DY. CIT(EXEMPTION), LUCKNOW vs. MORADABAD DEVELOPMENT AUTHORITY, MORADABAD

Any other ground of appeal which may be raised during the course of hearing of appeal.”

Any other ground of appeal

The ld. AO was not satisfied with the replies submitted by the assessee. He held that firstly the requirement of compliance to the provisions of section 11(2) of the Income Tax Act had not been complied with and secondly the new provisions of section 2(15) of the Income Tax Act had come into play. He proceeded to compute the application towards charitable purposes and found out that there was a shortfall in the application by Rs.72.45 Crores and the assessee development authority had not exercised the option under clause (2) of the explanation to section 11(1), as mentioned in the annexure to Form 10-B filed along with the income tax return. Furthermore, the assessee authority had not accumulated or set apart any income during the year for application to charitable purposes and had not filed Form 10 for the said purposes as evident from Form 10B. Hence, the claim of the assessee for exemption under section 11 could not be entertained. The ld. AO further perused the financial statements of the assessee in the context of the newly introduced proviso to section 2(15) of the Income Tax Act and pointed out that against total receipts of Rs.1537223917/-, the assessee had net profit of Rs.95,60,17,385.48/- during the year and funds generated out of profit year after year were invested into fixed deposits and other deposits which resulted in interest income of Rs.29,44,83,617.60/-, which also included a sum of Rs.32,500/- charged from allottees against delayed payment on commercial lines. The ld. AO pointed out that the net profit worked out to 62.19% of total receipts generated out of sales, interest on deposits and other charges realized from customers. Furthermore, the assessee being a Nodal agency for different Government Departments had been executing deposit works on centage basis and earned income over it which has been reflected in the income and expenditure account. These works were basically in A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 the nature of civil contracts and the role of the assessee had been of a contractor on which TDS under section 194C of the Act had been deducted. Therefore the nature of the activities being conducted by the assessee was akin to the activities of the builders, developers and contractors. Therefore, the ld. AO held that since the amount of receipts on account of such activities was in excess of Rs.25 Lacs, the assessee was hit by the provisions of the proviso to section 2(15) and therefore, its activities could not be regarded as charitable and it was not eligible for the exemption under section 11. Thereafter, he proceeded to trace the history of exemption available to the local bodies such as the assessee. He pointed out that prior to the assessment year 2002-03, the income of such bodies like the assessee were exempt under section 10(20A) of the Act. But after the omission of that section and explanation was added to section 10(20A) where local authority was defined and such definition did not include the authorities such as the assessee. Thus, from the same, he concluded that the exemption benefits conferred upon the assessee prior to A.Y. 2002-03, had been taken away by way of amendment to the act. The ld. AO went on to state that the assessee was generating income by way of disposing of the plots, flats, shops and commercial complexes with a definite motive of profit and there was no charitable purpose or any activity for public utility which was the primary requirement of section 2(15) of the Act and the activities of the assessee were therefore, akin to the activities in the nature of trade, commerce and business. Furthermore, the profit making by the assessee was not merely incidental or a bye product of its activities. It was the predominant purpose and he further argued that there was no spending of the income exclusively for the purpose ‘charitable activities’ and there was no obligation on the part of the assessee to spend on charitable purposes only. Therefore, the objects of the assessee authority could not be said to be charitable. He further drew reference to section 58 of the U.P.U.P.D.A. 1973 where it had been written that on dissolution of the authority, all the properties, funds and dues which were vested in or realizable by the authority, would vest in or be realizable by the State Government. The ld. AO held that the assessee had therefore, failed the tests laid down by 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, where the Courts had held ITA Nos.273,199/Lkw/2019 A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 that the income and property of the assessee were liable to be applied solely and exclusively for the promotion of the objects set out in the memorandum and could not be distributed among members or utilized for their benefit and furthermore, that upon dissolution the amounts handed over to the State Government did not become part of general revenue of the State but were entrusted with an obligation that they should be utilized only for the purpose for which they were entrusted. The ld. AO observed that in view of the fact that there was no such restriction placed on the assessee, the assessee was not eligible to the benefits of section 11.

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 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 A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 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 businessman. 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 Moradabad Development Authority could not be said to be 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’. ,199/Lkw/2019 A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 The net profit disclosed by the assessee of Rs.95,60,17,385.48/- was added to the total income of the assessee and penalty proceedings under section 271(1)(c) were initiated.

In his order for the A.Y. 2015-16, the ld. AO referred to the case of the ld. CIT(Exemption), Lucknow vs. Moradabad Development Authority in in which the Hon’ble Allahabad High Court had dismissed the appeal of the department for the assessment year 2009-10, relying upon the judgment delivered in the case of Yamuna Expressway Industrial Development Authority. The ld. AO expressed the view that the case of the assessee was different from the case of Yamuna Expressway Industrial Development Authority, as that related to rejection of registration under section 12AA by the ld. CIT(E), Lucknow. Furthermore, he observed that the facts and circumstances of the assessee’s case were different from that of YEIDA, because the registration under section 12AA of the Act was granted to the Moradabad Development Authority prior to the amendment of section 2(15) of the Act w.e.f. 1.04.2009, whereas in the case of YEIDA, the registration under section 12AA was granted after amendment of section 2(15) of the Act, 1961. Hence, the ld. AO pointed out that the reference of the case of the CIT(Exemption), Lucknow vs. YEIDA by the Hon’ble High Court, while deciding the case of ld. CIT(Exemption) vs. Moradabad Development Authority, rendered the said decision to be incorrect. Furthermore, the ld. AO observed that in that judgment, the Hon’ble High Court had commented on the powers of the ld. CIT(E) at the stage of registration and pointed out that enquiry into the conduct of charitable or other activities to be performed by a trust or institution, which has submitted an application for registration, was an investigation that had to be gone into subsequently at the time of assessment by the ld. AO. The same view had been taken by the Hon’ble Kerela High Court and Sree Anjaneya Medical Trust, vs. CIT (2016) 382 ITR 399 and DIT vs. Garden City Educational Trust (2010) 191 taxman 238 (Karnataka). Furthermore, the ld. AO held, that it still stood that the Hon’ble Apex Court had rejected the SLP of M/s Jammu Development Authority and upheld the decision of the Jammu & Kashmir High Court by rejecting the SLP on Jammu Development Authority. Furthermore, he observed that in the case of Safdarjung Enclave Educational Society vs. Municipal Corporation of Delhi (1992) 3 SCC 390, the Hon’ble Supreme Court had held that the activities done on commercial lines, fall within the A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 ambit of charitable objects.

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.

