M/S. GHAZIABAD DEVELOPMENT AUTHORITY,NEW DELHI vs. ACIT (EXCEMPTION), GHAZIABAD

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘C’: NEW DELHI (Through Video Conferencing) BEFORE, SHRI R. K. PANDA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER I.T.A No.2038/Del/2017 (ASSESSMENT YEAR 2012-13)

M/s Ghaziabad ACIT (Exemptions) Development Authority Ghaziabad Vikas Path, Hapur Road, Vs. Ghaziabad. PAN–AAALG 0072C (Appellant) (Respondent) I.T.A No.5355/Del/2017 (ASSESSMENT YEAR 2013-14) M/s Ghaziabad DCIT (Exemptions) Development Authority Ghaziabad Vikas Path, Hapur Road, Vs. Ghaziabad. PAN–AAALG 0072C (Appellant) (Respondent)

Appellant By Dr. Rakesh Gupta, Adv. Respondent by Ms. Sunita Singh, CIT- DR Date of Hearing 16.06.2021 Date of Pronouncement 13.09.2021

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ORDER PER SUDHANSHU SRIVASTAVA, JM: Both the appeals are preferred by the assessee. ITA

No.2038/Del/2017 pertains to Assessment Year 2012-13 whereas

ITA No.5355/Del/2017 pertains to Assessment Year 2013-14.

Since, both the appeals involved identical issues, the same were

heard together and are being disposed by this common order for the

sake of convenience.

2.0 First we take up appeal for Assessment Year 2012-13

bearing ITA No.2038/Del/2017.

2.1 The brief facts of the case are that the assessee is a

Development Authority constituted under the U.P. Urban Planning

and Development Act, 1973 with the object of development of areas

according to plan and for that purpose, the authority has been

empowered to acquire, hold, manage and dispose land and other

properties to carry out building activities, engineering, mining and

other operations. The assessment for Assessment Year 2012-13 was

framed u/s 147/143(3) of the Income Tax Act, 1963 (hereinafter

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called ‘the Act’) after disallowance of assessee’s claim of exemption

u/s 11 of the Act and after making a further addition of

Rs.3,46,03,14,429/- being net amount transferred to Infrastructure

Development Fund as income of the Ghaziabad Development

Authority. The Assessing Officer (AO) disallowed the claim of

exemption u/s 11 of the Act on the ground that registration u/s

12AA granted to the assessee stood cancelled vide order dated

31.03.2014 passed by the Ld. CIT, Ghaziabad. Further, the

Assessing Officer also disputed the charitable nature of activities

carried out by the assessee in terms of Section 2(15) of the Act.

2.2 Aggrieved, the assessee preferred an appeal before the

Ld. CIT(A), who dismissed the appeal. The Ld. CIT(A) not only

upheld the issuance of notice u/s 148 of the Act but also upheld

the rejection of exemption u/s 11 of the Act and also upheld the

addition on account of transfer of funds amounting to

Rs.3,46,03,14,429/- transferred to Infrastructure Development

Fund.

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2.3 Aggrieved, the assessee has now approached this

Tribunal challenging the order of the Ld. CIT(A) and has raised the

following grounds of appeal:

“1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in passing the impugned reassessment order u/s 147/143(3) and that too without assuming jurisdiction as per law and without complying with the mandatory conditions of section 147 to 151 of Income Tax Act,1961. 2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in passing the impugned reassessment order u/s 147/143(3) and that too without complying the mandatory conditions of section 147 to 151, is bad in law and against the facts and circumstances of the case. 3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in not allowing the benefit of exemption u/s 11 and 12 as claimed by the assessee and further erred in observing as under:- • That the assessee authority is covered under the proviso to section 2(15). • That the activities of the assessee authority are commercial in nature and are wholly or partially carried on with a motive of profit. • That the assessee was engaged dominantly in the activity of development and sale of properties.

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• That this amount is to be first credited to Income & Expenditure account. • That these receipts were not deposited in accordance with the G.O. • That the said amounts are in the nature of capital receipts and are transferred to Infrastructure Development Fund.

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3.0 The Ld. Authorized Representative (AR) submitted that

Ground Nos.1 & 2 challenging the reopening u/s 147 of the Act

were not being pressed. Accordingly, the same are dismissed as not

pressed.

