DEPUTY COMMISSIONER OF INCOME TAX ,EXEMPTION CIRCLE, HYDERABAD vs. HYDERABAD METROPOLITAN DEVELOPMENT AUTHORITY , HYDERABAD

Assessee, a local authority, is an urban development authority constituted under the Andhra Pradesh Urban Areas (Development) Act, 1975, for the purpose of development of urban areas. Assessee received certain amounts towards Layout Regulation Scheme (LRS), Building Penalisation Scheme (BPS) and development charges as provided under the GOMS No. 902, dated 31/12/2007, the GOMS No. 901, dated 31/12/2017 and GOMS No. 51, dated 5/2/1996 followed by two other GOs. During the scrutiny of the return of income filed by the assessee for the assessment years 2013-14, 2016-17 and 2017-18, learned Assessing Officer proposed to bring the entire receipts to tax. Assessee contended that such amounts do not exclusively belong to the assessee, since the Government directed the assessee to accept the applications for the regularization of the unplanned urban areas and the unauthorised constructions and deviations in the constructions of building, while directing further that such amounts shall be kept in a separate account to be utilised only for specified purposes. According to the assessee, the assessee has no control over the utilisation of these funds except in accordance with the directions issued by the Government from time to time and all these funds were put in escrow account. Out of the development charges, according to the assessee, 15% thereof constitutes the development charges collected towards administration and other maintenance expenditure of the assessee whereas the balance 85% has to be utilised for the development of infrastructure facility in urban areas.

Learned Assessing Officer, however, brushed aside the contentions of the assessee by stating that merely because the amount is kept in escrow account, the receipt does not lose its character and inasmuch as the assessee has been claiming all the expenditure on improvement of M/s. Hyderabad Metropolitan Development Authority (Batch)

Assessee preferred appeals before the learned CIT(A), and reiterated the submissions by placing reliance on the decision of the Delhi Bench of the Tribunal in the case of ITO vs. MMTC 3 ITD 466, and DTTDC reported in 54 TTJ 316.

Learned CIT(A) by way of impugned order, while following the decision of the Co-ordinate Bench of this Tribunal in the case of Kakatiya Urban Development Authority passed on 23/09/2019 upheld the addition made by the learned Assessing Officer on account of collection towards development charges, but however, directed that the receipts and expenditure statement and its schedules should be checked and the ledger of the development expenses have to be verified for allowing the expenditure. Insofar as the BPS and LRS are concerned, learned CIT(A) examined the issue in the light of the relevant GOs and the decision of the Tribunal in the case of Kakatiya Urban Development Authority, dated 23/09/2019 and reached a conclusion that the entire receipts on account of these two schemes can never be income of the assessee and depend upon the amount of money collected from the urban and panchayat areas, apart from the fact that the monies so received on account of these cannot be freely utilised by the assessee and, therefore, such monies have to be excluded from the gross receipts. Lastly learned CIT(A) dealt with the claim of the assessee that the excess expenditure incurred in the earlier year for working out the amount of utilisation for the year under consideration, has to be considered.

On an analysis of the provisions under section 10(23C) of the Act and section 11 of the Act as amended by Finance Act, 2021, learned CIT(A) returned a finding that the excess of application of expenditure or income

Aggrieved by the action of the learned CIT(A) in deleting the disallowance of expenditure in respect of the development charges, and also the additions made on account of the LRS and BPS, Revenue preferred 203 & 204/Hyd/2022; whereas aggrieved by the findings of the learned CIT(A) in upholding the addition on account of development charges collected and also in not allowing the excess of expenditure incurred in the earlier years in this year, assessee filed ITA Nos. 197, 207 & 208/Hyd/2022.

It is the submission made on behalf of the Revenue that the approach of the learned CIT(A) in upholding the findings of the learned Assessing Officer that 100% receipts on account of development charges have to be considered in the hands of the assessee as income and at the same time allowing the expenditure, not incurred for the development charges but incurred for the purpose of complying with the directions issued by the Government from time to time is contradictory and therefore, the deletion of the disallowance of expenditure incurred by the assessee not for the development charges, but only to comply with the Government directions is bad under law.