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 Moradabad. 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 been granted registration under section 12AA was granted by the ld. CIT. The ld. AO had rejected the claim of the assessee for exemption of income under section 11 of the Act by alleging that the assessee was involved in the activities of trade, commerce and business and as such, was hit by the provisions of the first proviso to section 2(15) of the Act and also that the assessee had failed the test of utilization of left over properties for charitable purposes that had been laid down by the Hon’ble Supreme Court in the case of CIT vs. Surat Art Silk Cloth Manufacturers Association (supra) and CIT vs. Andhra Pradesh State Road Transport Corporation (supra). In response, it was submitted that the objects of the authority had been defined under section 7 of the U.P.U.P.D.A. 1973 and perusal of the objects would make it clear that the assessee had been established for charitable purposes A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 and after examination of its activities it had been granted registration under section 12AA of the Act by the CIT, Moradabad. The ld. AO had wrongly interpreted the decisions of the Hon’ble Supreme Court as no part of the funds / assets of the assessee had been handed over to the State Government till date. It was further pointed out that the ld. AO while referring to section 58 of the U.P.U.P.D.A. 1973, had nowhere pointed out that the funds, if any on dissolution that would vest with the State Government, would be distributed for personal benefit. It was submitted that the authority collected funds on behalf of the State Government, for utilization under the Act so the entire fund of the authority was that of the State Government, for utilization for charitable purposes and it could transfer this fund to any other authority for carrying on similar nature of charitable activities. No inference arose that the funds may be utilized for any personal benefits of any member of the State Government, as the State Government was only a custodian of the funds which may be deployed for any charitable activities. It was further submitted that no taxes were liable to be paid on property vested in the State Government because the State Government was not a person within the meaning of section 4(2) of the Income Tax Act. It was submitted that the ld. AO had taken a wrong interpretation of section 58 and to treat the authority as non-charitable on the basis of the provisions of section 58, was totally incorrect. Furthermore, it was submitted that the registration granted to the assessee under section 12AA, was still in operation during the relevant previous year and had not been cancelled. Furthermore, the funds of the authority had been invested as per the provisions of section 11(5) of the Act. Attention was invited to the decision dated 16.09.2013 of the Hon’ble Allahabad High Court in the case of Lucknow Development Authority and Ors, wherein the Hon’ble High Court had held that once a certificate is issued granting registration to the trust or institution, the certificate is a document that evidences satisfaction about:- i. The genuineness of the activities of the trusts or institution. ii. About the objects of the trust or institution.

The ld. CIT(A) considered the matter and he recorded his findings and decisions as under: - “9.1 It is observed that the AO has made the impugned order on the basis of the following reasons: i. The words like charity or charitable, poor, economically weaker, subsidy/subsidized, assistance, uplift are not mentioned in the state Act under which, the development authority has been formed. ii. For creation of a valid trust, transfer of assets for the charitable purpose should be irrevocable, which is clearly not being fulfilled in the case of Moradabad Development Authority. The nature of activities of assessee is akin to the activities of builders, developers and contractors. The aggregate receipts from the activities referred to in the first proviso is more than the prescribed limit, as such, it shall not be entitled to the benefit of exemptions u/s 11 of the Income Tax Act, 1961. iv. Benefit conferred u/s 10 (20A) to an authority was taken away with effect from 01.04.2003 and therefore, no benefit could be claimed by the assessee after 01.04.2003. v. Hon'ble Supreme Court of India rejected the SLP of the assessee in the case of Jammy Development Authority vide order dated 24.07.2014. vi. The judgment of Hon'ble High Court dated 21.04.2017 in the case of CIT(E), Lucknow Vs Yamuna Expressway Industrial Development Authority was on a different issue, as it related to rejection of registration u/s 12AA by the Ld. CIT(E), Lucknow. vii. That there is UP government's order dated 17.12.1999 in which there is a reservation of 2% of the employees of development authorities in respect of allotment of residential and commercial properties. The employees of development ITA Nos.273,199/Lkw/2019 A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 authorities also includes persons specified in section 13(3) of the Income Tax Act, 1961. 9.2 The issues from (i) to (vi) above have been addressed by the jurisdictional Allahabad High Court and jurisdictional ITAT, Delhi against revenue as discussed in the above paragraphs. For the sake of convenience, they are mentioned below: i. The activities are covered under the fourth head i.e, advancement of any other object of general public utility. This is the sheer ignoring scope and ambit of statutory provisions of State Act, beyond which respondent authorities cannot function, being statutory bodies constituted under the said Act. ii. In this case, attributes of a trading corporation are absent. This corporation is established by the Act for carrying out the purposes of the Act, which is the development of state. The corporation consists of the nominees of state government. The receipt of money is arising not out of any business or trade, but out of sole purpose of growth and development. The accounts are audited by an auditor appointed by the state government. In view of the above, if in the ultimate analysis, there is excess of income over expenditure that will not establish the trading character of corporation. The Development Authorities will not be hit by the proviso of section 2(15) of the Income Tax Act, 1961. The endeavor of the AO to equate the activities of the corporation with private builders and developers is thoroughly misconceived and shows immature approach and misapplication to the issue in question. iv. The fact that the entity would be covered or not u/s 10(20) of the Income Tax Act, 1961 would make no difference for the reason that if it satisfies requirement of section 12A(1), then it is entitled for registration after following procedure laid down u/s 12AA. A mere wrong claim on the part of the authority will not be of any disadvantage to it. v. The rejection of SLP without giving any reasons by the Hon'ble Supreme Court cannot be equated with the exposition of law. Dismissal of SLP in limine could not operate as a confirmation of the reasoning in the decision sought to be appealed against. vi. The view point of the Department that the mandate of Hon'ble Jurisdictional High Court has ceased its binding force and hence preference should be given to the judgment of Hon'ble J&K High Court should not be considered. Further, the Hon'ble Jurisdictional High Court has decided all the issues involved in the impugned assessment order, even if, that order related to rejection of registration u/s 12AA. vii. The AO has not specified as to how the beneficiaries are the persons mentioned in section 13(3) of the Income Tax Act, 1961. No specific instances are given by him. ,199/Lkw/2019 A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 Further, on an apparent reading of section 13(3) read with the scheme of UP government, it does not appear that the scheme is intended to give benefit to the persons mentioned in section 13(3). 9.3 In view of the fact that the decisions of Jurisdictional Allahabad High Court and Jurisdictional Delhi Tribunal are in favour of the appellant as discussed above, respectfully following the same, it is held that the appellant is eligible for claim of exemption u/s 11 of the Income Tax Act, 1961. Therefore, the addition of Rs. 95,60,17,385/- is deleted. Appellant gets full relief on this issue.”

