Introduction
The Income Tax Appellate Tribunal (ITAT) Raipur Bench, in its common order dated 17 February 2026, addressed a pivotal issue concerning the eligibility of a statutory housing board for exemption under section 11 of the Income Tax Act, 1961. The case involved five appeals for Assessment Years 2011-12, 2012-13, 2013-14, 2016-17, and 2017-18, filed by the Chhattisgarh Housing Board against the orders of the Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre, Delhi. The core dispute centered on whether the Board’s activities—primarily the development and sale of housing units and plots—constituted trade, commerce, or business, thereby triggering the proviso to section 2(15) and precluding exemption under section 11. Applying the Supreme Court’s binding decision in Ahmedabad Urban Development Authority, the ITAT set aside the assessment orders and remanded the cases for fresh adjudication, holding that the lower authorities had mechanically invoked the proviso without applying the predominant object test.
Facts of the Case
The assessee, Chhattisgarh Housing Board, is a corporate body created under the Chhattisgarh Griha Nirman Mandal Adhiniyam, 1972, with the statutory objective of fulfilling housing needs in urban areas, particularly for lower-income groups and weaker sections of society. The Board is registered under section 12A of the Act with effect from 1 April 2006. For the assessment years under consideration, the Board claimed exemption under section 11 on its net surplus, which it attributed to its no-profit/no-loss model of providing housing on a cost-to-cost basis.
The Assessing Officer (AO), however, observed that the Board sold residential units and plots at a profit, albeit lower than market rates, and held that the Board was engaged in commercial activities akin to a builder or developer. For AY 2011-12, the AO noted that the Board had deposited cash of ₹2,94,49,120/-, received contract receipts of ₹39,24,946/-, and interest income of ₹21,551/-, but had not filed a return of income. After reopening the assessment under section 148, the AO assessed the net surplus of ₹1,71,93,880/- as business income, disallowing the exemption under section 11.
The CIT(A) upheld the AO’s action, reasoning that the contract receipts exceeded ₹25 lakhs for AY 2011-12 and that the Board’s activities were in the nature of trade, commerce, or business. The CIT(A) also noted that the Board failed to file its return of income and could not produce evidence that similar reassessment for AY 2010-11 had been dropped. Aggrieved, the Board appealed before the ITAT.
Legal Reasoning
The ITAT’s decision turned on the correct interpretation of the term “charitable purpose” under section 2(15) and the applicability of its proviso, which excludes activities in the nature of trade, commerce, or business from the scope of general public utility if receipts from such activities exceed the prescribed threshold. The Tribunal emphasized the Supreme Court’s judgment in Ahmedabad Urban Development Authority, which held that statutory bodies providing housing accommodation at cost or nominal markup are not engaged in trade, commerce, or business. The Court had clarified that the “predominant object test” must be applied: if the primary purpose is charitable (such as providing affordable housing to weaker sections) and any surplus is incidental, the exemption under section 11 should not be denied.
Applying this principle, the ITAT found that the Chhattisgarh Housing Board was created under a State Act specifically to address the housing needs of lower-income groups and weaker sections. Its functions, as stipulated in the Adhiniyam, include undertaking housing schemes, developing sites with infrastructure (drainage, water supply, parks, etc.), and maintaining and allotting plots—all on a no-profit/loss basis. The Board is not authorized to declare any dividend, and its registration under section 12A confirmed its charitable character.
The ITAT observed that the AO and CIT(A) had erroneously equated the Board’s activities with those of a profit-making builder/developer solely because sales generated a surplus. The lower authorities failed to examine whether the surplus arose from a genuine cost-to-cost pricing model or whether there was any profit motive. The Tribunal noted that the Board argued that it sells houses and plots on a cost basis, and that any surplus is incidental and ploughed back into its charitable objects. The CIT(A) had not considered this crucial aspect; instead, he mechanically invoked the proviso to section 2(15) merely because contract receipts crossed the monetary threshold of ₹25 lakhs.
The ITAT further stressed that the proviso to section 2(15) cannot be applied in a vacuum. The authorities must first determine whether the activity in question is in the nature of “trade, commerce, or business.” The Supreme Court in the Ahmedabad Urban Development Authority case had laid down that the word “business” implies a systematic activity carried on with a profit motive, and where the activity is mandated by statute and aimed at general public utility—especially for the poor and economically weaker sections—it cannot be classified as trade or commerce merely because receipts exceed a prescribed limit.
In the present case, the Board’s activities were squarely covered by the exception carved out by the Supreme Court. The ITAT found that the lower authorities had failed to apply the predominant object test and had not examined the Board’s pricing policy, the actual nature of its receipts, or the constitutional mandate under which it operated. Consequently, the Tribunal held that the orders of the CIT(A) were unsustainable and directed the AO to re-adjudicate the matter afresh, considering the binding Supreme Court precedent and without mechanically invoking the proviso to section 2(15).
The Tribunal also noted that the appeals for all five assessment years involved common facts and identical grounds, and thus they were disposed of by a single order. The ITAT allowed the appeals for statistical purposes, setting aside the impugned orders and remanding the cases to the file of the AO for fresh assessment in accordance with the law.
Conclusion
The ITAT Raipur’s decision reaffirms a vital principle in the law of charitable trusts: statutory housing boards established to provide affordable housing to the poor are not engaged in trade, commerce, or business, even if they generate a surplus. The judgment underscores the importance of applying the predominant object test and not mechanically invoking the proviso to section 2(15) based solely on the quantum of receipts. By remanding the matter, the Tribunal ensured that the AO will examine the facts in light of the Supreme Court’s guidance, allowing the Chhattisgarh Housing Board a fair opportunity to claim the exemption it legitimately deserves. This order serves as a significant precedent for similar housing boards across the country, reinforcing that the charitable purpose of advancing general public utility encompasses activities undertaken by the state for the welfare of its citizens.