Ld. DR further argued that the receipts on account of the LRS and BPS are part and parcel of the income of the assessee inasmuch as the assessee received the same and there is no scope in the objects of the assessee authority to follow the directions of the Government in spending the income thereby, by following the directions of the Government issued from time to time. When the assessee is not bound by its bylaws to M/s. Hyderabad Metropolitan Development Authority (Batch)

In the alternative, Ld. DR submitted that it is incumbent upon the learned CIT(A) to verify the objects of the assessee, the way to carry them out, nature of receipts and expenditure, any excess amount is generated in that process over and above the expenditure so as to attract the provisions under section 2 (15) of the Act as laid down by the Hon’ble Apex Court in detail in the case of the ACIT (Exemptions) vs. Ahmedabad Urban Development Authority 449 ITR 0001 (SC). He further submitted that, as a matter of fact, under similar circumstances a Co-ordinate Bench of this Tribunal followed the same in the case of Kakatiya Urban Development Authority vs. ACIT in to 1726/Hyd/ 2019 and batch to set aside the impugned orders and to restore the issue to the file of the learned Assessing Officer with a direction to examine the activities of the assessee de novo and to decide the issue in accordance with law laid down by the Hon’ble Apex Court in the case of Ahmedabad Urban Development Authority (supra) and Kakatiya Urban Development Authority decided by the Co-ordinate Bench by order dated 26/12/2022.

Per contra, ld. AR, though argued in support of the contentions of the assessee advanced before the authorities below, but ultimately submitted that the matters are squarely covered by the decision of the Hon’ble Apex Court in the case of the Ahmedabad Urban Development Authority (supra) and also the Kakatiya Urban Development Authority decided by the Co-ordinate Bench by order dated 26/12/2022. He accordingly submitted that when the Government imposes certain responsibilities on the assessee as to the fixation of the rates and the manner of utilization of the funds leaving only a part of such funds in the hands of the assessee for utilization for their administrative expenses, it

We have gone through the record in the light of the submissions made on either side. There is no dispute as to the facts involved in this matter. Assessee is an urban development authority originally created by the Andhra Pradesh Urban Areas (Development) Act, 1975 and renamed by the Hyderabad Metropolitan Development Act, 2008. It is functioning under the instructions of the Government issued from time to time. Insofar as the dispute in this matter is concerned, the assessee has been collecting prescribed amounts under GOMS No. 901 and 902 dated 31/12/2007 towards BPS and LRS apart from the development charges. Under GOMS No. 439 dated 13/06/2007, out of the total development charges collected by the assessee, only 15% thereof was allowed to the assessee to utilize for its expenses and the balance has been taken to the Development Charges Reserve Account. So also, out of the amounts collected towards BPS, the assessee is entitled only to 30% of the amounts collected.

Assessee was treated as local authority upto the assessment year 2002-03, but subsequently, by virtue of amendment to section 10(20) of the Act, the exemption that was available earlier was taken away and the assessee became taxable entity but, the assessee has been claiming exemption under section 11 of the Act by filing application for registration under section 12AA of the Act.

According to the learned Assessing Officer inasmuch as the assessee has been claiming deduction of the funds utilized for the purposes directed by the Government from time to time, it cannot be said that the assessee is not the owner of such funds. Learned CIT(A) though granted relief to M/s. Hyderabad Metropolitan Development Authority (Batch)

This aspect has been dealt with by the Hon’ble Apex Court in the case of Ahmedabad Urban Development Authority (supra) where the authority enjoying the exemption under section 10(20) of the Act prior to amendment by Finance Act, 2002 but, subsequently, ceased to be a local authority due to the amendment. Hon’ble Apex Court held that mere fact that such authorities have to charge amounts for the goods or services they provide, they cannot be characterized as commercial receipts and if the entire receipts are reckoned for the purpose of the quantitative limit of 20% imposed by the 2nd proviso to section 2(15) of the Act it would negate the object of the Essential Public Utility. Hon’ble Apex Court dealt with this issue in detail and reached a conclusion that even if some of the activities of the authority generate some income, so long as they are intrinsically part of the activity of achieving the object of general public utility, the limit under the 2nd proviso to Section 2(15) of the Act has to be lifted. Hon’ble Apex Court summarized the relevant discussion in the following observation: (b) Summary in relation to statutory authorities/corporations 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. 01.04.2003, 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 M/s. Hyderabad Metropolitan Development Authority (Batch)

Both the counsel prayed that factual verification at the end of the learned Assessing Officer is necessary for compliance with the above view of the Hon’ble Apex Court and as a matter of fact a similar view was taken by a Co-ordinate Bench of the Tribunal in the case of Kakatiya Urban Development Authority vs. ACIT in to 1726/Hyd/2019 and batch, dated 26/12/2022. In this set of facts, while respectfully following the decision of the Hon’ble Apex Court, followed by the Co-ordinate Bench of the Tribunal in the case of Kakatiya Urban Development Authority (supra), we set aside the impugned order and restore the issue to the file of the learned Assessing Officer to take a fresh view following the above directions of the Hon’ble Apex Court, after affording an opportunity to the assessee.

In the result, all these appeals are, therefore, treated as allowed for statistical purposes.