DCIT (E),, GHAZIABAD vs. M/S GHAZIABAD DEVELOPMENT AUTHORTIY,, GHAZIABAD

The assessee Ghaziabad Development Authority ("GDA") is a body constituted under U.P Urban Planning and Development Act, 1973 (hereinafter referred to as "UP” Act, 1973“). GDA applied for registration u/s 12AA of the Income Tax Act, 1961 vide application dated 31.3.2003. The Commissioner of Income Tax, Ghaziabad vide order dated 08.08.2006 rejected application observing that GDA is not Institution working for charitable purposes since it was not registered under Indian Trusts Act, 1982 or Societies registration Act, 1860. Further, the activities are also not charitable, per se as it sells land on commercial rates and to fudge profit it does not follow commercial accounting principles. GDA preferred appeal before the ITAT in ITA No.2903 (Del) of 2006 which has been allowed by the ITAT vide order dated 31.072007 against which Revenue filed appeal before the Hon’ble Allahabad High Court which has been dismissed vide order dated 29.08.2016. Needless to mention that the ITAT allowed this appeal of the assesee making a reference to an earlier judgment dated 25.07.2005 in ITA No. 590 (Luck) of 2003 wherein registration for similar body was directed to be allowed. Meanwhile, as per directions of the ITAT, New Delhi, against which Revenue filed appeal before Hon'ble High Court, the assessee was granted registration u/s 12AA of the Act w.e.f. 31.03.2003. The effective date of registration has further been directed by the ITAT, new Delhi vide order dated 20.09.2016 to be effective from 01.04.2002 instead of 31.03.2003, effect to which is yet to be given by the ld. CIT(Exemption), Lucknow.

The assessee is engaged in development work constituted under Uttar Pradesh Urban Planning and Development Act, 1973. The assessee had been claiming the benefits of provisions of section 10(20A). Section 10(20A) was omitted by

On 31.12.2008, the Assessing Officer invoked provisions of section 142(2A) to get the accounts of the assessee audited by the special auditor. The assessee has challenged the validity of appointment of special auditor before Hon'ble Allahabad High Court in Writ Tax No. 391/2009. The Hon’ble High Courtstayed the special auditor's appointment vide stay order dated 10/02/2009.

On 3.04.2015, the Hon'ble Allahabad High Court allowed the writ filed by the assessee and appointment of special auditor setting aside the order dated 29.12.2008 and granted liberty to AO to pass afresh order. On 25.05.2015,the ld. CIT(Exemption) appointed special auditor.

The Assessing Officer rejected books of accounts u/s 145(3) holding that correctness and completeness of books of accounts in the case of the assessee is neither verified by special auditors nor substantiated by bills and vouchers specially the details of date of acquisition, cost of acquisition, method of valuation and the valuation of property which were not presented to the AO. The AO denied the claim of the assessee considering that activities such as buying and selling of land etc. carried on by the appellant are of commercial

While completing the assessment, the AO also denied the benefit of exemption u/s 11 of the Act, while the assessee was registered u/s 12A read with section 2(15) of the Act in the year under consideration.

Aggrieved, the assessee filed appeal before the Ld. CIT(A) against the additions. The ld. CIT(A) supported the order of the AO holding that GDA is an authority constituted by state for

The Ld. CIT(A) held that the assessee is engaged in development of land and in accordance to the Uttar Pradesh Urban Development Act 1973. As per Section 7 of the Act, the object of authority is to promote and secure the development of the area according to the plan and for that purpose authority shall have power to acquire, hold, manage and dispose of land and other property to carry out building, engineering, mining and other operations to execute the works in connection with the supply of water and electricity dispose of sewage and to provide and maintain other services and amenities andgenerally to do anything necessary end expedient for the purpose of suchdevelopment and for purposes incidental thereto. Provided that save as provided in this act nothing contained in this act shall be construed asauthorizing the disregard by the authority of any law for, the time being inforce. Thus, the above said act authorizes the assessee to undertake any activity to fulfill the main object of development of land in the specified area. The sub-activities involved in fulfilling the main object such as buying and selling of land and plots, the construction and sale of residential houses, commercial spaces etc. are such activities which are per-se in the nature of business. The earning of profit or income is not the stated objective of the assessee and there is no denial to the fact that the assessee had earned income having more receipts than expenditure.

Holding thus, the Ld. CIT(A), keeping in view the above facts,affirmed the action of AO making an assessment denying the claim of the assessee.

In this background, the issue to be decided by us narrows down to whether Section 2(13) of the Income Tax Act, 1961 is applicable to the functions of the assessee or whether it is Section 2(15) of the Act which needs to be invoked.

Section 2(13) reads as under:

This object of “public utility” as per Section 2(15) in the case of the assessee has been examined in detail by the Tribunal and further by Hon’ble Jurisdictional High Court and the registration u/s 12AA has been duly granted. The object of the assessee carrying the development of townships has been treated as “charitable purpose” for the purpose of the Income Tax Act. In the present case, the revenue authorities denied the benefit of exemption applying provisions of Section 2(13) instead of provisions of Section 2(15). In the light of the order of the Co-ordinate Bench of Tribunal and it being upheld by the Hon’ble High Court, the basis of denial of benefit u/s 11of the Act, as adopted by the Assessing Officer and affirmed by the Ld. CIT(A) stands vitiated and non-existent. In the instant case, the AO has not brought anything on record that distinguishes the clauses of the trust that were available before the authorities while granting registration u/s 12AA of the Act. There has been no change in the objects of the assessee. Hence, we hold that invoking of provisions of Section 2(13) against the relevant provisions of Section 2(15) is not legally sustainable. The similar ratio has been laid down in the following decisions:

In view of above and respectfully following the decision of Hon'ble Allahabad High Court and Coordinate bench in asssessee's own case, we are of the considered view the assessee is carrying out charitable activities with object of general public utility in accordance with section 2(15) of the Act and same cannot be termed as commercial or of business nature for the purpose of proviso to section 2(15) of the Act.

Hence, we hold that the decision of the ld. CIT(A) cannot be sustained. Having held that the assessee is eligible for deduction u/s 11 of the Act, the matter is being remand back to the file of the ld. CIT(A) for the limited purpose of re- computing the eligible deduction in accordance with the provisions of Section 2(15) of the Act.

In the result, both the appeals of the assessee are allowed and the appeal of the Revenue is dismissed. Order Pronounced in the Open Court on 28/01/2022.