A similar order was passed by the Ld CIT(A) in the Assessment 2015-16. However, in the assessment year 2016-17, the ld. CIT(A) ruled against the assessee. The ld. CIT(A) noted that the assessee was relying upon the order of the Hon’ble High Court in the case of CIT(Exemption) vs. Moradabad Development Authority but the ld. AO had contended that the same was distinguishable for the reason that the Hon’ble High Court in the case of CIT(E) vs. MDA, had dismissed the appeal of the Department for the A.Y. 2009-10, by relying upon the judgment delivered in the case of Yamuna Expressway Industrial Development Authority but the issue in that case was different as it related to rejection of registration under section 12AA by the ld. CIT(A) while in this case, the assessee had been granted the registration. Furthermore, the circumstances in both cases were different because registration had been granted to Moradabad Development Authority prior to the amendment of section 2(15) of the Act whereas in the case of YEIDA, the registration under section 12AA was granted after the amendment of section 2(15) of the I.T. Act, 1961. Hence, the case of YEIDA was not a correct precedence to rely upon giving relief to the assessee. The learned CIT(A) pointed out that in the objects of the authority, as defined in section 7 of the U.P. Urban & Planning Development Act, 1973 (U.P.U.P.D.A.), there was no mention of doing any charitable work of any kind for poor or economically weaker sections, giving of any subsidy or any subsidized assistance. He, therefore, concluded that the Moradabad Development Authority was formed with the sole objective of infrastructure development of Moradabad and not to be a charitable organization. The ld. CIT(A) noted the AO’s conclusion, that the activities of the appellant of the assessee were in the nature of trade and commerce as it had generated income from the activities of disposing of the plots, flats, shops and commercial complexes with the definite motive A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 of profit and not of charitable purpose. He observed that the AO had invoked section 2(15) accordingly, as the earning of profit was not incidental to the activities of the assessee but were in fact the predominant purpose. He also noted that the AO’s observation that there was no application of income exclusively for the purposes of charitable activities. The ld. CIT(A) also considered the AO’s observation regarding section 58 of the U.P.U.P.D.A., 1973, wherein the AO had observed that upon dissolution of the Board, the fund and other property vested in the Board would vest in the State Government, which may apply it for any purpose that it deems fit, which would be violative of section 11(1) r.w.s. 60, 61 and 63 of the I.T. Act. The ld. CIT(A) also took note of the AO’s contention, that the assessee did not fall under the fourth limb of the definition of charitable purposes as contained in section 2(15) of the Act, in view of the decisions of the ITAT in the case of M/s Jalandhar Development Authority vs. CIT-2, Jalandhar and the case of M/s Jammu Development Authority vs. CIT. The learned CIT(A) also observed from the assessment order for the assessment year 2015-16, that the AO had brought on record an order dated 17.12.1999 by the U.P. Government, vide a which reservation of 2% was granted to the employees of the development authorities in respect of allotment of residential and commercial properties. He also noted, that the AO had observed that the authority was giving a 10% discount of the market value of the property allotted to the employees of the development authority on the allotment of the property and the AO had concluded that these discounts and reservations on allotment gave undue preferential treatment to the employees who were specified persons in section 13(3) of the Income Tax Act, thereby violating section 13(3) of the Income Tax Act. The learned CIT(A) held that since the order of the U.P. Government dated 17.12.1999 applied to assessment year 2016-17 as well and the facts of the case was similar, he was taking cognizance of this order while deciding the appeal of AY 2016-17, since it was purely a matter of fact, that was already in the knowledge of the appellant. The Ld CIT(A) observed that after insertion of the proviso to section 2(15) w.e.f. 1.04.2009, certain bodies that had hitherto been treated as, ‘charitable trust’ on the ground of objects of general public utility, would not be treated so if they were carrying on an any activity in the nature of trade; commerce and business or any activity of rendering services in relation to any trade; commerce or business, for a cess or fee or any other consideration, irrespective of the ITA Nos.273,199/Lkw/2019 A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 nature of use or application or retention of income from such activity. The learned CIT(A) noted that till the financial year 2002-03, the income of such authorities was exempt under section 10(20A) of the Act but after the omission of section 10(20A) of the Act w.e.f. 1.04.2003, the explanation, ‘local authority’ was defined to include only the authorities enumerated in the explanation to section 10(20) i.e. Panchayat, Municipal Committee, District Board and Cantonment Board. Authorities constituted under any other law for the purpose of dealing with and satisfying the need for housing accommodation or for the purposes of planning, development or improvement of cities, towns and villages were omitted and the benefit conferred by erstwhile section 10(20A) on such authorities were taken away. Thereafter, after insertion of the said proviso, any institution carrying on of any activity in the nature of trade, commerce or business would not be regarded to be a charitable organization.

The ld. CIT(A), thereafter proceeded to reproduce paragraphs from the judgments of the Hon’ble ITAT Amritsar Bench in the cases of M/s Jalandhar Development Authority and M/s Jammu Development Authority and further from the judgment of the Hon’ble High Court of Jammu & Kashmir in the case of M/s Jammu Development Authority, to point out that it was on the basis of the aforesaid judgments, that the AO had held that the assessee could not be said to be charitable in nature as it was involved in the activities which were hit by the provisos to section 2(15) of the Act w.e.f. 1.04.2009 The ld. CIT(A) noted the arguments of the assessee that the judgment delivered by the Hon’ble Allahabad High Court, Lucknow Bench, in the case of Lucknow Development authority and others , after interpretation of the objects of the regulatory statute, had not been challenged by the Revenue before the Hon’ble Supreme Court and hence the said view expressed by the Hon’ble High Court, on the issue of applicability of amended provisions of section 2(15) of the Act, had also attained finality. He also took note of the Fact that the assessee had been granted similar relief by the Hon Allahabad High Court vide its orders dated 3.05.2017. However, he observed that the Department had preferred an appeal against this order before the Hon’ble Supreme Court that still pending for adjudication. The ld. CIT(A) stated that after perusing the facts of the case and the case laws relied upon by the AO and the appellant, he could not find any evidence brought on record by the appellant to prove that any activity of charitable nature A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 was either done during the year under consideration or any claim had been made that the appellant was a charitable organization. He noted that all that had been claimed was that the objects of the organization were mainly for providing services of, ‘general public utility’ which is covered by the definition of charitable activities under the Income Tax Act and hence exemption should be granted. The ld. CIT(A) then pointed out that on comparing the facts of the case for the year under consideration with the facts of the case on the basis of which the Hon’ble High Court had dismissed the appeal of the Revenue in the case of the appellant, it was apparent that the order passed by the jurisdictional High Court was based on a completely different set of facts, while the order passed by the ITAT Amritsar Bench in the case of M/s Jammu Development Authority, was directly on the facts of the case under consideration. The ld. CIT(A) reproduced the order of the Hon’ble Allahabad High Court, Lucknow Bench in the case of CIT (1) vs. Lucknow Development Authority in dated 16.09.2013 and held that a perusal of the order of the Hon’ble High Court showed that the said judgment had been given primarily on the basis of three very important assumptions or facts placed before them i. the object of the ‘Authority’ is to provide shelter to the homeless people and there is no objectionable material to treat these institutions as non-charitable, as has been brought on record by the AO. Ii. There is no material / evidence brought on record by the Revenue which may suggest that the assessee was conducting its affairs on commercial lines with a motive to earn profit or has deviated from its objects as detailed in the trust deed of the assessee. iii. There is no material on record to prove that section 60 to 63 had been violated. However, he pointed out, that in the same judgment of Hon’ble High Court had laid down the law that the benefit of section 11 was not absolute or conclusive. It was subject to the controls of section 60 to 63. If it was found, by keeping in view the provisions of section 60 to 63, that it is not so includable, then such income did not qualify for any relief. The ld. CIT(A) then pointed out that a perusal of assessment order showed that the AO had specifically brought on record those objects of the assessee authority, that were different from the objects relied upon by the Hon’ble Allahabad High Court while deciding the case in earlier year i.e. ‘to provide shelter to the homeless people’. Secondly, he held that the AO had brought on record enough material to show that the assessee was conducting its affairs on commercial lines with a motive to only earn profits.

