Housing Board Fulfilling Public Housing Needs Qualifies

Housing Board Fulfilling Public Housing Needs Qualifies as Charitable Under Section 2(15) Exemptions

Issue

Whether the proviso to Section 2(15) read with Section 13(8) of the Income-tax Act, 1961 (and corresponding sections under the Income-tax Act, 2025) applies to a State Housing Board formed to satisfy the housing accommodation needs of the general public, thereby denying it tax exemption benefits under Sections 11 and 12.

Facts

The assessee is a Housing Board constituted by the State Government.
The primary objective of the assessee-board is to deal with and satisfy the housing accommodation needs of the general public.
For Assessment Year 2015-16, the assessee claimed tax exemption benefits available to charitable organizations under Sections 11 and 12 of the Income-tax Act, 1961.
The revenue applied the proviso to Section 2(15) read with Section 13(8), treating the activity as trade, commerce, or business, to deny the exemption.

Decision

The proviso to Section 2(15) read with Section 13(8) is not applicable to the assessee-housing board.
The activities of providing housing accommodation to the general public serve a genuine charitable purpose of general public utility.
The assessee is fully entitled to claim the tax exemption benefits under Sections 11 and 12 of the Act.
The decision was held in favor of the assessee.

Key Takeaways

State-created bodies operating primarily to satisfy essential public welfare needs—such as public housing—qualify as entities carrying out a “charitable purpose.”
Carrying out statutory obligations aimed at public utility does not automatically convert activity into commercial business under the proviso to Section 2(15).
Entitlement to Section 11 and 12 exemptions remains intact when the dominant object is public welfare rather than profit-driven trade or commerce.

HIGH COURT OF GUJARAT

Commissioner of Income-tax (Exemptions)

Gujarat Housing Board

BHARGAV D. KARIA and Pranav Trivedi, JJ.

R/TAX APPEAL NO. 259 of 2021^†

AUGUST 20, 2026

Aman Mir for the Appellant. B.S. Soparkar for the Respondent.

ORDER

Bhargav D. Karia, J.- Heard learned Senior Standing Counsel Mr. Aman Mir for the appellant and learned advocate Mr. B.S. Soparkar for the respondent.

2. This appeal is filed under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’) by the appellant Revenue arising from the judgment and order dated 23.03.2021 passed by the Income Tax Appellate Tribunal, Ahmedabad (for short ‘the Tribunal’) in ACIT (Exemptions) v. Gujarat Housing Board [IT Appeal No. 445 (Ahd) of 2019, dated 23-3-2021] for A.Y. 2015-2016 proposing the following substantial question of law:

(A) “Whether on the facts and in the circumstances of the case and in law, the Appellate Tribunal is correct in allowing the benefits of Sections 11 and 12 of the Act without appreciating that the assessee is involved in widespread commercial activities like sale of forms, Tender Fees, N. A. Charges, Fine & Forfeiture, Transfer Fees, etc. for the various services rendered by the assessee for carrying out the activity of housing schemes which is covered by provisos to Section 2(15) r.w.s. 13(8) of the Act?

(B) “Whether on the facts and in the circumstances of the case, the Appellate Tribunal is correct in allowing the accumulation of 15% u/s.11(1)(a) of Rs.5,01,08,514/- without appreciating the fact that once the provision of Section 2(15) r.w.s. 13(8) is applicable, the assessee forfeits all the exemptions under Sections 11 and 12 of the Act?”

(C) “Whether on the facts and in the circumstances of the case, the Appellate Tribunal is justified in allowing the accumulation u/s. 11(2) of Rs.6,51,38,141/-without appreciating the fact that once the provision of Section 2(15) r.w.s. 13(8) is applicable, the assessee forfeits all the exemptions under Sections 11 and 12 of the Act?”

(D) “Whether on the facts and in the circumstances of the case, the Appellate Tribunal is correct in allowing the assessee’s appeal without appreciating that the Department had filed Tax Appeal No. 184 of 2019 in assessee’s own case against the decision of Tribunal in ITA No. 3297/Ahd/2016 as well as filed SLP in Dairy No. 1034/2020 before the Supreme Court against the decision of the Hon’ble High Court, which is pending?”