3.1 With respect to ground Nos.3 to 6, the Ld. AR submitted

that the issue of cancellation of registration u/s 12AA of the Act

had been considered by this Tribunal and the Tribunal had restored

the registration u/s 12AA vide order dated 29.04.2019 in ITA

No.2400/Del/2014. A copy of the said order was placed on record

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by the Ld. AR and it was submitted that the Tribunal, after taking

note of the objects and activities of the assessee had held that the

objects of the assessee were charitable in nature in terms of Section

2(15) of the Act and further that the assessee was entitled to

registration u/s 12AA of the Act. The Ld. AR argued that once the

objects and activities were held to be charitable there remained no

basis for denying the benefit of exemption u/s 11 of the Act.

4.0 Per contra, the Ld. CIT-DR relied on the concurrent

orders of the Assessing Officer as well as the Ld. CIT(A) and

submitted that the assessee was a development authority working

on commercial lines and as such the benefit of exemption u/s 11

had rightly been denied. However, the Ld. CIT-DR fairly accepted

that the registration u/s 12AA of the Act in the case of the assessee

had been restored by a Co-ordinate Bench of this Tribunal.

5.0 Having heard the rival submissions and having perused

the material on record, we note that the issue for our consideration

is the allowability of assessee’s claim of exemption u/s 11 read with

provisions of Section 2(15) of the Act. The assessee authority has

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been created under the UP Urban Planning Development Act, 1973

with the preliminary object of undertaking planned development in

specified area. For the purpose of ascertaining eligibility u/s 11 of

the Act, it is important to analyze and understand the objects,

purpose and operational structure of the authority so as to as

certain whether the activities carried out by the assessee fall within

the definition of charitable purpose as defined u/s 2(15) of the Act

while keeping in mind the language and intent of the proviso as well

as. However, we note that this exercise has been cut short by the

order of the Co-ordinate Bench in assessee’s own case in ITA

No.2400/Del/2014 wherein, while deciding the eligibility of

registration u/s 12A of the Act, the Tribunal had the occasion to in-

depth examine the objects and activities of the assessee authority in

context of Section 2(15) of the Act. The Tribunal proceeded to

restore the registration u/s 12AA of the Act by holding as under:

“13 In the case of Navodaya Education Trust and G D Singla Charitable Trust mentioned Supra the registration was refused as the entities were operated by a single family unit. In the case of Self Employers Service Society, it was held that there was no charitable activity undertaken by the society. Similarly the case of UPDA, there was no finding of charitable work undertaken by the association. The case of Travancore Education Society the registration was cancelled due to collection of capitation fee which was prohibited by law. Thus we find none of the cases referred to

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by the revenue were in the work of development of townships or city development by the local bodies / improvement trust/ developing authority. The facts and the operations of the assessee and the cases refereed above are on different set of circumstances. The only relevant cases referred by the revenue namely JDA and Baddi Barotiwala development authority have been well differentiated by various courts and tribunal as mentioned above and registration was allowed to various development agencies, development authorities, improvement trust by whatever name they are known and in the same line of operation as that of the assessee in question. 14. We also find registration under section 12 AA was directed to be granted by various courts/tribunals in the case of • Moradabad Development Authority, • Jaipur Development Authority, • Ahmdabad_Urban Development Authority, • Jodhpur Development Authority, • Improvement Trust, Moga, • Improvement Trust, Sangrur, • Improvement Trust, Khanna, • Improvement Trust, Kapurthala • Haridwar Development Authority • Agra Development Authority 16 Further we also find that Hon'ble Allahabad High Court has held that the objects and activities of Ghaziabad Development Authority are such that it is eligible for benefit of registration u/s 12A even after proviso to section 2(15) is taken into consideration. The proviso to section 2(15) has been considered by Hon'ble Allahabad High Court in assessee's own fase in the order, therefore the judgment of jurisdictional High Court will have the primacy. The Authority GDA is creation of state of U.P UP Urban Planning and Development Act, 1973where as the other improvement trusts are creation of various state laws involving similar activities. Further examination of the activities of the assessee with regard to the objectives, whether the manner in which the assessee trust was conducting its activities constituted advancement of general public utility as set out in section 2(15) and further whether the work ceased to be for charitable purpose due to the first proviso to section 2(15) which lays down that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the

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nature of trade, commerce or business, irrespective of the nature of use or application, or retention of the income from such activity we find that the assessee has not brought any changes in the objectives which forces the revenue to change its earlier stand. As long as the object of general public utility is not merely a mask to hide true purpose or rendering of any service in relation thereto, and where such services are being rendered as purely incidental to or as subservient to the main objective of ‘general public utility', the carrying on of bonafide activities in furtherance of such objectives of ‘general public utility' cannot be hit by proviso to s. 2(15). 17 Hence keeping in view the provisions of the act , objectives of the assessee , judgment in the case of the assessee by the Hon'ble High court of Allahabad, approvals given in the case of other town development agencies, we hold that the assessee trust is carrying out charitable activity of advancement of public utility and the business activity carried out by it are incidental to the attainment of its main object and thus the proviso to section 2(15) is not attracted in the assesses case. We therefore hold that the assessee is entitled for restoration of registration u/s 12AA of the income Tax, 1961.”

