Exemption u/s 11 not Available If the Total Income Includes Income Hit Proviso of Sec 2(15)

The assessee is a “The Uttar Pradesh Awas Evam Vikas Parishad” which has been incorporated by the Legislative Assembly vide Uttar Pradesh Awas Evam Vikas Parishad Adhiniyam 1965. The scope of activities to be performed by the Parishad are contained under section 15 of the enactment under the head “function of the board” and through the “Parishad” it is the Government of Uttar Pradesh itself that has been carrying on the objects of the general public utility, in due discharge of its functions, duties and thereby it has acquired the status of a State under Article 12 of the Constitution of India.

The assessee has been granted exemption u/s 12A of the Act being a charitable organization for the achievement of advancement of objects of general public utility. The assessee filed returns of income claiming its income as exempt u/s 11 of the Act. The Assessing Officer denied the exemption u/s 11 by holding that the assessee was hit by the proviso to section 2(15) of the Act as the assessee has been doing the activities which amount to carrying on of business or trade.

Appeal before CIT(A): On appeal, the learned CIT(A) also upheld the order of the AO by holding that the assessee was hit by the proviso to section 2(15) of the Act.

Appeal before ITAT: Against the orders passed by learned CIT(A), the assessee has filed these appeals. The assessee has been granted exemption u/s 12A of the Act being a charitable organization for the achievement of advancement of objects of general public utility. The Revenue has also filed Cross Objections in I.T.A. No.166 and

The tribunal held that the exemption u/s 11 of the Act will not be available to an assessee if the total income of the assessee includes any income which is hit by the proviso to provisions of section 2(15) of the Act. Section 2(15) of the Act relates to definition of charitable purposes relating to general public utility. However, the proviso inserted by the Finance Act, 2012 will be quite relevant in the case of the assessee. The provisions of section 11(2), relates to spending of 85% of the income and accumulation of 15% of the income, which aspect can be examined by the Assessing Officer while allowing exemption u/s 11 of the Act. Therefore, the Assessing Officer is directed to examine this aspect while allowing exemption u/s 11 of the Act. Hence, the ground of appeal was restored to AO for the said purpose. The tribunal held that Ground No. 1 & 2 are general in nature and do not require any adjudication and other grounds have become infructuous so do not require any adjudication.

With regards to ground that the assessee has been transferring certain amounts to IDRF account and was directly reflecting that account in the balance sheet and was not routing through the profit & loss account. The Assessing Officer has added back these amounts while denying exemption u/s 11 of the Act. This issue had already been dealt by the Hon’ble Allahabad High Court in the case of Lucknow Development Authority it was held that the money transferred to this fund is to be utilized for the purpose of project as specified by the committee having constituted by the Government and the same could not be treated to be belonging to the authority or the receipt is taxable in its hand. Thus, this ground was allowed.

Therefore, the appeals of the assessee were partly allowed whereas the Cross Objections of the Revenue were partly allowed for statistical purposes.