M/S AYODHYA FAIZABAD DEVELOPEMENT AUTHORITY,FAIZABAD vs. DY. COMMISSIONER OF INCOME TAX (EXEMPTION), LUCKNOW
Income Tax Appellate Tribunal, LUCKNOW ‘A’ BENCH, LUCKNOW
Before: SH. SUDHANSHU SRIVASTAVA & SH. NIKHIL CHOUDHARY
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 appeals.
The grounds of appeal preferred in each assessment year are as under:-
ITA No. 518/Lkw/2018, Grounds of appeal (A.Y. 2012-13)
1. Because the Ld Commissioner of Income Tax (Appeals)-4, Lucknow, hereinafter referred to as 'CIT(A)' erred, both in law and on facts, in holding that the appellant cannot be termed as charitable organization within the meaning of Sec. 2(15) of the I.T. Act by virtue of provisions contained in Sec. 58 of Uttar Pradesh Urban Planning & Development Act,
1973. Ld. CIT (A) failed to appreciate that as per statutory provisions, the dissolution of the authority could take place only when the purpose, for which the authority was constituted, has been substantially achieved. The Ld. CIT(A) was not justified to hold that the appellant has been created not by any irrecoverable transfer of assets. Further Ld. CIT(A) was legally unjustified in holding that the objects of the appellant are not charitable in view of the findings of Hon'ble Supreme Court in the case of ACIT Vs Surat Art Silk Cloth Mfrs.
Association & CIT Vs Andhra Pradesh State Road Transport Corporation. The examination of objects was not within the domain of Assessing Officer or the Ld. CIT(A) during subsistence of registration u/s 12A.
2. Because the Ld. CIT(A) grossly erred, both in law and on facts in not following the pronouncement of the Hon'ble juri ictional High Court in the case of Lucknow
Development Authority [(2013) 38 taxmann.com 246 (All.)]. Ld.CIT(A) further failed to appreciate that the order/judgment in Jammu Development Authority, relied upon by the revenue, is not applicable in the facts involved in appellant's case. The dispute in Jammu
Development Authority was of grant of registration U/s 12AA while in case of the appellant, there is no such dispute. The reliance placed on the orders of ITAT against the judgments of Hon'ble juri ictional High Court is in utter disregard to the principles of natural justice and judicial discipline. In view of various authoritative judicial pronouncements brought to the notice of Ld. CIT(A), analysis of nature of activities, for holding that the appellant is involved in the activities of profit making, is wholly incorrect in the eyes of law.
3. Because the Ld. CIT(A) erred, both in law and on facts, in disallowing exemption U/s 11
to the appellant, holding its income as taxable business income and thereby sustaining addition of surplus amounting to Rs 2,24,59,203/-. The disallowance of exemption U/s 11
as well as holding the income as taxable business income is again in utter disregard to authoritative judicial pronouncements of Hon'ble High Court in the case of Lucknow
Development Authority [(2013) 38 taxmann.com 246 (All. HC)], Moradabad Development
Authority [ITA No. 3 of 2017 dt. 03.05.2017] [Lucknow bench, Alld. HC] and Hon'ble ITAT in Moradabad Development Authority [(2018) 89 Taxmann.com 263 (ITAT Delhi)].
4. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs
92,10,505/- being the balance in 'infrastructure development fund account'. Ld. CIT(A) failed to appreciate that the amount in the above statutory fund are specifically received by virtue of Government Order dt. 15.01.1998 and are meant for utilization in the development activities exclusively. Ld CIT(A) further failed to appreciate that the unutilized left over amount was to be utilized in development activities in continuity. The denial of exemption U/s 11 in respect of unutilized fund of 'infrastructure development fund
Account', is in utter disregard to various judicial pronouncement including authoritative judicial pronouncement of Hon'ble Allahabad High Court in the case of Lucknow
Development Authority [(2013) 38 taxmann.com 246 (All.)].
5. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs
8,68,50,000/- being the receipts shown in the 'Tourism Development Grant UP'. Ld. CIT(A) failed to appreciate that the above statutory receipts are in the form of government grants and not against any of the alleged business activities. The Ld. CIT(A) erred in law in holding the above grant as revenue receipts. Further, sustaining disallowance by Ld. CIT(A) is again in utter disregard to judicial pronouncement.
6. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs
1,06,11,658/-, being the prior period expenses incurred during the year. The authorities below failed to appreciate the accounting system consistently followed by the appellant relating to payment made during the year in respect of work completed in earlier year.
Because the appellant craves leave to alter/ modify grounds before or at the time of hearing of the appeal.”
ITA No. 519/Lkw/2018, Grounds of appeal (A.Y. 2014-15)
1. Because the Ld Commissioner of Income Tax (Appeals)-4, Lucknow, hereinafter referred to as 'CIT(A)' erred, both in law and on facts, in holding that the appellant cannot be termed as charitable organization within the meaning of Sec. 2(15) of the I.T. Act by virtue of provisions contained in Sec. 58 of Uttar Pradesh Urban Planning & Development Act,
1973. Ld. CIT (A) failed to appreciate that as per statutory provisions, the dissolution of the authority could take place only when the purpose, for which the authority was constituted, has been substantially achieved. The Ld. CIT(A) was not justified to hold that the appellant has been created not by any irrecoverable transfer of assets. Further Ld. CIT(A) was legally unjustified in holding that the objects of the appellant are not charitable in view of the findings of Hon'ble Supreme Court in the case of ACIT Vs Surat Art Silk Cloth Mfrs.
Association & CIT Vs Andhra Pradesh State Road Transport Corporation. The examination of objects was not within the domain of Assessing Officer or the Ld. CIT(A) during subsistence of registration u/s 12A.
Because the Ld. CIT(A) grossly erred, both in law and on facts in not following the pronouncement of the Hon'ble juri ictional High Court in the case of Lucknow Development Authority [(2013) 38 taxmann.com 246 (All.)]. Ld.CIT(A) further failed to appreciate that the order/judgment in Jammu Development Authority, relied upon by the revenue, is not applicable in the facts involved in appellant's case. The dispute in Jammu Development Authority was of grant of registration U/s 12AA while in case of the appellant, there is no such dispute. The reliance placed on the orders of ITAT against the judgments of Hon'ble juri ictional High Court is in utter disregard to the principles of natural justice and judicial discipline. In view of various authoritative judicial pronouncements brought to the notice of Ld. CIT(A), analysis of nature of activities, for holding that the appellant is involved in the activities of profit making, is wholly incorrect in the eyes of law.
Because the Ld. CIT(A) erred, both in law and on facts, in disallowing exemption U/s 11 to the appellant, holding its income as taxable business income and thereby sustaining addition of surplus amounting to Rs 17,95,30,196/-. The disallowance of exemption U/s 11 as well as holding the income as taxable business income is again in utter disregard to authoritative judicial pronouncements of Hon'ble High Court in the case of Lucknow
Development Authority [(2013) 38 taxmann.com 246 (All. HC)], Moradabad Development
Authority [ITA No. 3 of 2017 dt. 03.05.2017] [Lucknow bench, Alld. HC] and Hon'ble ITAT in Moradabad Development Authority [(2018) 89 Taxmann.com 263 (ITAT Delhi)].
Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs 16,21,362/- being the balance in 'infrastructure development fund account'. Ld. CIT(A) failed to appreciate that the amount in the above statutory fund are specifically received by virtue of Government Order dt. 15.01.1998 and are meant for utilization in the development activities exclusively. Ld CIT(A) further failed to appreciate that the unutilized left over amount was to be utilized in development activities in continuity. The denial of exemption U/s 11 in respect of unutilized fund of 'infrastructure development fund Account', is in utter disregard to various judicial pronouncement including authoritative judicial pronouncement of Hon'ble Allahabad High Court in the case of Lucknow Development Authority [(2013) 38 taxmann.com 246 (All.)].
. Because the appellant craves leave to alter/ modify grounds before or at the time of hearing of the appeal.”
ITA No.520/Lkw/2018 Grounds of appeal (A.Y. 2015-16)
1. Because the Ld Commissioner of Income Tax (Appeals)-4, Lucknow, hereinafter referred to as 'CIT(A)' erred, both in law and on facts, in holding that the appellant cannot be termed as charitable organization within the meaning of Sec. 2(15) of the I.T. Act by virtue of provisions contained in Sec. 58 of Uttar Pradesh Urban Planning & Development Act,
1973. Ld. CIT (A) failed to appreciate that as per statutory provisions, the dissolution of the authority could take place only when the purpose, for which the authority was constituted, has been substantially achieved. The Ld. CIT(A) was not justified to hold that the appellant has been created not by any irrecoverable transfer of assets. Further Ld. CIT(A) was legally unjustified in holding that the objects of the appellant are not charitable in view of the findings of Hon'ble Supreme Court in the case of ACIT Vs Surat Art Silk Cloth Mfrs.
