High Court Must Re-examine Charitable Status of Authority Based on New Supreme Court Tests.
Issue
Whether a High Court’s order, which summarily dismisses a revenue appeal regarding the “charitable purpose” of a Development Authority by merely relying on past precedents, is sustainable when a subsequent landmark Supreme Court judgment has laid down new, comprehensive tests to determine this very issue.
Facts
- An assessee, a Development Authority, was granted registration as a charitable institution, making it eligible for tax benefits.
- The Income Tax Department (Revenue) appealed this decision to the High Court under Section 260A.
- The High Court dismissed the Revenue’s appeal with a cryptic order, stating that the issues were already covered by its own earlier decisions and those of the Tribunal, without independently examining the specific facts of the case.
- The Revenue then appealed to the Supreme Court. It argued that the determinative tests for what constitutes a “charitable purpose” for such authorities had now been conclusively settled by a larger, three-judge bench of the Supreme Court in the case of Ahmedabad Urban Development Authority.
Decision
- The Supreme Court set aside the High Court’s order and remanded the matter back for fresh consideration.
- It held that the High Court must re-hear the appeal and decide the issue by applying the legal principles and tests laid down in the Ahmedabad Urban Development Authority judgment to the specific facts of the assessee’s case.
Key Takeaways
- Binding Precedent Must Be Applied: When the Supreme Court delivers a comprehensive judgment that settles the law on a particular issue, all lower courts and tribunals are bound to apply that precedent to pending and future cases.
- Cryptic Orders are Impermissible: Appellate courts, especially High Courts, are required to pass reasoned orders. A summary dismissal that does not engage with the specific facts of the case or the applicable law is not legally sustainable.
- Facts Must Be Examined: A legal principle, even a settled one, cannot be applied in a vacuum. The court must first examine the specific facts of the case at hand to determine how the law applies to them.
- Law on Charitable Purpose Evolved: The Ahmedabad Urban Development Authority case is a landmark decision that has significantly clarified the law on when statutory authorities and corporations can be considered to have a “charitable purpose,” particularly under the head of “general public utility.”
SUPREME COURT OF INDIA
Commissioner of Income-tax (Exemption)
v.
Khurja Development Authority
Manoj Misra and Nongmeikapam Kotiswar Singh, JJ.
CIVIL APPEAL NO.13583 of 2015
OCTOBER 9, 2025
N. Venkatraman, A.S.G., Raj Bahadur Yadav, AOR, Mrs. Alka Agarwal, V.C. Bharathi, Mrs. Rashmi Malhotra and Mrs. Madhulika Upadhyay, Advs. for the Appellant. Sunil Kumar Jain, AOR, Akarsh Garg, Archit Gupta, Subhan Shankar Gagoi, Advs. and Kovin Gulati, Sr. Adv. for the Respondent.
ORDER
1. Delay condoned in Diary No.37337 of 2019 and leave granted therein.
2. Heard learned counsel for the parties.
3. These two connected appeal arise from separate order(s) of High Court of Judicature at Allahabad1 dated 12th January, 2015 and 07.01.2019 passed in Income Tax Appeal Defective No.154 of 2014 and Income Tax Appeal No.550 of 2008 whereby appeal(s) of the Revenue under Section 260A of the Income Tax Act, 19612 against order(s) qua registration of the assessee regarding its charitable purpose to enable benefit(s) available under the Act were dismissed by holding that the issues raised in the appeal(s) were squarely covered by earlier decision(s) of the High Court in CIT v. Lucknow Development Authority (2014) 98 DTR (ALL) 193 and of the Tribunal.
4. The learned counsel for the appellant submits that High court while passing the impugned order(s) has not considered and examined the facts of the case to ascertain whether the law propounded applied to those facts. It is also submitted that now the law in respect of determinative tests to be adopted to determine the issue concerned has been settled by a three-Judge Bench decision of this Court in Assistant Commissioner of Income-tax (Exemptions) v. Ahmedabad Urban Development Authority 11 (SC)/(2023) 4 SCC 561 decided on 19.10.2022, which has been clarified vide order dated 3.11.2022 reported in Asstt. CIT (Exemptions) v. Ahmedabad Urban Development Authority 137 (SC)/(2023) 7 SCC 249.
5. Both sides counsel agree that the law has now been settled by the aforesaid decision however they differ on its impact on the present appeals because both sides claim that the decision supports their cause.
6. As we find that the decision of this Court in Ahmedabad Urban Development Authority (supra) deals with several issues including as to when an authority can be said to serve a charitable purpose whereas the impugned orders(s) in these appeals are cryptic without elaborating the admitted factual situation, in our view, the law cannot be applied in the abstract. Therefore, in our view, the High Court would have to reconsider the appeal of the Revenue by taking into consideration the decision of this Court in Ahmedabad Urban Development Authority (supra). Consequently, we allow these appeals, set aside the impugned order(s) and restore the Income Tax Appeal Defective No.154 of 2014 and Income Tax Appeal No.550 of 2008 of the Revenue on the file of the High Court for a fresh consideration in accordance with law including the law laid down by this Court in Ahmedabad Urban Development Authority (supra).
7. It is made clear that we have not expressed any opinion on the merits of the claim of either side.
8. Pending application(s), if any, shall stand disposed of.