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Income Tax Appellate Tribunal, DELHI BENCH ‘C’: NEW DELHI
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 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 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.
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.
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.
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.
4. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in denying the benefit of exemption u/s 11 & 12, is bad in law and against the facts and circumstances of the case and without observing the principles of natural justice.
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 treating the income over expenditure as income chargeable to tax u/s 11(4A) of the Income Tax Act, 1961 on the ground that no separate books of accounts regarding incidental activity of buying and selling of property is done by the appellant.
6. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in treating the income over expenditure as income chargeable to tax u/s 11(4A), is bad in law and against the facts and circumstances of the case. 7. 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 making addition of Rs.3,46,03,14,429- earmarked as amount related to Infrastructure Fund and that too by treating it as taxable income and further erred in observing as under:-
• 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.
That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of Rs.3,46,03,14,429/- on account of Infrastructure Fund is bad in law and against the facts and circumstances of the case.
9. Without prejudice to the above grounds, Ld. CIT(A) has erred in law and on facts in not granting the benefit of expenses and in not computing the income as per generally accepted commercial accounting principles after rejecting the claim of registration u/s 12AA.
That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”
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 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 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 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 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.
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 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.
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 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 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.”
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.”
8.1 Identical issue was also considered by the Co-ordinate Bench in the case of Khurja Development Authority vs. ACIT in 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).”
Ld. Counsel for assessee submitted that this issue is related to exemption u/s 11 of the Act and that assessee is custodian of the amount in question and this amount can be used by the assessee as per directions of the State Authorities. Therefore, it can never be the income of the assessee.
14. Ld. DR, however, submitted that this issue has been decided in detail by the CIT(Appeals), therefore, the order may be maintained.
After considering the rival submissions, we are of the view that this issue also requires reconsideration at the level of the 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 (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, stands partly allowed for statistical purposes.
11.0 Now, we take up the appeal pertaining to Assessment Year 2013-14 bearing . 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 the mandatory conditions of section 147 to 151 of the 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 assuming jurisdiction and in framing the impugned reassessment order 147/143(3) is bad in law and against the facts and circumstances of the case and not sustainable on various legal and factual grounds.
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 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.
That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in denying the benefit of exemption u/s 11&12, is bad in law and against the facts and circumstances of the case and without observing the principles of natural justice.
5. 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 treating an amount of Rs.348,73,27,829/-
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.
That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of Rs.268,71,92,937/-, is bad in law and against the facts and circumstances of the case.
7. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not allowing the credit of prepaid taxes amounting to Rs.9,32,77,634/- as claimed.
8. That action of Ld. AO in framing the impugned assessment order and in denying the benefit of exemption u/s 11&12 and in making addition of Rs.268,71,92,937/- and in assessing the income of the assessee at aggregate amount of Rs. 186,75,56,884/- is not sustainable on various legal and factual grounds and Ld. CIT(A) ought to have quashed the same.
That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”
12.0 Ground No.1 & 2 are dismissed as not being pressed.
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 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 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.
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, 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.