The ld. CIT(A), thereafter, went on to examine the procedure for registration of trusts under section 12A or section 12AA and pointed out that at the time of granting of registration, the ld. Commissioner of Income Tax is only required to satisfy himself regarding the objects of the trust and genuineness of the activities of the trust, but not to examine the application of income. He pointed out that in the case under consideration, the assessee’s only evidence in support of its submission of being a charitable organization, was the order under section 12A which had been granted by the ld. CIT(Exemption) The ld. CIT(A) argued, that if the CIT(Exemption) did not get to see the application of income while deciding the application for granting of exemption under section 12A, then such an order could not be the basis for a future claim and it was seen from the records that there was neither any evidence nor any claim by the appellant, that there were either a charitable organization or in fact doing any activities that were charitable in nature. He pointed A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 out that after the amendment to section 2(15), the principles of general public utility had been removed from the definition of charity, if the assessee was conducting any business or trade. Thus, if general public utility was imparted with a profit motive, to hold that the same were charitable purpose would not be correct. The ld. CIT(A) reiterated that even if the registration was granted by the ld. CIT(A), then too, the AO was empowered to look into and the appellant had to prove that during the year under consideration, it undertook activities that were charitable in nature. The question of accessibility to such tax or exemption would therefore have to be determined each year and until the appellant was able to satisfy the AO that it fulfilled the conditions for exemption in a particular assessment year, it could not claim exemption as a rule. He went to state that there was no evidence brought on records that the appellant had undertaken any philanthropy during the year. Therefore, the claim of exemption could not be allowed for this year by only relying upon a judgment of a preceding year. He went on to state that the objects of the authority make it a commercial organization, with an aim of earning profit from activities in the nature of trade, commerce and business. Profit making was not merely incidental but the main object of the authority. There was no object of the appellant authority for doing any charitable work as there was no spending of income exclusively for the purpose of charitable activities and there was no obligation on the part of the appellant to spend on, ‘charitable purpose’ only. Furthermore, he concluded by stating, that as per U.P.U.P.D.A., 1973, section 58 on dissolution of the authority all properties and funds vests with the State Government which had complete freedom and no restriction on the manner of their utilization. He further held that as the authority was in clear violation of section 13(3) of the Income Tax Act, 1961 by virtue of providing reservation of 2% and discount of 10% for the employees of the appellant in respect of allotment of residential land and commercial properties, he was of the opinion that the Moradabad Development Authority was not entitled for exemption under section 11 of the Income Tax Act and he, therefore, upheld the action of the AO in denying this exemption on the basis of the judgment of the Hon’ble Jammu & Kashmir, High Court in the case of M/s Jammu Development Authority (supra).

Aggrieved with the orders of the ld. CIT(A) in the assessment years 2014-15 and 2015-16, the Department has preferred an appeal before us, while aggrieved with the orders of the ld. CIT(A)

Since these two orders under section 154 effectively substitute the earlier orders of the Ld CIT(A) for the year 2014-15 & 2015-16, before the Departmental appeals against those orders can be decided, it is necessary to adjudicate the orders passed under section 154. Therefore the two appeals of the assessee against the orders under section 154 are being taken up first.

Aggrieved with the orders of ld. CIT(A), Smt. Shweta Mittal, C.A. (hereinafter known as the ld. AR) submitted that the ld. CIT(A) was completely unjustified in recalling his orders dated 28.01.2019 and 22.02.2019, under the garb of rectification. She submitted that in his order dated 28.01.2019, the ld. CIT(A) had in sub paragraph VII of paragraph 9.1 recorded the fact of the U.P. Government order dated 17.12.1999 regarding the reservation of 2% for employees of development authorities in respect to the allotment of residential and commercial properties and the fact that the ld. AO had recorded his satisfaction that the employees of the development authorities also included persons specified in section 13(3) of the Income Tax Act, 1961. Thereafter, the ld. CIT(A), had recorded his satisfaction that the ld.AO had not specified as to how the beneficiaries were the persons mentioned in section 13(3) of the Act, 1961. No specific instances had been given by him. Furthermore, he recorded that on an apparent reading of section 13(3), read with the scheme of the U.P. Government, it does not appear that the scheme was intended to give benefit to the persons mentioned in section 13(3). The ld. AR submitted that perusal of these remarks made by the ld. CIT(A) in his order dated 28.1.2019, showed that the ld. CIT(A) was duly seized with the government order dated 17.12.1999 and in fact, had actually seen and studied the said order and come to a decision. Therefore, there was no basis to hold that the ld. CIT(A) had rendered his decision in the absence of knowledge of or consideration of the Government order dated 17.12.1999. In the circumstances, the notice under section 154 issued by the ld. Successor CIT(A), was based on a fundamentally wrong fact that ld. CIT(A) found the existence of the Govt .order after the passing of his own order and the same was omitted to be taken into consideration by him, while passing the order. It was, therefore, submitted that since the entire process under section 154 was based on a wrong premise, the initiation itself was wrong in law and the successor A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 ld. CIT(A) was in fact attempting to review the orders passed by his predecessor in the garb of rectification. Furthermore, the ld. AR argued that the ld. CIT(A) had applied the provisions of section 154 to what was essentially a debatable proposition and as per the decisions of the Hon’ble Supreme Court in the cases of M/S Deva Metal Powders Pvt Ltd Vs Commissioner of Trade Tax UP CA 5607 of 2007, the provisions relating to rectification could only be used to rectify a mistake which was apparent and on the face of it and could not be applied to rectify an order on which there could be conceivably two opinions or for something which could be established by long drawn reasoning on points. She further submitted that this order had subsequently been followed by the Hon Supreme Court in Mepco Industries vs CIT( 2009) 185 taxman 409 (SC) where the court had held that decision on debatable points of law could not be regarded as mistakes apparent from the record . The ld. AR further submitted that the contention of the ld. CIT DR in his order dated 3.03.2020, that the assessee had never challenged the findings of the ld. AO regarding violation of the provisions of section 13(1)(c) was clearly mistaken because the assessee had challenged the denial of exemption under section 11 and that included all the grounds on which the exemption was denied under section 11. The matters were raised before the ld. CIT(A) in the course of arguments and what was important was that the ld. CIT(A) had already rendered a decision on the matter, after considering both the provisions of the Income Tax Act and the government order dated 17.12.1999. The ld. AR submitted that the successor CIT(A) had used this as an excuse to re- visit the entire appeal order and overturned the findings of the various Hon’ble High Courts which were in the assessee’s favour and which had been relied upon by the predecessor CIT(A) and therefore, the order was bad in law and deserved to be quashed.

On the other hand, Sh. Mazhar Akram, ld. CIT DR (hereinafter referred to as the CIT DR) submitted that the findings of the ld. AO with regard to violation of section 13(1)(c) was not challenged in appeal before the ld. CIT(A) and even the written submissions filed by the assessee, which had been reproduced by the ld. CIT(A), in his order dated 28.01.2019 did not reveal that the assessee had raised the issue before the ld. CIT(A). Despite this, the ld. CIT(A) had rendered a decision in favour of the assessee without going through the material, which was a mistake apparent from the record. Therefore, he submitted that the successor CIT(A) was justified in A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 rectifying the mistake under section 154 of the I.T. Act, 1961 and denying the exemption to the assessee on that basis.