Association & CIT Vs Andhra Pradesh State Road Transport Corporation. The examination of objects was not within the domain of Assessing Officer or the Ld. CIT(A) during subsistence of registration u/s 12A.
2. Because the Ld. CIT(A) grossly erred, both in law and on facts in not following the pronouncement of the Hon'ble juri ictional High Court in the case of Lucknow
Development Authority [(2013) 38 taxmann.com 246 (All.)]. Ld.CIT(A) further failed to appreciate that the order/judgment in Jammu Development Authority, relied upon by the revenue, is not applicable in the facts involved in appellant's case. The dispute in Jammu
Development Authority was of grant of registration U/s 12AA while in case of the appellant, there is no such dispute. The reliance placed on the orders of ITAT against the judgments of Hon'ble juri ictional High Court is in utter disregard to the principles of natural justice and judicial discipline. In view of various authoritative judicial pronouncements brought to the notice of Ld. CIT(A), analysis of nature of activities, for holding that the appellant is involved in the activities of profit making, is wholly incorrect in the eyes of law.
3. Because the Ld. CIT(A) erred, both in law and on facts, in holding that there is violation of Sec. 13(3) of the I.T. Act and consequentially exemption U/s 11 of the I.T. Act cannot be allowed. Ld. CIT(A) failed to appreciate that no part of income or property of the appellant is used directly or indirectly for the benefit of persons specified in Sec. 13(3). The employees of the appellant are not specified persons within the provisions of Sec. 13(3) of the I.T. Act.
4. Because the Ld. CIT(A) erred, both in law and on facts, in disallowing exemption U/s 11
to the appellant, holding its income as taxable business income and thereby sustaining addition of surplus amounting to Rs 13,46,17,446/-. The disallowance of exemption U/s 11
as well as holding the income as taxable business income is again in utter disregard to authoritative judicial pronouncements of Hon'ble High Court in the case of Lucknow
Development Authority [(2013) 38 taxmann.com 246 (All. HC)], Moradabad Development
Authority [ITA No. 3 of 2017 dt. 03.05.2017] [Lucknow bench, Alld. HC] and Hon'ble ITAT in Moradabad Development Authority [(2018) 89 Taxmann.com 263 (ITAT Delhi)].
5. Because the Ld. CIT(A) erred, both in law and on facts, in sustaining the addition of Rs
14,01,930/- being the balance in 'infrastructure development fund account'. Ld. CIT(A) failed to appreciate that the amount in the above statutory fund are specifically received by virtue of Government Order dt. 15.01.1998 and are meant for utilization in the 7
development activities exclusively. Ld CIT(A) further failed to appreciate that the unutilized left over amount was to be utilized in development activities in continuity. The denial of exemption U/s 11 in respect of unutilized fund of 'infrastructure development fund
Account', is in utter disregard to various judicial pronouncement including authoritative judicial pronouncement of Hon'ble Allahabad High Court in the case of Lucknow
Development Authority [(2013) 38 taxmann.com 246 (All.)].
6. Because the appellant craves leave to alter/ modify grounds before or at the time of hearing of the appeal.”
ITA No. 143/Lkw/2021 Grounds of appeal (A.Y. 2016-17)
“1. The Ld. Commissioner of Income-tax (Appeal) has erred in law and on facts in passing the order which is unlawful, unjustified and against the principles of natural justice.
2. The Ld. Commissioner of Income-tax (Appeal) has erred in law and on facts in passing the order without giving adequate opportunity of being heard and without considering the written submission made before him.
3. That the Ld. Commissioner of Income-tax (Appeals) erred in law and on facts in confirming the denial of exemption under section 11 with section 12, 12A and 13 on the grounds that the activities carried on by the appellant were profit making activities not falling under charitable purposes as envisage under section 2(15) of the Income- tax Act.
That the Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts by not treating the appellant as Charitable Institution, even though the same has already been adjudged to be so by the Hon'ble Allahabad High Court in its judgement dated 16.09.2013 in appellant own case in ITA no. 4 of 2011 for A.Y. 2006-07 along with ITA No. 31 of 2010 for A.Y. 2004-05. 5. That the Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts by disregarding the following judgements in case of other Development Authorities which were also constituted under the same Act as that of the appellant Authority and whose objects are the same as that of the appellant Authority: a. Judgement of Hon'ble Allahabad High Court in case of Moradabad Development
Authority dated 03.05.2017 in ITA No. 3 of 2017 for the A.Y. 2009-10
b. Order of Hon'ble ITAT, Delhi in case of Moradabad Development Authority dated
04.01.2018 in ITA Nos. 4631 and 4632/Del/2017 for A.Ys. 2012-13 and 2013-14
c. Order of Hon'ble ITAT, Agra in case of Agra Development Authority for AY 2011- 12 in ITA
No. 215/Agr/2016 dated 17.05.2021 and d. Order of Hon'ble ITAT, Agra in case of Jhansi Development Authority for AY 2010-11 in ITA No. 256/Agr/2014 dated 13.01.2021
6. That the Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in confirming the addition against the NIL returned income as made by the appellant was founded on the following undisputed facts
(i) the appellant is an authority duly notified as such under the Urban Planning and Development Act, 1973, by the State Government, for attainment of objects of General
Public Utility.
(ii) the Hon'ble ITAT in its own case, in ITA No. 703/Luc/03, order dated 25.07.2005 has already held that the object of the appellant are the objects of General Public Utility falling in the definition of charitable purposes as given in section 2(15) of the I.T. Act
(iii) accordingly, the appellant has already been held to be eligible for registration under section 12A in terms of the aforesaid order of the Hon'ble ITAT
(iv) in pursuance of the said order dated 25.07.2005, the Ld. CIT had already issued certificate of registration under section 12A dated 28.01.2010 which covers the year under reference also.
(v) Further, the order of ITAT dated 25.07.2005 was upheld by Hon'ble Allahabad High
Court vide order dated 27.09.2013 having ITA No. 12 of 2006. 7. That the Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in wrongly confirming the surplus of income over expenditure of Rs. 16,14,27,122/- as income under head Business & Profession.
8. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in passing assessment order which is contrary to the facts and law.
9. The appellant craves leave to add, amend, alter or withdraw any ground of appeal or raise any new ground of appeal during the pendency of appeal.”
ITA No. 144/Lkw/2021 Grounds of appeal (A.Y. 2017-18)
“1. The Ld. Commissioner of Income-tax (Appeal) has erred in law and on facts in passing the order which is unlawful, unjustified and against the principles of natural justice.
2. The Ld. Commissioner of Income-tax (Appeal) has erred in law and on facts in passing the order without giving adequate opportunity of being heard and without considering the written submission made before him.
3. That the Ld. Commissioner of Income-tax (Appeals) erred in law and on facts in confirming the denial of exemption under section 11 with section 12, 12A and 13 on the grounds that the activities carried on by the appellant were profit making activities not falling under charitable purposes as envisage under section 2(15) of the Income- tax Act.
4. That the Ld. Assessing Officer has erred in law and on facts in disallowing the exemption u/s 11on the ground that the appellant is hit by the provisions of section 13(1)(c) read with section 13(3) of Income-tax Act, 1961. 5. That the Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts by not treating the appellant as Charitable Institution, even though the same has already been adjudged to be so by the Hon'ble Allahabad High Court in its judgement dated 16.09.2013
in appellant own case in ITA no. 4 of 2011 for A.Y. 2006-07 along with ITA No. 31 of 2010
for A.Y. 2004-05. 6. That the Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts by disregarding the following judgements in case of other Development Authorities which were also constituted under the same Act as that of the appellant Authority and whose objects are the same as that of the appellant Authority:
a. Judgement of Hon'ble Allahabad High Court in case of Moradabad Development
Authority dated 03.05.2017 in ITA No. 3 of 2017 for the A.Y. 2009-10
b. Order of Hon'ble ITAT, Delhi in case of Moradabad Development Authority dated
04.01.2018 in ITA Nos. 4631 and 4632/Del/2017 for A.Ys. 2012-13 and 2013-14
c. Order of Hon'ble ITAT, Agra in case of Agra Development Authority for AY 2011- 12 in ITA
No. 215/Agr/2016 dated 17.05.2021 and d. Order of Hon'ble ITAT, Agra in case of Jhansi Development Authority for AY 2010-11 in 10
ITA No. 256/Agr/2014 dated 13.01.2021
7. That the Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in confirming the addition against the NIL returned income as made by the appellant was founded on the following undisputed facts
(i) the appellant is an authority duly notified as such under the Urban Planning and Development Act, 1973, by the State Government, for attainment of objects of General
Public Utility
(ii)the Hon'ble ITAT in its own case, in ITA No. 703/Luc/03, order dated 25.07.2005 has already held that the object of the appellant are the objects of General Public Utility falling in the definition of charitable purposes as given in section 2(15) of the I.T. Act
(iii) accordingly, the appellant has already been held to be eligible for registration under section 12A in terms of the aforesaid order of the Hon'ble ITAT
(iv) in pursuance of the said order dated 25.07.2005, the Ld. CIT had already issued certificate of registration under section 12A dated 28.01.2010 which covers the year under reference also.
