M/S AYODHYA FAIZABAD DEVELOPEMENT AUTHORITY,FAIZABAD vs. DY. COMMISSIONER OF INCOME TAX (EXEMPTION), LUCKNOW

ITA 520/LKW/2018Status: DisposedITAT Lucknow31 January 2025AY 2015-16103 pages
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What did the Tribunal hold?

The Tribunal, after analyzing various legal pronouncements, including the Supreme Court's decision in Adityapur Industrial Area Development Authority vs. Union of India and the Uttarakhand High Court's decision concerning Mussoorie Dehradun Development Authority, held that the Ayodhya Development Authority, like other development authorities constituted under the Uttar Pradesh Urban Planning and Development Act, 1973, is a distinct legal entity from the State. Section 58 of the Act clearly stipulates that the authority's funds, assets, and liabilities devolve upon the State Government only upon its dissolution. Therefore, prior to dissolution, these are the authority's own funds. The Tribunal rejected the contention that the assessee was merely a nodal agency for implementing State Government projects or that there was a diversion of income under an overriding title concerning the 'infrastructure development fund'. The O.M. dated 15.01.1998 was viewed in the context of the State Government's supervisory powers for better administration, not as creating a diversion of income prior to dissolution. Consequently, the plea that the assessee had no right, title, or interest over the infrastructure fund was rejected. The Tribunal found that the judgments cited by the assessee claiming diversion of income, such as Imperial Chemicals and Jit & Pal X Ray, were not applicable. The Tribunal also noted that the Hon'ble High Court in the Adityapur case had held that fees collected for infrastructure development by a development authority would be treated as the income of the authority, with expenses deductible. The Tribunal did not explicitly decide on all grounds, but the reasoning indicates a strong leaning towards the assessee's position on the nature of its income and its charitable status, particularly concerning the infrastructure development fund.

What were the facts?

The assessee, Ayodhya Development Authority, filed appeals against orders of the CIT(A) and NFAC for assessment years 2012-13 to 2018-19. The CIT(A) dismissed appeals for A.Ys. 2012-13, 2014-15, 2015-16, and 2016-17, and partly allowed appeals for A.Ys. 2017-18 and 2018-19. The core dispute revolves around whether the assessee qualifies as a charitable organization under Section 2(15) of the Income Tax Act, 1961, and consequently, whether its income is eligible for exemption under Section 11. Specific additions were made concerning surplus income, 'infrastructure development fund account' balance, 'Tourism Development Grant UP' receipts, and prior period expenses. The assessee contended that it is a statutory authority with charitable objects, not engaged in profit-making activities, and that its income should be exempt.

What were the issues?

1. Whether the appellant can be termed as a charitable organization within the meaning of Section 2(15) of the Income Tax Act, 1961, considering the provisions of Section 58 of the Uttar Pradesh Urban Planning & Development Act, 1973, and whether its objects are charitable, especially in light of Supreme Court decisions in ACIT vs. Surat Art Silk Cloth Mfrs. Association and CIT vs. Andhra Pradesh State Road Transport Corporation. 2. Whether the CIT(A) erred in not following the pronouncement of the jurisdictional High Court in the case of Lucknow Development Authority [(2013) 38 taxmann.com 246 (All.)] and whether the reliance on Jammu Development Authority by the revenue is applicable. 3. Whether the CIT(A) erred in disallowing exemption under Section 11 and holding the appellant's income as taxable business income, sustaining additions of surplus income amounting to Rs 2,24,59,203/- (A.Y. 2012-13) and Rs 17,95,30,196/- (A.Y. 2014-15). 4. Whether the CIT(A) erred in sustaining the addition of Rs 92,10,505/- (A.Y. 2012-13) and Rs 16,21,362/- (A.Y. 2014-15) being the balance in the 'infrastructure development fund account', which the assessee claims are statutory funds meant for utilization in development activities. 5. Whether the CIT(A) erred in sustaining the addition of Rs 8,68,50,000/- (A.Y. 2012-13) being receipts in the 'Tourism Development Grant UP', which the assessee claims are government grants and not against business activities. Assessee's Contentions: The assessee argued that it is a statutory authority constituted for public purposes, and its dissolution can only occur upon substantial achievement of its objectives. It relied on the pronouncements of the Hon'ble Allahabad High Court in the case of Lucknow Development Authority and other judicial pronouncements. The assessee contended that the examination of its objects was not within the domain of the AO or CIT(A) during the subsistence of registration under Section 12A. It argued that the 'infrastructure development fund account' contains statutory funds meant for development and that the 'Tourism Development Grant UP' are government grants, not revenue receipts from business activities. The assessee also argued that prior period expenses were accounted for consistently. Revenue's Contentions: The revenue relied on the order in Jammu Development Authority and judgments of the ITAT against the pronouncements of the Hon'ble jurisdictional High Court. The revenue's arguments regarding the 'infrastructure development fund' are detailed in the judgment, particularly concerning an O.M. dated 15.01.1998 and the nature of the authority's funds.

Which sections of the Income-tax Act were involved?

Section 2(15),Section 11,Section 58,Section 12A

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Income Tax Appellate Tribunal, LUCKNOW ‘A’ BENCH, LUCKNOW

Before: SH. SUDHANSHU SRIVASTAVA & SH. NIKHIL CHOUDHARY

For Appellant: Ms. Shweta Mittal, C.A. & Sh Mradul Agarwal
Hearing: 29.11.2024Pronounced: 31.01.2025

PER BENCH: All these appeals have been filed by the assessee authority against various orders passed by the ld. CIT(A) at Lucknow and NFAC. While the ld. CIT(A) dismissed the appeals for the assessment years 2012-13, 2014-15, 2015-16 and 2016-17, the appeals of the assessee for the assessment years 2017-18 and 2018-19 were partly allowed.

2.

Aggrieved with these various orders of the ld. CIT(A), the assessee has filed these app

The order continues below.

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