the resulting Section 2(15) read as follows: - “2. (15) “charitable purpose” includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility;”
Page 11 of 20 (Tax Case No.81/2019) rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity; Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year;” 13.In the second proviso, the reference to ten lakhs was substituted, and the figure of rupees twenty-five lakhs, was inserted, by the Finance Act, 2011 (w.e.f. 1-4-2012). By the Finance Act, 2015 (w.e.f. 1-4-2016), the first two provisos to Section 2(15) were deleted, and instead, the following proviso was inserted:- “Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless— (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;” Additionally, the same amendment also inserted “yoga” (after
Page 12 of 20 (Tax Case No.81/2019) “education”) as a listed category of charitable activity, in the substantive provision. 14.A careful perusal of Section 2(15) of the IT Act would reveal that the expression “charitable purpose” has been defined by way of an inclusive definition so as to include relief to the poor, education, yoga, medical relief, preservation of environment (including watersheds, forest and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility. The expression “advancement of any other object of general public utility” has been considered by the Supreme Court in number of judgments. 15.In the matter of Commissioner of Income Tax v. Gujarat Maritime Board3, the words in Section 2(15) of the IT Act, namely, “any other object of general public utility” have been considered by their Lordships of the Supreme Court and it has been held that the said expression would prima facie include all objects which promote the welfare of the general public. Their Lordships further held that if the primary purpose and the predominant object are to promote the welfare of the general public the purpose would be charitable purpose. It has 3 (2007) 14 SCC 704
Page 13 of 20 (Tax Case No.81/2019) been observed by their Lordships of the Supreme Court as under: - “13. We have perused number of decisions of this Court which have interpreted the words in Section 2(15), namely, “any other object of general public utility”. From the said decisions it emerges that the said expression is of the widest connotation. The word “general” in the said expression means pertaining to a whole class. Therefore, advancement of any object of benefit to the public or a section of the public as distinguished from benefit to an individual or a group of individuals would be a charitable purpose (CIT v. Ahmedabad Rana Caste Assn.4). The said expression would prima facie include all objects which promote the welfare of the general public. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be served. If the primary purpose and the predominant object are to promote the welfare of the general public the purpose would be charitable purpose. When an object is to promote or protect the interest of a particular trade or industry that object becomes an object of public utility, but not so if it seeks to promote the interest of those who conduct the said trade or industry (CIT v. Andhra Chamber of Commerce5). If the primary or predominant object of an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the dominant purpose, would not prevent the institution from being a valid charity (CIT v. Surat Art Silk Cloth Manufacturers' Assn.6).” 16. Furthermore, a three-Judge Bench of the Supreme Court in Ahmedabad Urban Development Authority’s case (supra) has considered all its earlier judgments qua Section 2(15) of the 4 (1982) 2 SCC 542 : 1982 SCC (Tax) 151 : (1983) 140 ITR 1 5 (1965) 55 ITR 722 6 (1980) 2 SCC 31 : 1980 SCC (Tax) 170 : (1980) 121 ITR 1
Page 14 of 20 (Tax Case No.81/2019) Act of 1961 and summed up the conclusions as under: - “IV. Summation of conclusions 269. 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. 1-4-2009), as well as the later amendments, and other related provisions of the IT Act. A. General test under Section 2(15) 270. 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”). 271. However, in the course of achieving the object of general public utility, the trust, society, or other such organisation concerned, 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. 1-4-2016) 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. 1-4-2009; then Rs 25 lakhs w.e.f. 1-4-2012; and now 20% of total receipts of the previous year, w.e.f. 1-4-2016). 272. 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
Page 15 of 20 (Tax Case No.81/2019) 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. 273. Section 11(4-A) 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(4-A) 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(23-C) and third proviso to Section 143(3) (all w.r.e.f. 1-4-2009), reaffirm this interpretation and bring uniformity across the statutory provisions. B. Authorities, corporations, or bodies established by statute 274. The amounts or any money whatsoever charged by a statutory corporation, board or any other body set up by the State Governments or Central Government, for achieving what are essentially “public functions/services” (such as housing, industrial development, supply of water, sewage management, supply of foodgrain, 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 Shri Ramtanu Coop. Housing Society7 and NDMC8. 7 Shri Ramtanu Coop. Housing Society Ltd. v. State of Maharashtra, (1970) 3 SCC 323 8 NDMC v. State of Punjab, (1997) 7 SCC 339