(v) Further, the order of ITAT dated 25.07.2005 was upheld by Hon'ble Allahabad High
Court vide order dated 27.09.2013 having ITA No. 12 of 2006. 8. That the Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in wrongly confirming the surplus of income over expenditure of Rs. 14,54,446/- as income under head Business & Profession.
9. That the Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in wrongly confirming the addition of 31,53,656/- made by applying the provisions of section 11(6) of Income-tax Act when more than 85% of income was utilized without considering the depreciation as application of funds.
10. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in passing assessment order which is contrary to the facts and law.
11. The appellant craves leave to add, amend, alter or withdraw any ground of appeal or raise any new ground of appeal during the pendency of appeal.”
ITA No. 145/Lkw/2021 Grounds of appeal (A.Y. 2018-19)
“1. The Ld. Commissioner of Income-tax (Appeal) has erred in law and on facts in passing the order which is unlawful, unjustified and against the principles of natural justice.
2. The Ld. Commissioner of Income-tax (Appeal) has erred in law and on facts in passing the order without giving adequate opportunity of being heard and without considering the written submission made before him.
3. That the Ld. Commissioner of Income-tax (Appeals) erred in law and on facts in confirming the denial of exemption under section 11 with section 12, 12A and 13 on the grounds that the activities carried on by the appellant were profit making activities not falling under charitable purposes as envisage under section 2(15) of the Income- tax Act.
4. That the Ld. Assessing Officer has erred in law and on facts in disallowing the exemption u/s 11 on the ground that the appellant is hit by the provisions of section 13(1)(c) read with section 13(3) of Income-tax Act, 1961. 5. That the Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts by not treating the appellant as Charitable Institution, even though the same has already been adjudged to be so by the Hon'ble Allahabad High Court in its judgement dated 16.09.2013
in appellant own case in ITA no. 4 of 2011 for A.Y. 2006-07 along with ITA No. 31 of 2010
for A.Y. 2004-05. 6. That the Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts by disregarding the following judgements in case of other Development Authorities which were also constituted under the same Act as that of the appellant Authority and whose objects are the same as that of the appellant Authority:
a. Judgement of Hon'ble Allahabad High Court in case of Moradabad Development
Authority dated 03.05.2017 in ITA No. 3 of 2017 for the A.Y. 2009-10
b. Order of Hon'ble ITAT, Delhi in case of Moradabad Development Authority dated
04.01.2018 in ITA Nos. 4631 and 4632/Del/2017 for A.Ys. 2012-13 and 2013-14
c. Order of Hon'ble ITAT, Agra in case of Agra Development Authority for AY 2011- 12 in ITA
No. 215/Agr/2016 dated 17.05.2021 and d. Order of Hon'ble ITAT, Agra in case of Jhansi Development Authority for AY 2010-11 in ITA No. 256/Agr/2014 dated 13.01.2021
That the Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in confirming the addition against the NIL returned income as made by the appellant was founded on the following undisputed facts (i) the appellant is an authority duly notified as such under the Urban Planning and Development Act, 1973, by the State Government, for attainment of objects of General Public Utility (ii)the Hon'ble ITAT in its own case, in ITA No. 703/Luc/03, order dated 25.07.2005 has already held that the object of the appellant are the objects of General Public Utility falling in the definition of charitable purposes as given in section 2(15) of the I.T. Act (iii) accordingly, the appellant has already been held to be eligible for registration under section 12A in terms of the aforesaid order of the Hon'ble ITAT (iv) in pursuance of the said order dated 25.07.2005, the Ld. CIT had already issued certificate of registration under section 12A dated 28.01.2010 which covers the year under reference also. (v) Further, the order of ITAT dated 25.07.2005 was upheld by Hon'ble Allahabad High Court vide order dated 27.09.2013 having ITA No. 12 of 2006. 8. That the Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in wrongly confirming the surplus of income over expenditure of Rs. 4,03,640/- as income under head Business & Profession. 9. That the Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in wrongly confirming the addition of 29,40,105/- made by applying the provisions of section 11(6) of Income-tax Act when more than 85% of income was utilized without considering the depreciation as application of funds. 10. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts in passing assessment order which is contrary to the facts and law. 11. The appellant craves leave to add, amend, alter or withdraw any ground of appeal or raise any new ground of appeal during the pendency of appeal.”
In addition to these appeals, the assessee also filed stay petitions for the assessment years 2012-13, 2014-15 and 2015-16. As the issues involved in all these appeals are common and the 13
stay petitions also arise out of these issues, all the appeals are being taken up for disposal. Since assessment year 2012-13 is the first assessment year, the same is being taken up as the lead case and the common issues would be discussed with reference to the assessment done in assessment year 2012-13. Only unique issues pertaining to other assessment years would be discussed separately. However, our observations with regard to the issues in assessment year
2012-13 and other years would apply to all the assessment years in question.
The brief facts of the case (for A.Y. 2012-13) are that the assessee filed a return of income in ITR 7 on 30.09.2012 declaring nil income. The case of the assessee was selected for scrutiny and statutory notices were issued by the ld. AO. The main question that was addressed by the ld. AO, was with regard to the claim of the assessee for grant of exemption under section 11 of the Income Tax Act, 1961. The assessee is registered under section 12A of the Income Tax Act. It was formed for the development of the twin cities of Ayodhya and Faizabad by the Government of Uttar Pradesh on 26.12.1996, under the provisions of the Uttar Pradesh Urban Planning and Development Act, 1973. The ld. AO observed that the objects of the authority, as defined in section 7 of the Uttar Pradesh Urban Planning and Development Act, 1973 (hereinafter known as the U.P.U.P.D.A. 1973) under which it is constituted, were , “to promote and secure the development of the development area according to a plan and for that purpose to have the power to acquire, hold, manage and dispose of land and other property; to carry out building, engineering; mining and other operations; to dispose of sewage and to provide and maintain other services and amenities and generally to do anything necessary or incur expenditure for such purposes and for purposes incidental thereto”. The learned AO observed that in the Uttar Pradesh Urban Planning & Development Act, 1973, words like charity or charitable, poor, economically weaker, subsidy / subsidized, assistance, upliftment were not mentioned. From this he concluded that a perusal of the said Act showed that it was never intended by the State Government, that the Ayodhya Development Authority be a charitable organization, in that it was formed with the sole objective of ensuring the development of Ayodhya-Faizabad, in accordance with a plan. The AO also quoted from section 58 of the U.P.U.P.D.A. 1973, to demonstrate that on dissolution of the Ayodhya Development Authority, all the properties, funds and dues which were vested, or realizable by the authority, would vest in or 14
be realizable by the State Government and he opined, that it was the discretion of the State
Government to apply it for any purpose it may deem fit. He expressed the apprehension, that the funds generated during the so-called charitable purpose period may later be utilized for the purposes of business. Therefore, the transfer was not an irrevocable transfer, which was meant exclusively for charitable purposes. The AO observed that the transfers of assets are revocable and sections 11 and 12 of the Income Tax Act, 1961 would not apply. The ld. AO further observed that for the creation of a valid trust, transfer of assets for charitable purposes should be irrevocable, which condition was not being fulfilled in the case of the Ayodhya-Faizabad
Development Authority. The AO also observed that the assessee was neither in the field of education, nor in the field of medical relief of poor and held that, at the most, after seeing the objects and activities carried out by the assessee, it could be considered that the assessee was falling within the scope of, “general public utility” as per section 2(15) of the Income Tax Act,
1961. 5. The ld. AO further observed that the activities of the assessee were in the nature of real estate business and the provisions of the first proviso to section 2(15) of the Income Tax Act,
1961 were applicable to its case. He, therefore, asked the assessee as to why the claim of exemption under section 11 of the Income Tax Act, 1961 should not be disallowed and why the net profit shown in its profit not be brought to tax. In response, the assessee submitted that its activities were of charitable nature and the first proviso to section 2(15), was not applicable in its case because its aims were the coordinated and planned development of the historical cities of Ayodhya and Faizabad. It further relied on the judgment of the Hon’ble Allahabad High Court dated 16.09.2013 in its own case, where the Hon’ble Allahabad High Court had ruled in its favour and held it to be a charitable entity, not covered under the provisions of section 2(15).
