Loading judgment…
Facts
The Revenue filed an appeal against the order of the Addl./JCIT(A) concerning the assessment year 2016-17. The assessee, Visakhapatnam Urban Development Authority, is a State Government undertaking that performs commercial activities. The Revenue contended that the Ld.CIT(A) erred in not upholding the AO's order based on a Supreme Court decision regarding such commercial activities exceeding a certain percentage of total receipts.
Held
The Tribunal referred to the Supreme Court's clarification that while an assessee advancing general public utility cannot engage in trade or business for consideration, it can do so if the activities are connected to its GPU objects and receipts do not exceed 20% of total receipts. The Tribunal noted that the previous order did not consider the Supreme Court's decision.
Key Issues
Whether the commercial activities undertaken by the Visakhapatnam Urban Development Authority are incidental to its object of general public utility and within the prescribed limit of 20% of total receipts, as per the Supreme Court's ruling.
Sections Cited
143(3), 2(15), 11(4A)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Visakhapatnam Bench, Visakhapatnam
सुिवाई समाप्त होिे की ततति/ 17.02.2026 : Date of Conclusion of Hearing घोर्णध की तधरीख/ : 27.02.2026 Date of Pronouncement O R D E R PER OMKARESHWAR CHIDARA, A.M : This appeal filed by the Revenue is directed against the order of the learned Addl./JCIT(A), Kochi vide DIN & Order No. ITBA/APL/S/250/2025-26/1080830640(1) dated 17.09.2025, arising out of order passed by the Ld.AO u/s 143(3) of the Income Tax Act, 1961 (“the Act”), dated 30.12.2018, pertaining to the assessment year 2016-17.
The above cited departmental appeal was posted for hearing on 12.02.2026 and 17.02.2026. There was no representation from the appellant State Government undertaking nor there was any adjournment letter. In view of the same, the Bench heard the case after hearing the Ld.CIT-DR.
The main ground of appeal raised by the Revenue is that the Ld.CIT(A) erred in not upholding the order of AO based on the decision of Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority & Others in Civil Appeal No.21762 of 2022 dt. 19.10.2022 as the assessee is a State Government undertaking which performs commercial activities in advancement of object of general public utility and receipts from those commercial activities are in excess of 20% of total receipts.
The Ld.CIT-DR has relied on the above decision which was cited in the grounds of appeal also and requested the Bench to remit the matter back to the file of Ld.CIT(A) to adjudicate the case in light of the above decision of Hon’ble Apex Court. This decision of Hon’ble Apex court was not considered by the Ld.CIT(A) while passing the appeal order, it was submitted. In this case, Hon’ble Supreme Court held as follows :
“The Supreme Court of India has 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. However, in the course of achieving the object of General Public Utility (GPU), the concerned 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 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, i.e., 20% of total receipts of the previous year. Charging of any amount towards consideration for such an activity (advancing general public utility), which is on a 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, they would fall within the mischief of “cess, or fee, or any other consideration” towards “trade, commerce or business”. Further, 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. The assessing authorities must every year, scrutinize the record to discern whether the nature of the assessee’s activities amounts to “trade, commerce or business” based on its receipts and income (i.e., whether the amounts charged are on a cost-basis, or significantly higher). If it is found that they are in the nature of “trade, commerce or business”, then it must be examined whether the quantified limit (as amended from time to time) in the proviso to Section 2(15), has been breached, thus disentitling them to exemption.”
Heard the Ld.CIT-DR and perused the material on record. In the earlier years, the Visakhapatnam Bench of ITAT has allowed the appeal of the respondent, stating that section 12AA is applicable to them, but, there was no adjudication with respect to amendment made to section and consequent decision of Hon’ble Supreme Court as mentioned above. In view of the same, the Bench decides to remit the issue back to the file of Ld.CIT(A) to consider the above mentioned decision of Hon’ble Supreme Court and pass an order afresh, after giving an opportunity to the respondent State Government undertaking.
In the result, the appeal of the Revenue is allowed for statistical purpose.
Order pronounced in the Open Court on 27th February, 2026.