We have duly considered the facts and circumstances of the case. Ongoing through the assessment order passed for the A.Ys. 2014-15 and 2015-16, we noticed that in the assessment year 2014-15, the ld. AO has not made any allegation against the assessee with regard to the violation of section 13(1)(c) r.w.s. 13(3) of the Income Tax Act, 1961. In fact, there does not appear to be any mention in the assessment order for the assessment year 2014-15 of the U.P. Government order dated 17.12.1999, by which 2% of the plots were reserved for employees of the development authorities and 10% discount offered on the present value of the property. Thus, the reference to the U.P. Government order, as forming the basis of the findings of the ld. AO in the assessment year 2014-15 and the decision that there was in fact no such violation in the order of the ld. CIT(A) dated 22.02.2019 for the assessment year 2014-15, is quite simply a mistake apparent from the records. However, the notice under section 154, did not seek to expunge the findings in relation to issues that were not there in the assessment order, rather it sought to challenge the decision of the predecessor CIT(A) with regard the order dated 17.12.1999 vis a vis the provisions of section 13(1)(c) r.w.s. 13(3) of the I.T. Act, on the grounds that the predecessor CIT(A) had not considered the Government Order dated 17.12.1999 , which was clearly not the case, as pointed out by the Ld. AR in her submissions. Thus, the notice under section 154 was clearly not with a view to rectify any mistake that may have crept into the order of the ld. CIT(A) dated 22.02.2019, but rather to modify his findings with regard to the same. This belief is further reinforced with the fact that the ld. CIT(A) did not confine his order to the point which, in his opinion, was a mistake apparent from the record, but thereafter proceeded to analyze the eligibility of the assessee for exemption from the perspective of section 2(15) of the I.T. Act, 1961, in the light of judgments rendered by the ITAT Amritsar Bench in the case of Jammu Development Authority. While doing so, the ld. CIT(A) also proceeded to distinguish the case of the assessee from that of Lucknow Development Authority, as decided by the Hon’ble Allahabad High Court vide their order dated 16.09.2013, by placing reliance on the decision of the Hon’ble ITAT Lucknow in the case of Kanpur Development Authority vs. CIT in and A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 333/Lkw/2013 and ITAT Cochin in the case of Greater Cochin Development Authority vs. JDIT (OSD) (Exemption). The ld. CIT(A) therefore, in our view, clearly exceeded his jurisdiction in passing judgment on issues which were not even the subject matter of his notice under section 154 and which, in any case, were debatable questions of law as different Courts had held different opinions on the matter. Therefore, for the A.Y. 2014-15, we hold that the ld. CIT(A) has clearly acted beyond his jurisdiction and attempted to review the order passed by his predecessor, which is not permissible within the provisions of section 154 or even within the scope of his powers under section 250 of the Act. Accordingly the said order is held to be bad in law and accordingly quashed.

With regard to the A.Y. 2015-16, we are of the view that the ld. CIT(A) in his order dated 28.01.2019, had duly referred to the U.P. Government order dated 17.12.1999 by which reservation of plots for the employees of the development authorities had been provided. It is also apparent from his order that he has gone through the said order and also compared it with section 13(3) of the Income Tax Act, 1961 and thereafter held, that a conjoint reading of the same did not make it appear that the scheme was intended to give benefit to persons mentioned in section 13(1)(c). Thus, we hold that the view of the successor CIT(Appeal) that this U.P. Government order dated 17.12.1999 had not been considered by the learned CIT(Appeal) before granting relief to the assessee is clearly incorrect ,as is his contention that it was later found on his records. With regard to his contention that the issue was neither raised by the assessee in the grounds of appeal nor in the submissions filed before the ld. AO, we observe that the assessee had challenged the rejection of exemption under section 11 and this rejection had been done by the ld. AO on account of a number of issues, none of which had been specifically spelt out by the assessee in his grounds of appeal. Therefore, merely because there is no reference to section 13(1)(c) or section 13(3) in the grounds of appeal, does not mean that the issue was not agitated by the assessee in appeal. Similarly, the learned CIT(Appeal) in his order dated 28.01.2019 may not have recorded the specific arguments made by the assessee in oral hearing, but in view of the fact that the ld. CIT(Appeal) was deciding the issue of exemption, he was well within his rights to decide the issue of violation of section 13(1)(c) r.w.s. 13(3), which had been raised by A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 the ld. AO in the assessment order Thus, it cannot be said that the ld. CIT(A) had committed any mistake apparent from the record that would warrant interference by his successor CIT(A), by way of issue of notice under section 154 and revision of his orders in the garb of such rectification. We observe that in this assessment year also, the successor CIT(A) has not restricted himself to the so called mistake by his predecessor but thereafter, proceeded to address the entire issue of exemption with regard to the provisos to section 2(15) and the various case laws on the subject, which again were outside the purview of jurisdiction under section 154 and his own powers under section 250.