The ld. AO was not satisfied with the replies submitted by the assessee. He observed that on 27.04.2014, the Hon’ble Supreme Court had rejected the SLP of the assessee authority in the case of M/s Jammu Development Authority, in which case the ld. CIT, by order under section 12AA (3) of the Act had withdrawn the registration under section 12AA of the Act, which had earlier been granted to the authority. Aggrieved with such withdrawal, the assessee had filed an appeal before the Hon’ble ITAT, Amritsar Bench. In their judgment dated 14.06.2012, the 15
Tribunal had dismissed the appeal of the assessee and upheld the order of the learned CIT,
Jammu. Aggrieved, the assessee had filed an appeal before the High Court of Jammu & Kashmir and the Hon’ble High Court had dismissed the assessee’s appeals, holding that the proviso which had been added by the Finance Act, 2008 w.e.f. 1.04.2009, stipulates that the advancement of any other object of general public utility would not be a charitable purpose, if it involved carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. The Hon’ble High Court had accordingly held, that no question of law emerged for the impugned orders of the ITAT, warranting admission of the appeal. The ld. AO further pointed out that aggrieved with the order of the Hon’ble High Court, the assessee had filed a Special
Leave Petition before the Hon’ble Supreme Court, which had been dismissed vide order dated
24.07.2014. 7. Thereafter, the ld. AO observed that the Hon’ble Allahabad High Court, vide its order dated 16.09.2013, in respect of several parties of which the assessee was one, had decided the appeal in favour of the assessee. On the other hand, the Hon’ble Supreme Court had dismissed the SLP of the assessee in the case of Jammu Development Authority. In view of the legal conflict between the two judgments, the ld. AO made a reference to the Additional CIT(Exemptions)
Lucknow under section 144A of the Act and directions were sought with regard to the decision to be taken on the issue of allowability of exemption under section 11 and applicability of the first proviso to section 2(15) of the Act in view of this apparent conflict of decisions of the two courts.
The ld. Addl CIT (E) issued directions under section 144A in which it was stated as under:-
“Going through section 2(15), it is obvious that carrying of any activities for charitable purposes is the back bone for allowability of exemption under section 11. Charitable purpose includes relief of the poor, education, medical relief, preservation of environment and the advancement of any other object of general public utility. At the same time, any trust/institution’s business activities having receipts more than Rs.25 Lacs is beyond the purview of allowability of exemption under section 11, in spite of working for the advancement of general public utility. The above development authorities work like private developers and provide all facilities like private developers with a view to attract investors, so that they can earn more.
Also, CBDT vide letter dated 31.12.2014 supports this view. Hence, you need not hesitate to rely on recent Supreme Court judgment in the case of Jammu Development
Authority and comply with the direction of the CBDT.”
Thereafter, the ld. AO quoted extensively from the judgment of the Hon’ble ITAT in the case of Jammu Development Authority, in which the ld. Tribunal had held that after the insertion of these provisos to section 2(15) of the Act, the advancement of any other object of general public utility could not be considered a, ‘charitable purpose’, if it involved the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to trade, commerce or business for a cess or fee or any other consideration, irrespective of the nature of use or application or retention of income from such activity. Therefore, it had held that any institution / trust / society which was involved in such activities and receiving aggregate value of more than Rs. 10,00,000/- from such activities, would not be eligible to continue with registration under section 12A. The Hon’ble Tribunal had further held that the activities of the assessee were aimed at earning profit, as it was carrying out an activity in the nature of trade, commerce or business and that profit making by the assessee was not merely incidental or bye product of its activities. It had held that there was no real object of the assessee and there was no spending of income exclusively for the purposes of charitable activities and there was no obligation on the part of the assessee to spend on charitable purposes only. The Hon’ble Tribunal had also concurred with the view of the ld. CIT(A), that on the dissolution of the authority, all properties, funds, dues and liabilities would vest in the Government and there was no restriction on how the same were to be utilized by the Government. It had also pointed out, that there were other objects like sale and purchase, which made the authority a commercial organization. It therefore, held that the objects pursued by the assessee could not be said to be charitable in nature and therefore, the Jammu Development Authority was an authority established with the motive of profit and the activities of such authority were hit by section 2(15) of the Act read with first and second proviso. It, therefore upheld the decision of the ld. CIT, Jammu to cancel the registration of the said authority.
The Ld. AO also referred to an earlier order by the ITAT, Amritsar Bench in the case of Jalandhar Development Authority, in which the Hon’ble ITAT had held that a charitable institution provides services for charitable purposes free of cost and not for a gain, but the Jalandhar Development Authority was performing activities similar to big colonizers / developers who were earning a huge profit. The Hon’ble Tribunal had held that the assessee authority had turned into a huge profit-making agency and that even for creating / developing institutions of public importance, the assessee was charging the cost of it from the public at large and from the coffers of the Government. It further observed, that the development of facilities by the authority were merely a means of attracting people for purchase of plots and the costs for development of the facilities were hidden in the costs of the plots. It further opined that similar development / infrastructure / facilities were also provided by private developers these days and were incidental to the commercial activity, as they were not only a basic requirement but a tool for attracting investors, wherein the hidden cost of those facilities were already included. The Hon’ble ITAT had observed that the objects of the assessee, though claimed to be charitable, were actually of a purely commercial nature where the profit motive was involved because the assessee was acquiring land at very low prices and selling the same land on much higher rates and earning a profit therefrom. It highlighted the new trend of auctioning plots by way of bidding and charging of interest on belated payments, to state that no charity was involved in such activities but rather the assessee had converted itself into a big businessmen. Therefore, it held that the application of registration under section 12A had rightly been rejected by the ld. CIT in the case of M/s Jalandhar Development Authority.
The Assessing Officer also quoted further from the order of the Hon’ble ITAT in the case of M/s Jammu Development Authority where the Tribunal had analyzed the provisions relating to the distribution of assets of the authority, in the light of the decision of the Hon’ble Supreme Court in the case of CIT vs. Surat Art Silk Cloth Manufacturers Association (1997) 121 ITR and CIT vs. Andhra Pradesh State Road Transport Corporation (1986) 159 ITR 1 and pointed out, that the Hon’ble ITAT had held that since there was no restriction as to the utilization of left over properties for charitable purposes, the authority had failed the test laid down by the Hon’ble Supreme Court in the above cases and therefore, it could not be termed as a charitable organization within the meaning of section 2(15) of the Act. From the same, the ld. AO concluded that the activities of the Ayodhya-Faizabad Development Authority could not be said to be 18
charitable in nature. He held that the assessee authority was involved in the activity of trade/commerce/business and as such was hit by the provisions of the first proviso to section 2(15) of the Act. Hence, he rejected the assessee’s claim of exemption under section 11 of the Act and assessed its income under the head, ‘profits and gains from business and profession’.
The net surplus disclosed by the assessee of Rs.2,24,59,203/- in the income and expenditure account was therefore added to the total income of the assessee and penalty proceedings under section 271(1)(c) were initiated.
Moving on further, the ld. AO observed that the assessee had transferred funds to the infrastructure development fund. However, it had not included these receipts in its income for the year. The assessee had transferred the amounts to the infrastructure development fund in its balance-sheet, which according to the ld. AO was against normal accounting principle. Furthermore, since he had already denied the assessee’s claim of exemption under section 11, the receipts of the infrastructure development fund of Rs.92,10,505/-, was treated to be the income of the assessee and was accordingly added back. The ld. AO further observed that during the year, the assessee had received a grant of Rs.8,68,50,000/- under the head, ‘tourism development grant-U.P.’. However, the assessee had not included these receipts in its income for the year, but had directly transferred the amount to the balance-sheet, which was against normal accounting principles. Since, he had already denied the assessee’s claim for exemption under section 11, the ld. AO decided to treat the grant of Rs.8,68,50,000/-, as the income of the assessee, and it was accordingly added back to the income of the assessee. Finally, the ld. AO observed, that during the year the assessee had debited Rs.1,06,11,658/- to the head, prior period expenses. The assessee had failed to justify the inclusion of this amount in the expenses for the current year and since in his view, this was not an allowable expenditure, he added the same back to the income of the assessee. Accordingly, the income of the assessee was computed at Rs.12,91,31,370/- and it was assessed on this total income.
