The Supreme Court ruled that the income and receipts of statutory regulatory bodies which are for instance, tasked with exclusive duties of prescribing curriculum, disciplining professionals and prescribing standards of professional conduct, are prima facie not business or commercial receipts.
Additional Solicitor General, N. Venkataraman tracing the genesis of Section 2(15) contended that the old IT Act contained no restrictive expressions forbidding trade or business activities by charities.
He argued that decisions in Re: Trustees of the Tribune, Andhra Chamber of Commerce and the decision in Krishna Warriar were in light of Section 4(3) of the old Act; therefore, the contextual framework of the court’s decisions was entirely different.
Senior Advocate S.N. Soparkar, appearing for the Ahmedabad Urban Development Authority; the Gujarat Industrial Development Corporation and Gujarat Housing Board, submitted that all three corporations were established by or under statutes enacted by the Gujarat legislature; they were treated as local authority under Section 10(20) of the IT Act, as it existed till 2003.
He contended that thereafter they were treated as charitable institutions engaged in activities involved in the advancement of public utility till the amendment of 2008.
He highlighted that the AUDA was created purely for the development and redevelopment – as well as for augmentation of roads and allotment of lands after redevelopment, in the areas under its control.
He submitted that its mandate is to control development activities, execution of works and dispersal of sewage, provisions of such other facilities and generally engage in urban development in the areas it had jurisdiction over.
The three judges bench of The Chief Justice of India Uday Umesh Lalit, Justice S. Ravindra Bhat and Justice Pamidighantam Sri Narasimha 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”).
It was stated by the court that 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 the activities of trade, commerce or business are connected to the achievement of its objects of GPU; and the receipt from such business or commercial activity or service in relation thereto, does not exceed the quantified limit, as amended over the years.
The bench said that 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 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” the court added.
It was observed by the court that 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 mark-up or significantly higher, to determine if it falls within the mischief of “commercial activity”.
The court added that 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).
The court held that though GS1 India is in fact involved in the advancement of general public utility, its services are for the benefit of trade and business, from which they receive significantly high receipts. In the circumstances, its claim for exemption cannot succeed having regard to amended Section 2(15).
Case title: Assistant Commissioner of Income Tax (exemptions) v/s Ahmedabad Urban Development Authority
Citation: Civil appeal no. 21762 of 2017