5.1 Therefore, in view of the above observations of the Co-

ordinate Bench of this Tribunal in assessee’s own case restoring the

registration u/s 12AA of the Act, we are of the opinion that the

objects of the assessee authority are charitable in nature and the

same are not hit by proviso to Sec.2(15) of the Act. However, we

direct the Assessing Officer to examine the activities of the assessee

authority and if the same are found to be in consonance with the

objects, the benefit of exemption u/s 11 is to be allowed.

Accordingly, Ground Nos.3 to 6 are allowed for statistical purposes.

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6.0 Ground Nos.7 and 8 relate to addition made by treating

fund earmarked for Infrastructure Development Fund to the income

of the assessee. The Ld. AR submitted that the funds transferred to

Infrastructure Development Funds cannot be considered as income

as the same does not belong to the assessee and that there was an

overriding obligation to spend this amount towards specified and

approved infrastructure project. It was, accordingly, argued by the

Ld. AR that Infrastructure Fund was of capital nature. It was

argued that this fund was created by the State Government for the

development of infrastructure of cities and that the same was under

the control and supervision of the State Government and, thus, the

assessee was merely a trustee of the said fund.

7.0 Per contra, the Ld. CIT-DR submitted that the amount

transferred to Infrastructure Development Fund was out of income

earned by the assessee as such it was merely an application of

income. The Ld. CIT-DR refuted the argument of the Ld. AR that

there was an overriding title for the purpose of transfer of funds to

the Infrastructure Development Fund. The Ld. CIT-DR highlighted

the fact that the said infrastructure fund was just a separate bank

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account which contained part of the receipts of the assessee which

was subsequently used for incurring expenses in the normal course

and, thus, by no stretch of imagination it could be said that it was a

earmarked fund having an overriding title.

8.0 We have considered the arguments of both the parties

with respect to Ground Nos. 7 & 8 and have also gone through the

material on record. We note that the issue of nature and taxability

of amount transferred to the Infrastructure Development Fund was

considered by the Co-ordinate Bench of this Tribunal in the case of

Saharanpur Development Authority in ITA No.4113/Del/2017 vide

order dated 24.03.2021 wherein it was held as under:

“6. It is noted from the material on record that in the case, similar issue has been decided in the case of the assessee for the assessment years 2004-05 to 2007-08 by the Co-ordinate Bench of ITAT “G” Bench, Delhi where in it was held that, “the appellant has received in fra structure funds under the orders o f Govt. o f U.P. and it was required to use such funds as per the direction of the High Powered Committee and has no control over the said funds. There fore, the interest income from such funds is not the income o f the appellant.” 7. This observation has been given consistently by the ITAT in favour of the assessee for the Assessment years 2004-05 to 2007-08. Further , the Hon’ble Allahabad High Court in the case of Lucknow Development Authority has held that the money transferred to the Infra structure fund account is to be utilized for the purpose of the pro jects as specified by the Committee having constituted by the State Government and cannot be treated as belonging to the authority or receipt is taxable nature in its hand.”

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8.1 Identical issue was also considered by the Co-ordinate

Bench in the case of Khurja Development Authority vs. ACIT in ITA

No.5103/Del/2016 vide order dated 03.04.2019. The relevant

observations of the Co-ordinate Bench are reproduced herein

under:

“12. As regards, the addition made on account of infrastructure fund, Ld. Counsel for assessee relied upon the judgment of Allahabad High Court in the case of CIT vs. Lucknow Development Authority 265 CTR 433 in which it was held as under: “Where the trust is carrying out its activities on noncommercial lines with no motive to earn profits, or fulfillment of its aims and objectives, which are charitable in nature and in the process earn some profits, the same would not be hit by proviso to section 2(15).”