In his order for the assessment year 2015-16, the ld. AO also drew reference to a U.P. Government order dated 7.12.1999 in which there was reservation of 2% to the employees of the development authorities, in respect of the allotment of residential and commercial properties. He held that the employees of the development authorities also included persons specified in section 13(3) of the Income Tax Act, 1961. Hence, he held that the exemption under section 11 was not allowable to this assessee for this reason also. Reproducing the order dated 17.12.2019 in his assessment order, he also observed that the development authorities were giving a 10% discount on the present value of the property allotted to the employees of the development authority. Since, it was his view that the employees of the development authority were persons covered under section 13(3) of the Income Tax Act, 1961, he concluded that the activities of the assessee could not be said to be charitable in nature, because of such concessions allowed to the employees. Accordingly, he decided to deny the exemption under section 11, on this ground also.
It is also pertinent to mention that during the assessment for the assessment year 2015-16, the assessee moved an application under section 144A before the JCIT(Exemption), Development Authority and CIT(E) vs. Yamuna Expressway Industrial Development Authority, but the ld. JCIT(Exemption) issued a direction to the ld. AO, to take a decision as per law and directions /circulars issued by the CBDT regarding matters where SLP was filed /processed/accepted before the Hon’ble Supreme Court on an issue where the Hon’ble High Court had decided a similar issue against the Revenue, and in pursuance of these directions the ld. AO declined to accept the ratio of these judgments quoted by the assessee, on the grounds that the Department had either filed SLPs or had recommended SLPs against these decisions, which were pending for consideration.
In his order for the assessment year 2017-18 ,the ld. AO observed that the assessee had generated income from rent received from guest houses, community centres and convention centres, which were let out for various functions. He held that this was a separate income of the assessee and was a commercial activity to derive the maximum profit from the asset owned by the assessee. It was not an income incidental to the business activity of the assessee, because the assessee had no byelaws and it had submitted that its main activity was developing plots and making flats. The ld. AO also referred to the provisions of sub section 4A of section 11 and pointed out that as per the same, this sub section stated that first of all, the 20
business needed to be incidental to the attainment of the objectives of the trust or institution and that separate books of accounts needed to be maintained by such trust / institution for availing the benefits, but rental income was not incidental to the attainment of the objects of the trust / institution and separate books had not been maintained for it. He, therefore, held that on this account also, it was not eligible for exemption under section 11. On the issue of the Government Order dated 20.11.1999 giving concessions to the officers and employees of the authorities in price and allotment, he quoted from the orders of the Hon’ble Supreme Court in the case of Noida Entrepreneurs Association vs. Noida in 2011 W.P. (Civil) No.150 of 1997 to show that there was no legal sanction for the said Govt Order and there was no mention in the said order regarding from where they were deriving the strength to issue this order. Therefore, he held that decision had no backing of any rule or law. It was arbitrary and not touching the corner stone of article 14 of the Constitution and because of this order, since the assessee did not remain a public trust but rather was one in violation of section 13(3) of the Act, the claim made by the assessee under section 11 was not maintainable. The ld. AO also made additions on account of depreciation claimed of Rs. 31,53,656/- as per the provisions of section 11(6). The issues of rental income and violation of section 13(3) were also raised in the assessment for the assessment year 2017-18. 15. Aggrieved by the rejection of its claim for exemption in all these assessment orders, the assessee went in appeal to the ld. CIT(A). Before the ld. CIT(A), it was submitted that the assessee authority was constituted under the Uttar Pradesh Urban Planning and Development Act, 1973
solely for the planned development of twin cities of Ayodhya and Faizabad. It was submitted that the assessee on the basis of objects contained in section 7 of the U.P.U.P.D.A. 1973 had applied for registration under section 12A and that these activities were examined at different appellate levels, after which the registration under section 12A was granted by the ld. CIT vide his order dated 28.01.2010. The assessee was continuously filing returns of income claiming exemption under section 11, which had been allowed since 2003-04 and even after the amendment to section 2(15) w.e.f. 1.04.2009. The last such assessment order related to A.Y. 2011-12, wherein the declared nil income was accepted under section 143(3) by the assessment order. It was submitted that in the assessment order under appeal, the ld. AO had not brought on record any 21
evidence relating to change in the activities of the appellant since the grant of registration under section 12A. It was submitted that the ld. AO had been misguided by the direction of the ld. JCIT issued under section 144A allowing the AO, the liberty to apply the judgment of the Hon’ble
Supreme Court in the case of Jammu Development Authority and also the directions of the CBDT.
It was submitted that the instruction of the Board was only to examine the nature of activities of the assessee, while the judgment of the Hon’ble Supreme Court related to the denial of registration under section 12A. It was further submitted that as the activities of the assessee had already been considered by the Hon’ble ITAT while directing the grant of registration under section 12A, the judgment in Jammu Development Authority was not applicable to the assessee’s case. It was submitted that there were a series of judgments, including the binding judgment of the Hon’ble Allahabad High Court on the issue of activities which were being carried out by development authorities. It was further submitted that the assessee was carrying out its activities strictly in accordance with its objects as contained in section 7 of U.P.U.P.D.A. 1973 and the statute did not allow for any commercial activities. The surplus appearing in the books was incidental to the other activities carried out by the assessee. It was further pointed out that the issue as to whether authorities like the assessee were carrying on any business activity, had been considered by the juri ictional High Court as well as the Benches of the ITAT at various places. In the case of Lucknow Development Authority, an authority constituted under the same statute, the Hon’ble High Court had examined the nature of activities and had held that these activities were not business activities and consequently that exemption under section 11 should have been allowed. Reference was also invited to the judgment of the Delhi Bench of the ITAT in the case of ITO vs. Moradabad Development Authority in ITA No.3005/Del/2013 wherein the Hon’ble Bench of the ITAT had held that development authorities would not be hit by the proviso to section 2(15). References were also invited to the judgment of the Delhi Bench of ITAT in New Okhla
Industrial Development Authority and the ITAT Jaipur Bench in Jaipur Development Authority, where similar views had been taken and copies of these orders were furnished before the ld.
CIT(A) for his consideration. It was submitted that the nature of the activities of the assessee, being identical with those of the Lucknow Development Authority, Moradabad Development
Authority, New Okhla Industrial Development Authority and the Jaipur Development Authority, the exemption under section 11 may kindly be allowed to it. With regard to the receipts on 22
account of the infrastructure development fund, it was submitted that the same were not direct receipts of the assessee authority against any activity. These funds were specifically received by virtue of Government Order dated 15.12.1998, for making expenditure on development activities in terms of the Resolution passed by an independent committee, in which, the assessee authority was one of the Members. It was submitted that the Hon’ble juri ictional High Court in the case of Lucknow Development Authority had held in para 29 of the said order, that the said fund could not be treated as belonging to the authority and the receipt was not taxable in its hands. In view of this binding judgment, it was pointed out that the capital receipts were not of taxable nature or at worst did not disqualify the assessee for exemption under section 11. The addition was wholly illegal and may therefore, be deleted. With regard to the addition of Rs.8,68,50,000/- being the grant received from the Tourism Department, Government of India and the U.P.
Government, It was submitted that the grants from the Government of India and the U.P.