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 dated 17.12.1999, to show that the employees of the authority were only one of the many categories that had been afforded these concessions. On the issue of not filing of form 10 electronically, relevant to the assessment year 2016-17, the learned AR submitted that while Form 10 could not be filed electronically, it was filed on 23.10.2016 by registered post. A copy of the Form 10 along with the speed post receipt was furnished before us. She also invited our attention to the decisions of the Hon. Bombay High Court in the case of Shree Jain Swetamber Murtipujak Tapagachha Sangh vs CIT ( Exemptions)161 taxmann.com114 (Bombay) where filing of Form 10 beyond due date was condoned since accumulation of receipts already stood reported in Form 10B and the Hon Delhi High Court in Associated Chambers of Comm and Industry of India vs DCIT (2024) 165 taxmann.com 510(Delhi), where it had been held that the A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 electronic filing of Form 10 was a matter of procedure and was not a mandatory condition. Accordingly she prayed that the manual filing of Form 10 should not result in denial of exemption to the assessee authority. In support of her arguments, the ld. AR also filed a detailed written submission, signed by Sh Mradul Agarwal CA, which is reproduced as under:- Allowability of Exemption u/s 11 of Income-tax Act The Uttar Pradesh State Government vide section 3 of Uttar Pradesh Urban Development and Planning Act, 1973 enacted various Development Authorities all across Uttar Pradesh to tackle the problems of town planning and urban development. The appellant was incorporated vide Notification No. 4472/9 आवास 5-96-99 डीए/78 dated 26.11.1976. The objects of an Authority are defined under section 7 of Uttar Pradesh Urban Development and Planning Act, 1973 (hereinafter referred to as UPUPD Act) which reads as below: The objects of the Authority shall be promote and secure the development of the development area according to plan and for that purpose the Authority shall have the Power to acquire, hold, manage and dispose of land and other property, to carry out building, engineering, mining and other operations, to execute works in connection with the supply of water and electricity to dispose of sewage and to provide and maintain other services and amenities and generally to do anything necessary or expedient for purposes of such development and for purposes incidental thereto: Provided that save as provided in this Act nothing contained in this Act shall be construed as authorizing the disregard by the Authority of any law for the time being in force. The State Government to have control over the Authorities, firstly by virtue of section 4 of UPUPD Act appoints Chairman and Vice Charmain as its members. All other members are also ex-offico of various Government Departments/ Bodies. Further, to have deep rooted control over it every Plan (i.e., Master Plan & Zonal Plan) is required to be approved by State Government as per section 10 of UPUPD Act and Section 16 of UPUPD Act ensures the usage of land for the purpose it is acquired by the Authority by prohibiting to use it for any purpose other than the approved plan (i.e., Master Plan or Zonal Plan approved by State Government). Further through Section 41 of UPUPD Act, the State Government has ultimate control over the Authority, as State Government’s decision is final and not challengeable under any Court of law. Through Sections 55, 56 and 57 of UPUPD Act ITA Nos.273,199/Lkw/2019 A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 it has been ensured that the State Government has power to make Rules and approve Regulation and Bye Laws before their implementation. Finally, the dissolution clause defined u/s 58 of UPUPD Act, wherein it is mentioned that the State Government if satisfied the purpose for which the Authority was established under the UPUPD Act has been substantially achieved, then through a notification in the Gazette it can dissolve such Authority. It may kindly be noted that the Authority is operational as on date. Besides above provisions, to ensure that the funds of Authority do not get diverted for any purpose other than development Sub-section (2) of Section 20 of UPUPD Act has been placed which debars an Authority to apply the funds for any purpose other than meeting the expenses in administration of UPUPD Act. Therefore, by virtue of powers drawn from this Act, the State Government from time-to-time issues Government Orders which needs to be adhered by the Development Authority and this is ensured by the State Government through AG Audit every year. Few Government Orders that are enlisted below are being submitted to establish the fact that an Authority has to work within the boundaries set by the Act through which it was enacted and Government Orders issued by the State Government from time to time: Costing Guideline GO No. 4049 dated 20.11.1999 EWS & LIG Housing for low economic group having GO No. 3188 dated 05.12.2013 Guideline for disposal of Left-over Residential Properties having GO No. 4912 dated 04.11.1999 Guideline for methodology to be followed while auction of property having GO No. 378 dated 20.06.2001 Charging of Cess having GO No. 410 dated 22.03.2016. Through this GO we wish to establish that there has always been law in place to charge Cess. Through GO No. 899 dated 28.03.2013, para 2.1 it is being established that there is law in place to sell commercial properties through auction. GO No. 23 dated 06.07.2006 that land is provided free of cost for Government Schools Fee charged for vacant land vide GO No. 3192 dated 22.08.1998 Interest rate applicable for property allotted against instalment scheme vide G.O. No. 2504 dated 15.04.2008 Reservation to various sections of society on allotment of residential and commercial property vide GO No. 4982 dated 17.12.1999 Small Shops not sold through auction is being inferred through GO No. 3272 dated 11.08.2010 ITA Nos.273,199/Lkw/2019 A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 Rural Development by principle of cross subsidization, GO No. 2157 dated 22.07.2011. The costing guidelines for properties has been defined through Government Order, following which the sale consideration of a property is fixed by an Authority. The State Government has set-up a separate costing guideline for EWS and LIG properties through which a CAP limit for the sale consideration has been provided. Therefore, the properties sold under low economic group cannot be priced anything above such limit, though the cost incurred for construction of same be far more than the limit set by State Government. It would be pertinent to mention here that when a scheme is launched, out of total area covered under said scheme between 40% to 50% of such area is saleable area and out of the saleable area for residential properties, about 10%-10% of the area has to be set aside for EWS and LIG properties. Only 5% area of saleable area is allocated for commercial properties. Besides these, provisions are made for economically weaker section of society for commercial area as certain percentage has to be made available for local shops and shops for barber, vegetable vendor etc. which are disposed-off through lottery system. It is this leftover part from 5% of saleable area that is sold though auction. Furthermore, the disposal of residential properties is done by an Authority as per the Guidelines defined for the same which states that at first the properties have to be sold through lottery system and only where there is left over property, the same be sold through tender/ auction process. It may also be noted that auction procedure has also been defined by State Government. Besides this the Authority has to develop the nearby villages that are in the vicinity of development area by virtue of Government Order for overall upliftment of standard of living of General Public by using principle of cross subsidization. Therefore, from above it is clear that the Authority was constituted by the U.P. State Government and it has to work within the boundaries set by this Act and Government Orders. All the controlling powers vest with the State Government. The Authority thus cannot be said to be running for profit motive as if even, any surplus is generated, it cannot be utilized for any purpose other than the purpose for which it was enacted by virtue of section 20(2) of UPUPD Act (i.e., development of town whose jurisdiction it holds and the nearby villages on Principle of Cross- Subsidization for overall upliftment of standard of living of the general public). The Hon’ble Supreme Court vide order dated 19.10.2022 has laid down some guidelines for revenue to differentiate an ordinary GPU from a GPU charity through para 190 of its order and when it found that the same has been fulfilled by following development authorities, the SLP’s filed by revenue were dismissed through abovementioned order:

All pending applications are disposed of.” The Hon’ble Gujrat High Court while dismissing revenue’s appeal in the case of CIT(Ex) v. Gandhinagar Urban Development Authority for AY 2015-16 reported in [2022] 137 taxmann.com 504 (Gujarat) had held as under: “4. The substantial questions of law raised are no longer res integra in view of the decision of this Court in the case of Ahmedabad Urban Development Authority v. Asstt. CIT(Exemption) [2017] 83 taxmann.com 78/396 ITR 323 (Gujarat). In view of the aforesaid, present Appeal fails and is hereby dismissed.” Therefore, if the intention of Hon’ble Supreme Court was the same as put forward by the Ld. CIT(DR), the case of Gandhinagar Urban Development Authority for AY 2015-16 should have been remanded back to the file of Assessing Officer to test whether Gandhinagar Urban Development Authority fulfils the test laid by it for AY 2015-16. The Hon’ble Supreme Court in the case of CIT(Ex) v. Karnataka Industrial Area Development Board reported in [2023] 151 taxmann.com 430 (SC) dismissed the revenue’s SLP for AY 2011-12 holding as under: “2. The issue is covered by the judgment reported as "Asstt. CIT (Exemptions) v. Ahmedabad Urban Development Authority [2022] 143 taxmann.com 278/[2023] 291 Taxman 11/[2022] 449 ITR 1 (SC)/2022 SCC Online SC 1461.

The special leave petition is dismissed in the light of the judgment and the clarification.