3. At the outset, learned advocates for the parties submitted that the proposed question of law is no more res-integra in view of the decision of the Hon’ble Supreme Court in case of Asstt. CIT (Exemptions) v. Ahmedabad Urban Development Authority [2022] 449 ITR 1 (SC). The relevant paragraphs of the aforesaid decision are as under:

“168. If one understands the definition in the light of the above enunciation, the sequitur is that the reference to “income being profits and gains of business” with a further reference to its being incidental to the objects of the Trust, cannot and does not mean proceeds of activities incidental to the main object, incidental objects or income derived from incidental activities. The proper way of reading reference to the term “incidental” in section 11(4A) is to interpret it in the light of the sub-clause (i) of proviso to section 2(15), i.e., that the activity in the nature of business, trade, commerce or service in relation to such activities should be conducted actually in the course of achieving the GPU object, and the income, profit or surplus or gains can then, be logically incidental. The amendment of 2016, inserting sub clause (clarificatory. Thus interpreted, there is no conflict between the definition of charitable purpose and the machinery part of section 11(4A). Further, the obligation under section 11(4A) to maintain separate books of account in respect of such receipts is to ensure that the quantitative limit imposed by sub-clause (ii) to section 2(15) can be computed and ascertained in an objective manner.

169. The conclusion recorded above is also supported by the language of seventh proviso50 to section 10(23C). Whereas section 2(15) is the definition clause, section 10 lists out what is not income. Section 10(23C) – by sub-clauses (iv) and (v) exempt incomes of charitable organisations. Such organisations and institutions are not limited to GPU category charities but rather extend to other types of charities (i.e. the per se kind as well). The controlling part of section 10(23C) along with the relevant clauses (iv) and (v) seek to exclude income received by the concerned charities. However, the provisos hedge such exemption with conditions. The seventh proviso – much like section 11(4A) and the definition – carve out an exception, to the exemptions such that income derived by charities from business, are not exempt. The seventh proviso virtually echoes section 11(4A) in that business income derived by a charity (in the present case, the GPU charities) which arises from an activity incidental to the attainment of its objective is not per se excluded.

170. Classically, the idea of charity was tied up with eleemosynary51. However, “charitable purpose” – and charity as defined in the Act have a wider meaning where it is the object of the institution which is in focus. Thus, the idea of providing services or goods at no consideration, cost or nominal consideration is not confined to the provision of services or goods without charging anything or charging a token or nominal amount. This is spelt out in Indian Chamber of Commerce (supra) where this Court held that certain GPUs can render services to the public with the condition that they would not charge “more than is actually needed for the rendering of the services, – may be it may not be an exact equivalent, such mathematical precision being impossible in the case of variables, – may be a little surplus is left over at the end of the year – the broad inhibition against making profit is a good guarantee that the carrying on of the activity is not for profit”.

171. Therefore, pure charity in the sense that the performance of an activity without any consideration is not envisioned under the Act. If one keeps this in mind, what section 2(15) emphasizes is that so long as a GPU’s charity’s object involves activities which also generates profits (incidental, or in other words, while actually carrying out the objectives of GPU, if some profit is generated), it can be granted exemption provided the quantitative limit (of not exceeding 20%) under second proviso to section 2(15) for receipts from such profits, is adhered to.

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190. In light of the above discussion, this court is of the opinion that:

(i)

The fact that bodies which carry on statutory functions whose income was eligible to be considered for exemption under section 10(20A) ceased to enjoy that benefit after deletion of that provision w.e.f. 1-4-2003, does not ipso facto preclude their claim for consideration for benefit as GPU category charities, under section 11 read with section 2(15) of the Act.

(ii)

Statutory Corporations, Boards, Authorities, Commissions, etc. (by whatsoever names called) in the housing development, town planning, industrial development sectors are involved in the advancement of objects of general public utility, therefore are entitled to be considered as charities in the GPU categories.

(iii)

Such statutory corporations, boards, trusts authorities, etc. may be involved in promoting public objects and also in the course of their pursuing their objects, involved or engaged in activities in the nature of trade, commerce or business.

(iv)

The determinative tests to consider when determining whether such statutory bodies, boards, authorities, corporations, autonomous or self-governing government sponsored bodies, are GPU category charities:

(a)

Does the state or central law, or the memorandum of association, constitution, etc. advance any GPU object, such as development of housing, town planning, development of industrial areas, or regulation of any activity in the general public interest, supply of essential goods or services – such as water supply, sewage service, distributing medicines, of food grains (PDS entities), etc.;

(b)

While carrying on of such activities to achieve such objects (which are to be discerned from the objects and policy of the enactment; or in terms of the controlling instrument, such as memorandum of association etc.), the purpose for which such public GPU charity, is set-up – whether for furthering the development or a charitable object or for carrying on trade, business or commerce or service in relation to such trade, etc.;