Government were specifically given to develop the city, in order to attract the tourism. Such receipts were not the income of the appellant within the meaning of section 2(24) of the Act, as the institution receiving such grant had to spend the funds on the projects specified in the Government order. It was further submitted, that the assessee had incurred expenditure of Rs.11,08,84,212/- during the year on the given projects and placing reliance on the decisions such as DCIT vs. Gujarat State Council (2014) 41 taxman.com 449 (Gujarat) and DIT vs. Society for Developing Alternatives (2012) 18 taxman.com 364 (Delhi), it was submitted that such grants were merely capital receipts and not Revenue receipts therefore, the addition made in this regard was not sustainable. Finally, it was submitted that the addition of prior period expenses claimed as expenditure during the year, was not warranted, because his expenses had not been claimed in earlier years. In subsequent hearings, the assessee submitted that the order of the Hon’ble ITAT granting registration under section 11 of the I.T. Act, 1961, passed in the case of Moradabad Development Authority, had been challenged by the Revenue before the Lucknow
Bench of Hon’ble High Court and the Hon’ble High Court had dismissed the appeal of the Revenue, vide its judgment dated 3.05.2017. In view of this, it was prayed that the ld. CIT(A) may kindly direct that the exemption under section 11 be granted to the assessee and the addition of Rs.12,91,31,370/- may be deleted. With regard to the addition of Rs.8,68,50,000/-, being the grant received from Tourism Department, Government of India and the U.P. Government. It was 23
submitted that the authority was bound to maintain a separate account of such receipts as per
Government order and the assessee had in fact spent much more than the receipts on this account. Thus, there was no question of making any addition in this regard. With regard to prior period expenses, it was submitted that the expenses had been claimed on the basis of payment made during the financial year under consideration and as the assessee maintained its account on cash basis. Therefore, the assessee was legally entitled to claim deduction on these expenses under section 11. In its submissions for the assessment year 2014-15, the assessee quoted from the judgments of the Hon’ble Allahabad High Court in the case of Lucknow Development
Authority and from the order of the ITAT Delhi Bench in the case of Moradabad Development
Authority, to point out that the authorities like the appellant had been held to be eligible for exemption under section 11 by the juri ictional High Court and the Tribunal. In its submissions to the ld. CIT(A), NFAC in the assessment years 2016-17 and 2017-18, the assessee authority also submitted a list of cases in which the Hon’ble Courts had held that exemption under section 11
were allowable to authorities like the assessee authority, where the juri ictional High Court had held that section 2(15) of the I.T. Act was inapplicable to the authorities like the assessee authority and where the Courts had held, that other institutions whose objects were similar to that of the assessee, were also entitled to exemption under section 11 of the I.T. Act. The assessee further submitted, with regard to the stand of the ld. AO in basing his order on the dismissal of the SLP in the case of Jammu Development Authority, that the dismissal of SLP in limine could not operate as a confirmation of the reasoning in the decision sought to be appealed against. For this proposition, it placed reliance on the decision of the Hon’ble Supreme
Court in Hemlata Gargya vs. CIT (2003) 259 ITR 1 (SC) and the decision of the Hon’ble Supreme
Court in Kunhayammed & Ors vs State Of Kerala & Anr (2000) 245 ITR 360 (SC), in which their
Lordships had held that an order refusing special leave to appeal did not stand substituted in place of the order under challenge. It was submitted that the mere dismissal of the SLP by the Hon’ble Supreme Court against the judgment of the Hon’ble Jammu & Kashmir High Court in the case of Jammu Development Authority could not be construed as having the effect of elocution of law by the Hon’ble Supreme Court on the subject against the assessee authority and therefore, the view point of the Income Tax Department that the mandate of the Hon’ble juri ictional High Court on the issue in the case of Lucknow Development Authority and Ors
(including the assessee itself) in ITA No. 4 of 2011 for A.Y. 2006-07 and ITA No.31 of 2010 for A.Y.
2004-05 dated 16.09.2013 could cease to have its binding force and hence preference should be given to the judgment of the Hon’ble Jammu & Kashmir High Court, had been held and observed by the Hon’ble ITAT in the case of Moradabad Development Authority to be a position that could not be countenanced. In the circumstances, it was submitted that the benefit of section 11 could not be denied to the assessee.
With regard to some of the specific issues raised by the ld. Assessing Officers in the course of their assessment orders, it was submitted that the ld. AO was misplaced in making a comparison of the assessee with private colonizers and real estate developers. The major source of the income of the assessee authority, was from the sale of plots, houses, shops, rent, sundry receipts and interest but the assessee could not be compared with a private real estate developer because the development undertaken by the assessee authority benefited the public at large. These benefits were not restricted to an individual or particular groups of individuals, because its primary purpose and predominant object were to promote the welfare of the general public and therefore, its purpose was charitable. Regarding surplus of income, if any, it was submitted that the surplus of funds could not be distributed, but were to be used in subsequent years for the development of Ayodhya and Faizabad only and therefore, surplus of funds could not be equated to profit motive. With regard to vesting of the property of Ayodhya Development Authority with the State Government on its dissolution, it was submitted that the authority could only be dissolved by virtue of section 58 of U.P.U.P.D.A. 1973 if the Government was satisfied that the purposes for which the authority had been established under the act had been substantially achieved, so as to render its continued existence as unnecessary. It was further submitted that on dissolution, accreted income would be taxable as per the provisions of section 115TD of the Income Tax Act and therefore what would happen on the dissolution of the Ayodhya Development Authority should not be of concern to the Revenue. With regard to the applicability of section 13(1)(c) r.w.s. 13(3) of the Income Tax Act, 1961, it was submitted that the State Government can give directions to the authority by way of Government Order by virtue of section 41 of the U.P.U.P.D.A. 1973. Furthermore, the Members of the Board were not the employees of the Development Authority as they were either appointed by the State
Government directly or were ex officio, who belonged to different departments of the State
Government. Hence, they were not beneficiaries of the said scheme. Furthermore, even they could not be equated with managers of the assessee authority as they did not have the ultimate power. This was because the Members were appointed by the State Government by virtue of section 4 of the U.P.U.P.D.A. 1973 and as per section 58, the U.P.U.P.D.A. 1973, the State
Government was empowered to dissolve the development authority. Furthermore, State
Government had the power to call for records of the authority under section 41, approve the budget under section 20, make the Rules under section 55 etc. Thus, from the above, it was clear that the main powers were vested with the State Government and the members of the authority were appointed merely for managing the daily affairs of the assessee authority. Further, the members of the authority being ex officio State Government employees could not be said to have any interest whatsoever in the assessee authority. Hence, the benefits provided by the assessee to its employees could not be equated to have been provided to the persons defined under section 13(3) of the Income Tax Act.
In consideration of the matter, the ld. CIT(A) observed that the authority had been created by a revocable transfer of assets, as all the assets and liabilities would be transferred back to the State Government under section 58 upon dissolution of the Authority and there was no restriction as to how the same would be utilized by the State Government. On perusal of the objects of the authority, he concluded that the objects within which the authority were set up may appear to be of general public utility for the development of the area but then there were objects like sale and purchase of land and property which made the authority into a commercial organization. Therefore, the objects pursued by the authority could not be said to be charitable. The ld. CIT(A) pointed out that in order to find out whether an organization was a charitable one, tests have been laid down by the Hon’ble Supreme Court in the case of Addl CIT vs. Surat Art Silk Transport Corporation (1986) 159 ITR 1. The ld. CIT(A), after quoting from the order of the Hon’ble Supreme Court in the case of Surat Art Silk Cloth Manufacturers Association (supra) pointed out, that since the U.P. Government enjoyed exclusive right over the properties left over after dissolution of the society with no restriction as regards the utilization for charitable purposes, the authority failed the test laid down by the Hon’ble Supreme Court and therefore, could not be termed to be a charitable organization within the meaning of section 2(15) of the Act. Quoting further from the decision of the Hon’ble Supreme Court in the case of Andhra Pradesh State Road Transport Corporation (supra), the ld. CIT(A) held that because the properties left over to the Government as per the provisions of section 58 of the U.P.U.P.D.A. 1973 would become a part of general Revenue of the State and the State Government was not under any obligation to utilize the same for the purpose for which the authority was set up, the assessee did not fulfill the conditions required for claiming the status of charitable organization as envisaged under the fourth limb of the definition of charitable purposes as contained in section 2(15). The ld. CIT(A) also held that the assessee was engaged in acquiring land, development, constructing buildings on commercial lines just like any commercial developer. He pointed out that the provisions of section 2(15) as amended by w.e.f. 1.04.2009 specifically prescribed that advancement of any other object of general public utility shall not be considered as a charitable activity if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering of any service relating to a trade, commerce or business for a cess or any other consideration, irrespective of the nature or use of application or redemption of income from such activity. The ld. CIT held that the intention behind the charitable activity was always philanthropic and not to recoup or reimburse in monetary terms, what was given to the beneficiaries and the fee charged and the quantum of income could be indicative of whether the person was carrying out business or not.
The ld. CIT(A) considered the order of the Hon’ble Allahabad Court in the case of CIT vs. Lucknow Development Authority & Ors dated 16.09.2013 which was relied on by the assessee and pointed out that in that case, the Hon’ble Court had held that where the trust was carrying out its activities with no motive to earn profit, for the fulfillment of its aims and objectives and in the process earned some profit, the same would not be hit by the proviso to section 2(15). However, referring to section 35 of the U.P.U.P D.A 1973 , dealing with the power of authority to levy betterment charges, which he reproduced in his order, the ld. CIT(A) held that the levy of betterment charges was akin to the activity of a builder or a developer and a profit motive was clearly involved in the provisions of this section of that Act. It was pointed out that the Hon’ble
Lucknow Bench in ITA Nos.332 & 333/Lkw/2013 (in the case of Kanpur Development Authority) had discussed this clause in detail and held that the levy of such charges was akin to Mahajan’s charging compound interest at high interest rates on the amounts lent out from the poor people of the society. The ld. CIT(A) held therefore, that the order of the Hon’ble Allahabad High Court in the case of Lucknow Development Authority & Ors did not help the assessee, but went against it.