However, the Hon’ble Court has also made a fine distinction in respect of statutory authorities, boards etc. which have been established by the State government or Central governments, for achieving essentially “public functions/services”. In such cases, the court have held that the amounts or any money whatsoever charged for the public services are prima facie to be excluded from the mischief of business or commercial receipts as their objects are essential for advancement of public purposes/ functions.” In addition to above, reliance is placed on the order of Hon’ble ITAT, Lucknow dated 24.01.2022 in the case of Lucknow Development Authority which was also enacted under UPUPD Act and all the Government Orders applicable upon it are also applicable upon us. Also, the Ld. Assessing Officer has allowed exemption u/s 11 of Income-tax Act for AY 2022-23 vide order dated 22.03.2024 after issuing a show cause notice with respect to entailing legal issue emerging from earlier years assessment orders. Further in AY 2016-17 was the first year when electronic filing of form 10 was introduced. The appellant however had filed it through post and then before the learning assessing officer during the assessment proceedings .For procedural requirement ,exemption was not granted .It is pleaded that the same may kindly be accepted and the delay condoned in the light of judgment of the Delhi High Court in Associated Chambers of Commerce and industry of India (2024) 165 Taxmann.com 510 (Delhi) Non-applicability of 13(3) of Income-tax Act The appellant Authority vide GO no. 4049/9 -आ स�म�त /1998 dated 16 / 99 - 1 - 20.11.1999 of the State Government is liable to grant discount of 10% on the A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 current value to the property once in the lifetime of employee/ officers on the payroll of a Development Authority constituted under U.P.U.D. Act, 1973. The State Government can give directions to the authority by way of G.O. by virtue of section 41 of the U.P.U.D. Act, 1973. Further, the members of the board are not employees of the Development Authority. They are either appointed by State Government directly or are ex-officio, who belongs to different departments of State Government. To corroborate the said facts, relevant portion of section 4 of Uttar Pradesh Urban Development Act, 1973 is reproduced below: “(3) The Authority in respect of a development area which includes whole or any part of a city as defined in the Uttar Pradesh Municipal Corporation Act. 1959, shall consist of the following members namely Chairman to be appointed by the State Government: Vice-Chairman to be appointed by the State Government: the Secretary to the State Government, in charge of the Department in which, for the time being, the business relating, to the Development Authorities is transferred, ex-officio:) the Secretary to the State Government in charge Of the Department of Finance, ex- officio. the Chief Town and Country Planner, Uttar Pradesh ex-officio: the Managing Director of the Jal Nigam established under the Uttar Pradesh Water Supply and Sewerage Act, 1975. ex-officio) the Mukhya Nagar Adhikari, ex-officio: the District Magistrate of every district any part of W Included in the development area ex-officio: four members to be elected by Sabhasads of the Nagar Mahapalika for the said city from amongst themselves, Provided that any such member shall cease to hold office as such as soon as he ceases to be Sabhasad of the (Municipal Corporation): such other members not exceeding three as may be nominated by the State Government.” Thus, from above it is clear that the members of the Authority are ex-officio government servants and are not employee of the appellant Authority. The appointment of employee is subject to the provisions laid for the same under section ITA Nos.273,199/Lkw/2019 A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 5 of the U. P. Urban Planning & Development Act, 1973. Hence, the employees of the Authority cannot by any stretch of imagination be construed as its member. In this regard reliance is placed on the judgement of Hon’ble High Court of Patna in the case of Commissioner of Income-tax vs. Tata Steel Charitable Trust reported in [1995] 78 TAXMAN 98 (PAT.) Headnote Section 11(1), read with sections 2(15) and 13(1)(c), of the Income-tax Act, 1961 - Charitable or religious trust - Exemption of income from property held under - Assessment years 1972-73 to 1975-76 - Assessee-trust was created by TISCO for charitable purpose in India only by giving relief to the poor, education, medical relief and advancement of any other object of general public utility not involving the carrying on of any activity for profit - Assessee claimed exemption in respect of its income on ground that the same had been applied exclusively for charitable purposes enumerated in the deed - It was found that 50 per cent of income was spent on employees of TISCO or their relations for charitable purposes - They got this benefit as ordinary members of public and not in capacity of employees - ITO rejected claim on ground that income was applied partly for charitable purpose and partly for non-charitable purpose - Tribunal held that trust was charitable trust and its income was exempt under section 11(1)(a) - Whether the purpose for which the trust had been created was a charitable purpose - Held, yes - Whether employees of author of trust fall within specified category of persons referred to in section 13(3) - Held, no - Whether application of part of income of trust for benefit of employees of TISCO and their relatives could disentitle trust from claiming exemption under section 11(1)(a) - Held, no Further, even the members of the appellant Authority cannot be equated to as manager of the appellant Authority as they do not have ultimate power. This is so because the members are appointed by State Government by virtue of section 4 of U. P. Urban Planning & Development Act, 1973 and as per section 58 of U. P. Urban Planning & Development Act, 1973 the State Government is empowered to dissolve the development authority. Further, the State Government has power to call for records of the Authority (Section 41), the budget approval is also done by State Government (Section 20), power to make Rules has been provided to State Government by Section 55 of U. P. Urban Planning & Development Act, 1973 and regulation, if made need to be approved by the State Government. Thus, from above it is clear that main powers are vested with State Government and the members of the Authority are appointed merely for managing the daily affairs of the appellant Authority. Further, the members of the Authority being ex-officio State Government employees cannot be said to have any interest whatsoever in the appellant Authority.

On the other hand, Shri. Mazhar Akram , ld. CIT DR appearing on behalf of the Revenue pointed us to para 190 of the Hon’ble Supreme Court judgment in the case of Ahmedabad Urban Development Authority and stated that the profit margin had to be identified in each case because the Hon’ble Supreme Court had said that the AO has to apply his mind to each year and each item of expenditure to determine whether the GPU charity was functioning on a cost to cost basis or whether it was having significant markup in the prices of services rendered by it. He pointed out that no law had been laid down by the Hon Supreme Court on the issue that may preclude the assessing Officer from examining the receipts in case of different asessees and different assessment years. He drew our attention to the orders passed by the Hon Supreme Court in the Miscellaneous application number 1849 of 2022 that had been filed by the Revenue in the matter of Ahmedabad Development authority. It was pointed out that in that matter the Department had sought clarification as to whether they could examine and redo assessments in accordance with the judgment and examine the eligibility on an yearly basis with reference to the facts of each case and it was submitted that the Court had clarified that its judgments were final for those assessees and in those assessment years that were in appeal before it , but for other assessment years , the revenue was free to examine the matter and apply the law declared with regard to the facts of each case . He, therefore, submitted that it was appropriate to refer the matter back to the ld. AO to re-compute the income of the assessee and re-examine the claim for eligibility in the light of the judgment of Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority (supra). With regard to the decision of the Chandigarh Bench of the Tribunal in Improvement Trust Sungrur in the ld. CIT DR submitted that in the said order, the ITAT had quoted from the case of Ahmedabad Urban Development Authority in para 83 of its order and that said paragraph itself recorded the A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 fact that the conclusions arrived at in that judgment did not preclude the authorities from scrutinizing the accounts of the assessee’s from year to year to determine whether the assessee’s were indulging in activities that amounted to, ‘Trade Commerce or Business and if so whether the thresh hold limit as laid down in proviso to section 2(15) had been breached. Thus, the said judgment did not preclude the ld. AO in the present case from examining the same, which he had done. On the issue of violation of section 13I1) (c) read with section 13(3), the learned CIT DR pointed out that the same was not covered by the Judgment of the Hon Supreme Court and he pointed out that the violation of the same rendered the assessee authority liable for rejection of exemption on grounds other than what were decided by the Supreme Court . Hence the appeal of the revenue deserved to be upheld on this count. Ld CIT (DR) pointed out that the Supreme Court order did not cover the finding that the properties and funds of the Authority would stand vested in the State Govt upon dissolution of the authority without any restrictions on the State Govt about how to use these funds. Hence for this reason also the authority was liable to lose its exemption under section 11. In support of his arguments, the ld. CIT DR submitted a detailed written submission which is reproduced as under:- “Submission on disallowance of exemption u/s 11 or 12” The appellant is not eligible for exemption u/s 11 of the Act, as charitable Trusts, on the following grounds . Point No.1 In the Ahmedabad Urban Development Authority case in para 190(iv) on page 106 of the order, the Hon'ble Supreme Court laid down "The determinative test to consider when determining whether such statutory bodies, boards, authorities, corporations, autonomous or self-governing government sponsored bodies, are "GPU category charities or not. It would be worth-while to examine the affairs of the Appellant Development Authority in light of these criteria. The following table lists the criteria entailed therein and how the Appellant parishad fares in these tests:- ,199/Lkw/2019 A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016

We have duly considered the facts and circumstances of the case, heard the rival parties and gone through the material placed on record. There is essentially only one issue to be decided in this appeal. This is whether the activities of the appellant authority constitute activities for the advancement of objects of, ‘general public utility’ thereby making it eligible for exemption under section 11 and 12 of the. The other issues that have been raised by the Assessing Officer and the ld. CIT(A) are ancillary to the main issue i.e. the denial of exemption under section 11 by holding that the appellant authority is indulging in activities in the nature of trade, commerce or business and therefore, is hit by the proviso to section 2(15) of the Act, 1961.