Page 16 of 20 (Tax Case No.81/2019) 275. However, at the same time, in every case, the assessing authorities would have to apply their minds and scrutinise the records, to determine if, and to what extent, the consideration or amounts charged are significantly higher than the cost and a nominal markup. 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. 276. 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). 277. For the period 1-4-2003 to 1-4-2011, 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 1-4-2011 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(23-C) or other provisions of the Act.” 17.In paragraph 277 of the report in Ahmedabad Urban Development Authority’s case (supra), relying upon Gujarat Maritime Board’s case (supra), it has been held by their
Page 17 of 20 (Tax Case No.81/2019) Lordships that for the period 1-4-2003 to 1-4-2011, a statutory corporation could claim the benefit of Section 2(15) having regard to the judgment in Gujarat Maritime Board’s case (supra). 18.Coming to the facts of the case in light of the principles of law laid down by their Lordships of the Supreme Court in Gujarat Maritime Board’s case (supra) followed in Ahmedabad Urban Development Authority’s case (supra), it is quite vivid that in the instant case, the Assessing Officer held that the proviso to Section 2(15) of the IT Act would be applicable to the assessee Authority and also suggested to amend Sections 10(23C), 13 & 143 of the IT Act and further held that the aggregate of receipt is 1,30,19,74,412/- would attract the proviso to Section ₹ 2(15) of the IT Act and therefore directed addition of ₹ 21,62,94,042/- which was overturned by the CIT (Appeals) holding that there is no material on record that the assessee was conducting its affairs solely on business lines with a motive to earn profit and further held that the first proviso to Section 2(15) of the IT Act would not be attracted which has been affirmed by the ITAT by holding that in absence of tangible material on record that the assessee Authority is conducting its
Page 18 of 20 (Tax Case No.81/2019) affairs solely on commercial lines with a motive to earn profit, the proviso to Section 2(15) of the IT Act is not applicable on the facts of the case. In our considered opinion, the two authorities have concurrently held that the assessee RDA is engaged in preparation of development plan and selling of houses which falls within the advancement of any other object of general public utility in accordance with the Act of 1973 and there is no material on record that it involves the business of carrying on of any activity in the nature of trade, commerce or business and the Assessing Officer without there being any material available on record only recorded a finding while course of assessment that it has received 1,30,19,74,412/- ₹ from rent, premium, interest, etc. and straightway proceeded to hold that first proviso to Section 2(15) of the IT Act would attract without recording any specific finding that the respondent/assessee Authority is involved in carrying out of the activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, which the appellate authority CIT (Appeals) has corrected by holding that the respondent/ assessee Authority is not carrying out any operations on commercial lines with a motive to earn profit and which the
Page 19 of 20 (Tax Case No.81/2019) ITAT has rightly affirmed and further held that the assessee’s predominant object is charitable and the Government has complete power to control and dissolve the assessee Authority and also that the first proviso to Section 2(15) would not be attracted. The finding recorded by the two authorities that the object of the assessee Authority is statutory and is not carrying out any operation on commercial lines with a motive to earn profit and there is no material in this regard that the assessee Authority is involved in commercial lines with a motive to earn profit, is the correct finding of fact based on the evidence available on record. 19.In that view of the matter, in our considered opinion, the ITAT is absolutely justified in affirming the order of the CIT (Appeals) holding that the first proviso to Section 2(15) of the IT Act would not be applicable in the case of the respondent herein/assessee Authority in line with the decision of the Supreme Court in Gujarat Maritime Board’s case (supra). As such, the substantial questions of law are answered against the Revenue and in favour of the assessee. In consequence thereof, the appeal filed by the Revenue deserves to be and is accordingly dismissed leaving the parties to bear their own
Page 20 of 20 (Tax Case No.81/2019) cost(s). Sd/- Sd/- (Sanjay K. Agrawal) (Sanjay Kumar Jaiswal)
JUDGE JUDGE Soma