Statutory Development Work Done Without Profit Motive Not Covered by Section 2(15)Proviso: High Court

Case: Deputy Commissioner of Income-tax v. Raipur Development Authority

Court: Chhattisgarh High Court

ITA No: 81 of 2019

Assessment Year: 2011–12

Date of Order: 15th April, 2025

Brief Facts:

• The assessee was a statutory authority constituted under Section 38(1) of the Chhattisgarh Nagar Tatha Gram Nivesh Adhiniyam, 1973.

• It was involved in town planning, development, and the sale of houses in accordance with government-approved development plans.

• Also, it was recognized as a charitable institution under section 12AA of the Income-tax Act.

• For the Assessment Year 2014–15, it filed a nil income return, contending that the first proviso to Section 2(15) of the Act was not applicable to its case in view of the nature and statutory framework of its activities.

• However, the Assessing Officer (AO) made an addition of ₹21.62 crore, holding that the assessee was engaged in commercial activity of buying, developing, and selling land and therefore the first proviso to Section 2(15) was applicable, denying exemption under Sections 11 and 12.

Observations of the Court:

• The Commissoner (Appeals) and ITAT both ruled in favor of the assessee, holding that there was no evidence that the assessee carried out its activities with a profit motive or on commercial lines.

• The High Court upheld these findings, emphasizing that the assessee's activities were governed and controlled by statute, and it was performing public functions in accordance with government mandates.

• The Court further held that the object of the assessee fell under the “advancement of any other object of general public utility” and did not attract the first proviso to Section 2(15), since there was no material showing commercial intent.

• It relied on the Supreme Court’s decision in CIT v. Gujarat Maritime Board (2007) 14 SCC 704, which clarified that advancement of general public utility with statutory control and without profit motive qualifies as charitable.

Hence, the High Court dismissed the Revenue’s appeal, affirming that the assessee’s activities were charitable in nature and not commercial. Therefore, the first proviso to Section 2(15) was not applicable, and the assessee was rightly entitled to exemption under Sections 11 and 12.