Quoting again from the decision of the Hon’ble ITAT Amritsar Bench in the case of Jammu
Development Authority vs. CIT, Jammu (2012) 23 taxman.com 343 (Asr), he pointed out that this judgment shows that though the object of the development authority under government control was to promote and secure development of the area, its activities were found to aim at earning profit and this was not merely incidental to its activity. It further found that there was no obligation on the part of the assessee to spend its income on charitable purposes only and that there was no restriction on how the funds of the authority that devolved to the Government after its dissolution could be spent by the Government. For all these reasons, it had been held that authority was not entitled to registration under section 12A. The ld. CIT(A) pointed out that this decision of the Hon’ble Amritsar Bench had been confirmed by the Hon’ble Punjab and Haryana High Court in ITA No.164 of 2012 dated 12.01.2003 and the SLP against the same had been dismissed by the Hon’ble Supreme Court on 24.07.2014. The ld. CIT(A) also referred to the decision of the ITAT Cochin Bench in the case of Greater Cochin Development Authority vs.
JDIT(O )(Exemption), Range-4, wherein the ITAT had held that the said development authority had turned into a huge profit making agency and the decision of the ITAT in the case of Kanpur
Development Authority in ITA Nos. 332 & 333/Lkw/2013, where the Hon’ble ITAT had held that the activity carried on by the assessee was no different from that carried out by private entrepreneurs on account of offering of plots / space by way of auctioning / tender. He also quoted from portions of the order in the case of Kanpur Development Authority, wherein the Hon’ble Bench had held that the amendment to section 2(15) of the Act had in fact limited the scope of general public utility charities by pointing out, that if the same involved the carrying of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business, for a fee or a cess or any other consideration- then that activity would not be regarded as a charitable activity, irrespective of the nature or use of application of income from such activity or the retention of such income by the concerned entity. Therefore, the Lucknow Bench of the ITAT had held in the case of Kanpur Development
Authority, that after the insertion of the proviso in section 2(15), in such cases, the eligibility for registration stood cancelled and therefore, the ld. CIT had the power to rectify his earlier order granting registration by withdrawing the same. In the said order, the Bench had also referred to the order of the Lucknow Bench of the Hon’ble Allahabad High Court in the case of Lucknow
Development Authority and Ors (including the assessee) and after referring to the questions posed before the Hon’ble High Court, pointed out that since it pertained to an assessment year prior to the insertion of the proviso w.e.f. 1.04.2009, it could not be said to be an authority for the subject.
The ld. CIT(A) also referred to the judgment of the Hon’ble High Court in the case of CIT (Exemption), Lucknow vs. Moradabad Development Authority dated 3.05.2017 and observed that the decision was not applicable in the assessee’s case, as the decision was made in that case on the basis of a decision delivered in the case of YEIDA, but the case was distinguishable from that of YEIDA, because in the case of Moradabad Development Authority, the registration had been granted prior to amendment of section 2(15) of the Act, whereas in the case of YEIDA, the registration had been granted after amendment to section 2(15) of the Act. The ld. CIT(A) pointed out, that the cases of YEIDA and MDA had been admitted on different questions of law and therefore, the granting of registration and exemption to MDA on the basis of the YEIDA was incorrect. Thereafter, the ld. CIT(A) examined the major sources of income of the assessee as reflected in the income and expenditure account of the assessee. He concluded that the activity of sale of housing plots through which the Revenue was being generated by the assessee was exactly the same to that adopted by any other builder or colonizer. The assessee could not be held to be charitable because of interest charged by it on delayed payments and it was further observed that it was not as though the same property was being sold cheap to the weaker section of the society and expensive to the more affluent section of society, but the cheaper properties were cheaper on account of their shape, size and location rather than other consideration. With regard to other receipts, the ld. CIT(A) observed that they included nearly 23 heads of receipts for the assessee which included development fees, compounding fees, anurakshan fees, application fees, parking and corner charges etc. The ld. CIT(A) observed that 29
the assessee charged its customers for each and every facility that it provided and was therefore, operating on the lines of a commercial enterprise. With regard to interest received, he submitted that the assessee earned interest from bank deposits and the same was reinvested to generate fresh investment. It had more than Rs.11.11 Crores of investment in the form of FDRs and savings accounts and was earning interest on the same. This earning of interest was devoid of any charitable purpose and was also not incidental to the nature of activity performed by the assessee. Furthermore, the assessee was earning interest from persons who had taken the properties of the assessee. The ld. CIT(A) also observed that the assessee had not made any byelaws and what was being done was being done as per the byelaws of the U.P.U.P.D.A. 1973
and while the assessee had submitted that it was working for the weaker section of the society and costing was decided for the benefit of the weaker section, it was unable to respond to the query as to how the sales of properties made by it had benefited the weaker sections. The assessee was also unable to back up its claim that HIG/ MIG/ LIG/EWS were sold at lower value than cost price. It was also unable to demonstrate that the properties were disposed of on cost- to-cost basis, as the assessee had not submitted any details in this regard. The ld. CIT(A) observed that interest income by way of an installment from respective allottees are on the same footing as interest taken by the builder while allotting the flat to a buyer. From all these, the ld. CIT(A) came to the conclusion that the assessee is involved in the activities of profit making and is unable to substantiate that it was meant for the weaker sections of society, as claimed by it during the course of proceedings.
With regard to the various case laws relied upon by the assessee, the ld. CIT(A) held that they were distinguishable. Therefore, the ld. CIT(A) held that the ld. AO had rightly disallowed the exemption under section 11 and 12 of the assessee and had rightly assessed its income as taxable business income.
With regard to the addition on account of infrastructure development fund, the ld. CIT held, that the fact remains that the assessee had received this sum for doing infrastructure work and had not utilized the full amount. He held that the receipts on account of infrastructure fund were undoubtedly in the nature of trading receipts and whatever amount had been incurred as expenditure had already been allowed by the ld. AO and only the net surplus was added to the 30
income of the assessee. Since the exemption had already been denied under section 11, he found no infirmity in the orders of the ld. AO in adding the net surplus of the infrastructure development fund and accordingly, he sustained the addition made by the ld. AO in this regard.
With regard to the addition of Rs.8,65,50,000/- on account of tourist development grant, the ld. CIT(A) rejected the argument of the assessee and stated that the submissions of the assessee did not support why this receipt was not an income and how the Government order may overrule accounting principles and why it was not taxable. He held that the receipt of tourist development grant was in the nature of Revenue receipts and whatever amounts had been incurred as expenditure, may be considered for deduction against receipts and the ld. AO had done it. Since, the receipts were of a revenue nature and taxable, he did not find any infirmity in the order of the ld. AO.
With regard to prior period expenses, he pointed out that the assessee had failed to submit relevant details to justify the claims of expenditure incurred therefore, merely on the principle of allowability of prior period expenses as necessary for business, the claim of the assessee could not be entertained. Therefore, he dismissed all these grounds of the assessee and the appeal itself.
The ld. CIT(A) dealt with the issue of disallowance on account of violation of section 13(3) of the Act by the assessee in his order for the A.Y. 2015-16. He pointed out that section 13(3) of the Act demands that if any part of the income or property of the trust is used or applied directly or indirectly for the benefit of specified persons as per section 13(3), then he income of the trust will not be exempt under section 11 and he observed that the ld. AO had pointed out, that the assessee was allowing reservation of 2% in the allotment of property and was also allowing discount of 10% in the present value of the property to the employees of the assessee. He pointed out that the employees of the assessee authority also included persons specified under section 13(3) of the Act. The ld. CIT(A) noted that the submissions made by the assessee were completely silent on this aspect of the assessment order as nothing had been submitted on this issue during the course of appeal before him. He, thereafter referred to the decision of the Hon’ble Patna High Court in the case of Buddha Vikas Samiti vs. CIT reported in 199 taxman 395
(Patna) and pointed out that it was an established position in law, that when any part of the income or property of the trust was directly or indirectly utilized for the benefit of any person referred to in sub section 3 of section 13, the trust would forfeit exemption from income tax. The ld. CIT(A) emphasized that the benefit of reservation in allocation of property and discounts in payments had not been advanced for any purpose which was even remotely connected to the objects of the trust. On the other hand, the income of the trust had been utilized for the benefit of persons referred to in sub section 3 of section 13. Therefore, he held that the ld. AO had rightly disallowed the exemption under section 11 and 12 to the assessee and he had rightly assessed the income as taxable business income of the assessee on this account.