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AO. The assessee has now been granted registration u/s 12AA of the Act and thus, assessee is entitled for exemption from income u/s 11 of the Act as per law. Even if the infrastructure reserve fund may be treated as income of assessee, it will have to be examined, whether, assessee is entitled for exemption u/s 11 of the Act on the same income. Therefore, it would depend upon fundings with regard to exemption u/s 11 of the Act. We have already restored the issue of exemption u/s 11 of the Act to the AO for fresh decision as per law. Further, the authorities below have not appreciated the fact that assessee claimed that infrastructure fund was received for development activities from the State Authorities, the assessee has to spend the amount on the same as per approval of the State Authorities. Thus, there may not be any profit element out of the same sources. It may also be noted here that whatever amount has been spent by assessee on the same issue, the AO has accepted that assessee spent the same amount as per the directions of the State Authorities. Then in that event it is difficult to believe that part amount is capital receipt and part would be Revenue in nature. Therefore, there was no justification for Ld. CIT(A) to hold that the impugned receipt is Revenue in nature. This issue also requires reconsideration in view of the fact that assessee is entitled for exemption u/s 11 of the Act. We, accordingly, set aside the orders of the authorities below on the issue of infrastructure fund as well and restore the issue to the file of AO with direction to redecide the issue as per law by giving reasonable opportunity of being heard to the assessee.”

8.2 In the light of the orders of the Co-ordinate Bench as

reproduced in the preceding paragraphs in the case of Saharanpur

Development Authority (supra) and Khurja Development Authority

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(supra), we are of the view that source of funds transferred to

Infrastructure Development Fund, control over the same and

obligation of its utilization is required to be examined to ascertain

the real nature of Infrastructure Development Fund. Accordingly,

we direct the Assessing Officer to adjudicate the issue afresh

keeping in mind the ratio laid down by the Co-ordinate Benches of

this Tribunal in Saharanpur Development Authority (supra) and

Khurja Development Authority (supra). Accordingly, ground Nos.7 &

8 are also allowed for statistical purposes.

9.0 Ground No.9 is an alternative plea by the assessee and

the same is dismissed as having become infructuous.

10.0 In the result, ITA No.2038/Del/2017 stands partly allowed

for statistical purposes.

11.0 Now, we take up the appeal pertaining to Assessment

Year 2013-14 bearing ITA No.5355/Del/2017. In this appeal, the

assessee has raised the following grounds of appeal:

“1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in assuming jurisdiction and in framing the impugned reassessment order and that too without complying

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the mandatory conditions of section 147 to 151 of the Income Tax Act, 1961.

• That the assessee authority appeared to fall within the ambit of the proviso to section 2(15) of the Act. • That the activities of the assessee authority are commercial in nature and are wholly or partially carried on with a motive of profit. • That the assessee was engaged dominantly in the activity of development and sale of properties.

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earmarked as income of the assessee with regard to amount relating to Infrastructure Development Fund and also erred in making an addition of Rs.268,71,92,937/- in this regard and that that too by recording incorrect facts and findings and without observing the principles of natural justice.

12.0 Ground No.1 & 2 are dismissed as not being pressed.

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12.1 Ground Nos. 3 & 4 relate to issue of exemption u/s 11. We

have already decided this issue while adjudicating ground Nos.3 to

6 in ITA No.2038/Del/2017 above in Para 5 & 5.1 and the finding

recorded therein is applicable mutatis mutandis. Accordingly,

Ground Nos. 3 & 4 are allowed for statistical purposes.

12.2 Ground Nos.5 & 6 are again identical and pertain to

taxability of funds transferred to Infrastructure Development Fund

and the directions issued by us while deciding ground Nos. 7 & 8 in

ITA No.2038/Del/2017 in para 8.0, 8.1 & 8.2 above also apply here

mutatis mutandis. Resultantly, Ground Nos.5 & 6 are also allowed

for statistical purposes with identical directions.

12.3 Ground No.7 challenges non-allowance of credit of

prepaid taxes to the extent of Rs.9,32,77,634/-. As credit of prepaid

taxes is a statutory right envisaged under the Income Tax Act,

1961. The Assessing Officer is directed to allow the credit of prepaid

taxes after due verification in accordance with law. Accordingly,

Ground No.7 also allowed for statistical purposes.

19 ITA Nos.2038 &5355 /Del/2017 M/s Ghaziabad Development Authority Vs. ACIT/ DCIT

12.4 Ground No.8 is general in nature and not required in

specific adjudication and the same is accordingly dismissed.

13.0 In the result, ITA No.5355/Del/2017 is allowed for

statistical purposes.

14.0 In the final result, both the appeals of the assessee

partly allowed for statistical purposes.

Order pronounced on 13th September, 2021.

Sd/- Sd/- (R.K. PANDA) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated:13/09/2021 PK/Ps Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT

ASSISTANT REGISTRAR ITAT DEHRADUN