(c)

Rendition of service or providing any article or goods, by such boards, authority, corporation, etc., on cost or nominal markup basis would ipso facto not be activities in the nature of business, trade or commerce or service in relation to such business, trade or commerce;

(d)

where the controlling instrument, particularly a statute imposes certain responsibilities or duties upon the concerned body, such as fixation of rates on pre-determined statutory basis, or based on formulae regulated by law, or rules having the force of law, setting apart amenities for the purposes of development, charging fixed rates towards supply of water, providing sewage services, providing food grains, medicines, and/or retaining monies in deposits or government securities and drawing interest therefrom or charging lease rent, ground rent, etc., per se, recovery of such charges, fee, interest, etc. cannot be characterized as “fee, cess or other consideration” for engaging in activities in the nature of trade, commerce, or business, or for providing service in relation in relation thereto;

(e)

Does the statute or controlling instrument set out the policy or scheme, for how the goods and services are to be distributed; in what proportion the surpluses, or profits, can be permissively garnered; are there are limits within which plots, rates or costs are to be worked out; whether the function in which the body is engaged in, is normally something a government or state is expected to engage in, having regard to provisions of the Constitution and the enacted laws, and the observations of this court in NDMC; whether in case surplus or gains accrue, the corporation, body or authority is permitted to distribute it, and if so, only to the government or state; the extent to which the state or its instrumentalities have control over the corporation or its bodies, and whether it is subject to directions by the concerned government, etc.;

(f)

As long as the concerned statutory body, corporation, authority, etc. while actually furthering a GPU object, carries out activities that entail some trade, commerce or business, which generates profit (i.e., amounts that are significantly higher than the cost), and the quantum of such receipts are within the prescribed limit (20% as mandated by the second proviso to section 2(15)) – the concerned statutory or government organisations can be characterized as GPU charities. It goes without saying that the other conditions imposed by the seventh proviso to section 10(23C) and by section 11 have to necessarily be fulfilled.

(v)

As a consequence, it is necessary in each case, having regard to the first proviso and seventeenth proviso (the latter introduced in 2012, w.r.e.f 1-4-2009) to section 10(23C), that the authority considering granting exemption, takes into account the objects of the enactment or instrument concerned, its underlying policy, and the nature of the functions, and activities, of the entity claiming to be a GPU charity. If in the course of its functioning it collects fees, or any consideration that merely cover its expenditure (including administrative and other costs plus a small proportion for provision) – such amounts are not consideration towards trade, commerce or business, or service in relation thereto. However, amounts which are significantly higher than recovery of costs, have to be treated as receipts from trade, commerce or business. It is for those amounts, that the quantitative limit in proviso (ii) to section 2(15) applies, and for which separate books of account will have to be maintained under other provisions of the IT Act.

(ii) Statutory regulatory bodies/authorities.”

“253. In view of the foregoing discussion and analysis, the following conclusions are recorded regarding the interpretation of the changed definition of “charitable purpose” (w.e.f. 1-42009), as well as the later amendments, and other related provisions of the IT Act.

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Authorities, corporations, or bodies established by statute

B.1.

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 (supra).

B.2.

However, at the same time, in every case, the assessing authorities would have to apply their minds and scrutinize the records, to determine if, and to what extent, the consideration or amounts charged are significantly higher than the cost and a nominal mark-up. If such is the case, then the receipts would indicate that the activities are in fact in the nature of “trade, commerce or business” and as a result, would have to comply with the quantified limit (as amended from time to time) in the proviso to section 2(15) of the IT Act.

B.3.

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”. However, in the case of such notified bodies, there is no quantified limit in section 10(46). Therefore, 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).

B.4.

For the period 1-4-2003 to 1-4-2011, a statutory corporation could claim the benefit of section 2(15) having regard to the judgment of this Court in the Gujarat Maritime Board case (supra). Likewise, the denial of benefit under section 10(46) after 14-2011 does not preclude a statutory corporation, board, or whatever such body may be called, from claiming that it is set up for a charitable purpose and seeking exemption under section 10(23C) or other provisions of the Act.

4. In view of the above decision and dictum of law, we are of the opinion that the issue arising in this Appeal regarding applicability of Section 2(15) read with Section 13(8) of the Act would not be applicable to the respondent assessee Gujarat Housing Board and the assessee would be entitled to the benefit of Sections 11 and 12 of the Act.

5. In view of the above, no interference is called for in the impugned order of the Tribunal.

6. The Appeal is accordingly, dismissed.