In his orders for the A.Ys. 2016-17, 2017-18 and 2018-19, the ld. CIT(A) traced the legislative history of exemption status of local authorities. He pointed out that prior to abolition of section 10(20A) of the I.T. Act, local authorities enjoyed tax exempt status, but the section was removed from the Act by Finance Act, 2002 (w.e.f. 1.04.2003). Subsequently, the income of local authorities became subject to taxation. However, such authorities began to apply for registration under section 12A and exemption under section 11. In many cases, these were granted after judicial intervention, though in some cases including that of Jammu Development Authorities, the Courts held otherwise. However, Finance Act, 2010 (w.e.f. 1.04.2009) inserted a proviso below section 2(15) of the Act to restrict the scope of definition of charitable purpose if the assessee fell under the last limb of, ‘general public utility’ and undertook any activity in the nature of trade, commerce or business and received any cess or fee or any other consideration for the same, if the same exceeded a particular amount. That most of the decision of the Hon’ble Courts that held that registration under section 12A ought to be granted and an exemption under section 11 ought to be allowed to the assessee were for years prior to the introduction of this proviso to section 2(15). The ld. CIT(A) also pointed out that subsequently section 10(46) had been inserted into the Act to provide exemption in respect of income of authorities established by the Central Government or the State Government of regulating or administering any activity for the benefit of the general public. The decisions relating to the Greater Noida Authority, Noida and YEIDA relied upon by the assessee actually pertained to approval under section 10(46) of the Act. The ld. CIT(A) pointed out that the assessee is not approved under section 10(46) and the 32
very fact that such provision was enacted, itself went to show that entities such as the assessee were not previously eligible to claim exemption under section 11 of the Act, because they would invariably be hit by the first proviso to section 2(15) of the Act, 1961. 26. Finally, in his orders for the A.Ys. 2017-18 and 2018-19, the ld. CIT(A) dealt with the claim of depreciation claimed by the assessee and disallowed by the ld. AO in accordance with the provisions of section 11(6) of the Act. The ld. CIT observed that as the exemption under section 11 had been disallowed and the income had been taxed as income from business and profession as per commercial principles, the depreciation should have been allowed. However, because the cost of assets would have been allowed as application in earlier years therefore depreciation on the same could not be allowed. However, for the new assets added in the relevant year, the ld. CIT(A) held that depreciation was allowable as the same had not been allowed as application. He, therefore, partly allowed this ground of appeal in both assessment years.
Aggrieved with the orders of the ld. CIT(A), the assessee is before us in appeal. Smt. Shweta Mittal, C.A. (hereinafter known as the ld. AR) appearing on behalf of the assessee submitted that the Ayodhya Faizabad Development Authority had been set up under section 3 of the U.P.U.P.D.A 1973, vide notification dated 26th Nov 1996 for the planned development of the twin cities of Ayodhya and Faizabad. Section (4) of the said Act contained provisions that showed the deep control of the state Govt over the authority. Section (7) contained the objects of the authority, while section (10) provided for submission of the plan to the state government for approval. Section (16) of the Act laid down that once the plan was approved, the lands and buildings would be used only according to the plan. Section 20 concerned the funds of the authority and stated that they could only be used in the administration of the Act. Section 41 dealt with control by the state Govt and gave it the power to issue instructions, while section 55 gave the state govt the power to make rules for the administration of the act. Thus, it was submitted that the authority was functioning under the provisions of the said act, for the achievements of its objectives and was doing so under deep control and supervision of the state Government. On our directions, she produced copies of these Govt Orders issued under the Act and invited our attention to various Govt orders contained in her paper book. Pointing to order number 4049/9-aa-1-99/16 samiti/1998 dated 20.11.1999, she submitted that the state Government had laid down model guidelines on how properties of the authority should be valued. She pointed out that of the lands controlled by the authority, only 40-45% was saleable area. The rest was used for public facilities. She also invited our attention to Govt order no 3188/aath-1-13-80vividh/2010 dated 5/12/2013, which dealt with housing for EWS and LIG category. Taking us through the same, she pointed out that the authority was obliged to provide for a minimum of 10% of units for EWS and another 10% for LIG category in any housing scheme undertaken by it . If the project was larger than 4 hectares it was to be provided within that project, but even if it was smaller, it had to be provided within 5 kms from the project. She submitted that the costing and pricing of the property sold bey the authority was under Govt Control. She further invited our attention to Govt Order number 4912/9-aa-1-99/32 Hudco/97 TC dated 4/11/1999, to point out that not every property was auctioned. In case of residential units, first they were to be disposed of by lottery and only the unsold units/land were to be offered for auction. As regards commercial units, she submitted that the same were auctioned to obtain premium, but even here she submitted that it was necessary to develop those commercial properties for the planned development of the area and specific guidelines had been laid down by the Govt on how auctions should be done by way of Govt Order no 378/9-aa-1- sampattiyan/aa.ba/2001 dated 20th June 2001. Furthermore, by way of Govt order 899/aath-1- 13-178 vividh/2012 dated 28/03/2013, it had been provided that the reserve price would be fixed 25% below the sector rate, for Information technology services, public services, Large industrial units etc and the same would be cross subsidized by sale of commercial, office and group housing projects. Ld AR thereafter drew our attention to Govt Order no 2157/aath-1-11- 184vividh/2010 by which the villages being brought under urban areas were ordered to be developed by the authority to enhance the facilities in them and it was submitted that this was an example of cross subsidization by which the authority was demonstrated to be existing for charitable purposes. The Learned AR submitted that by virtue of these Government orders she was seeking to demonstrate that the authority was working for charitable purposes and met all the tests laid down by the hon Supreme Court in the case of Ahmedabad Urban Development Authority and that qualified it for exemption under section 11. The Learned AR further submitted that the matter of eligibility for exemption of the assessee authority, was covered by 34
the decisions of the Hon’ble Supreme Court in the case of ACIT vs. Ahmedabad Urban
Development Authority (2022) 144 taxman.com 78, as one of the authorities, which was set up under the same act and for similar objects and activities as the assessee authority, namely the Moradabad Development Authority was one of the respondents in that case. It was further submitted that subsequently the Hon’ble Supreme Court had dismissed SLPs filed by the revenue against orders of other High Courts in respect of other development authorities, stating that the matter stood covered by the judgment of the Court in the case of Ahmedabad Urban
Development Authority (supra). Thus, it was submitted that the issue of whether the objects of the assessee authority were charitable, was no longer a matter for debate. It was also submitted that the allegations that the assessee was operating as a commercial entity were refuted from the fact that all the charges levied by the authority were as per the scheme laid down in the U.P.U.P.D.A. 1973 and the Government orders. She also pointed out that the betterment charges were on account of the development work rendered by the authority that enhanced the facilities in a particular locality and it was not aimed at earning profits but recovering costs.With regard to the issue of disallowance on account of alleged violation of section 13(3), the ld. AR submitted that there was in fact no violation and she took us through the Government order to show that the employees of the authority were only one of the many categories that had been afforded these concessions.
The ld. AR, then questioned the decision of the ld. CIT(A) to uphold the addition in the case of Infrastructure Development and Reserve Fund (IDRF). It was submitted that though that fund stood in the name of the development authority but it was administered by a committee appointed by a State Government and the authority had no say in the matter of how those funds would be utilized. The State Government, vide its order dated 15.01.1998 had also laid down what proportion of its income had to be set aside for the Infrastructure Development and Reserve Fund (IDRF). The ld. AR further pointed out that the Hon’ble Allahabad High Court in the case of Lucknow Development Authority and Ors vide its order dated 16.09.2013, in which the assessee was also a party, had pointed out that the Infrastructure Development and Reserve Fund (IDRF) could not be said to be belonging to the assessee or the receipt taxable in its hands. It was submitted that this was a binding decision of the juri ictional High Court and the ld. AO and the ld. CIT(A) should not have ignored the same. The ld. AR, replying to the submissions of the ld. DR that there was no diversion of income by overriding title on account of the said Government order, by relying on the orders of the Hon’ble Uttarakhand High Court in the case of Mussoorie Dehradun Development Authority, pointed out that the basic issue that was there before the Hon’ble Uttarakhand High Court was whether the Mussoorie Dehradun Development Authority was a State or not. Secondly, it was pointed out that in para 19 of the Tribunal order with regard to Mussoorie Dehradun Development Authority, the Tribunal had wrongly interpreted the decision of the Hon’ble Supreme Court in the case of M/s Sitaldas Tirathdas and had in fact drawn a conclusion that was opposite to what had been stated by the Hon’ble Supreme Court. She also pointed out that there were mistakes in the order of the Hon’ble Delhi Bench of the ITAT in the case of Mussoorie Dehradun Development Authority, in that, it had failed to recognize the fact that stamp duty was not collected by the authority, but rather by the Sub-