The question of whether a development authority can be regarded as a body indulged in objects of, ‘general public utility’ is no longer res integra after the decision of the Hon’ble Supreme Court in the case of ACIT (Exemption) vs. Ahmedabad Development Authority (2022) 143 taxman.com 278 (SC), wherein the Court in para 190 of the said order and judgment has held that bodies which carry out statutory function and whose income was eligible to be considered for exemption under section 10(20A) prior to 1.04.2003, but thereafter ceased to enjoy that benefit after deletion of that provision, are not ipso facto precluded from claiming benefit as GPU category charities under section 11 r.w.s. 2(15) of the Act. The Hon’ble Court A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 further held that Statutory Corporations, Boards, Authorities, Commissions etc., by whatever name called in the fields of housing development, town planning, industrial development sectors etc., were involved in the objects of, ‘general public utility’ and therefore were entitled to be considered as charities in the GPU categories. The Hon’ble Supreme Court also held that such Statutory Corporations, Boards, Trust, Authorities may be involved both in promoting public objects and also in the course of pursuing their objects, be involved or engaged in activities in the nature of trade, commerce or business but the determinative tests to consider whether such bodies were GPU category charities was i. whether the State or Central law or memorandum of association, Constitution advanced any GPU object (which were illustrated as development of housing, town planning, development of industrial areas or regulation of any activity in the general public interest, supply of essential goods or services-water supply, sewage service, distributing medicines, food grains etc)., ii. while carrying on of such activities to achieve such objects, the purpose for which such public GPU charity is set up – whether it is for furthering the development of a charitable object or for carrying on trade, business or commerce in relation to such trade etc,. Thus, the first issue raised by the ld. Assessing Officer and concurred with by the ld. CIT(A) viz that the activities of the appellate authority carried on as per its objects as laid down in section 7 of U.P.U.P.D.A., 1973 were not charitable activities, do not hold any water after this decision of Hon’ble Supreme Court which categorically states that statutory bodies engaged in Housing Development Term Planning etc., are involved in objects of, ‘general public utility’ and therefore, are entitled to be considered as charities in the GPU category. It is observed that the Hon’ble Allahabad High Court in the case of CIT vs. Lucknow Development Authority & others (including the assessee authority), vide its order dated 16.09.2013, has already held that the Development Authorities in appeal before it , were carrying out their activities on non-commercial lines with no motive to earn profits and therefore, would not be hit by section 2(15) of the Act, as the aims and objects of the said authorities were admittedly charitable in nature. Therefore, once the finding has been rendered by the Hon’ble Supreme Court, that the statutory bodies involved in Housing Development Town Planning etc., are involved in the objects of, ‘general public utility’ and the earlier finding of the Hon’ble Allahabad High Court, after examination of the objects of ITA Nos.273,199/Lkw/2019 A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 the authorities set up under the U.P.U.P.D.A., 1973, that their activities are charitable activities not hit by section 2(15) of the Act, the orders of the ITAT Amritsar Bench in the case of Jammu Development Authority and Jalandhar Development Authority will have no application to the facts of the assessee’s case or be a justification for the denial of exemption to it under sections 11 and 12 of the Income Tax Act, 1961.

Among the reasons cited by the ld. Assessing Officer and confirmed by the ld. CIT(A) for denial of exemption to the assessee were the observations that the assessee was generating income from the activities of the disposing of the plots, flats, shops and commercial complexes with the definite motive of profit and not charitable purposes as such profit was not incidental for by-product of the activity of the appellant, but was its main predominant purpose and there was no application of income for any charitable purpose under the terms of the object. It has also been argued that the levy of betterment charges, upon occupants of a development project and the auctioning of properties by the Development Authority constitute activities in the nature of trade, commerce and business and because the sum total of the earnings from these activities exceed the maximum amount permissible under section 2(15) of the Act, 1961, the assessee is not entitled for deduction. Many of these issues have been addressed by the Hon’ble Supreme Court in the case of ACIT (Exemption) vs. Ahmedabad Urban Development Authority (supra). In paragraph 140 of its order, the Hon’ble Supreme Court quoted from its earlier order in the case of New Delhi Municipal Corporation vs. State of Punjab (1979) 7 SCC 339, wherein the Hon’ble Court had held that unless an activity in the nature of trade and business is carried out with a profit motive, it would not be a trade or business contemplated by Clause ii of Article 289. By way of example, it had been highlighted that mere sale of Government properties, movable or immovable or granting of leases and licenses in respect of its properties, does not amount to carry on trade or business. Only where a trade or business is carried out with a profit motive – or any property is used or occupied for the purpose of carrying out such trade or business that the proviso or for that matter Clause ii of Article 289 would be attracted. From the said judgment, the Hon’ble Supreme Court observed in AUDA (supra), that the crucial and determinative element in the venture, is whether the performance of a function is actuated by a profit motive. It thereafter A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 proceeded to examine the true meaning of the expressions, ‘fee, cess or consideration’ and held that if a fee or cess or such consideration was collected for the purpose of an activity, by a State Department or entity, which is set up by a statute, its mandate to collect such amounts cannot be treated as consideration towards trade or business. It held that statutory Boards and authorities who are mandated to develop housing, industrial and other states including development of residential housing at reasonable or subsidized cost, which might entail charging higher amounts from some section of beneficiaries to cross subsidize the main activity, cannot be characterized as engaging in business. The character of, ‘State’ and such corporations or bodies set up under specific laws would therefore, not mean that the amounts are, ‘fee’ or, ‘cess’ to provide some commercial or business service. Further in paragraph 176, after considering the fact that statutory powers and corporations have to recover the cost of providing essential goods and se r vi ce s i n public interest and also fund large scale development and maintain public property, which entailed recovering charges or fees, interest and also receiving interest for holding deposits ,the Hon’ble Court held that the mere fact that these bodies have to charge amounts towards supplying of goods and articles or rendering services (including maintenance of roads, parks etc.,) ought not to be characterized as, ‘commercial receipts’ the rational for such exclusion would be that if such rates, fees, tariffs etc., determined by statutes and collected for essential services were included in the overall income as receipts as part of trade, commerce or business, the quantitative limit of 20% imposed by the second proviso to section 2(15) would be attracted, thereby negating the essential general public utility object and thus driving up the costs to be borne by the ultimate user or consumer, which is the general public. In paragraph 190 while laying out the determinative tests to consider when whether such statutory bodies are GPU category charities, the Hon’ble Supreme Court had also pointed out that rendition of service or providing any article or goods by such Boards, authority, corporation etc., on cost or nominal markup basis would not ipso facto be activities in the nature of business, trade or commerce or service in relation to such business, trade or commerce. It further held that where the controlling instrument, particularly a statute, imposes certain responsibilities or duties upon the concerned body, such as fixation of rates on predetermined statutory basis, or based on a formula regulated ITA Nos.273,199/Lkw/2019 A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 by law, or rules having the force of law, per se, the recovery of such charges, fees, interest etc., cannot be characterized as fee, cess or other consideration for engaging in activities in the nature of trade, commerce or business or for providing services in relation thereto. The Hon’ble Court further held that it merited examination to see whether the statute or controlling instrument set out the policy or scheme for how the goods and services are to be distributed; in what proportion the surpluses or profits can be permissibly garnered, are there limits within which the plot rates or costs are to be worked out, whether the function in which the body is engaged in normally something a Government or State is expected to engage in, having regard to the provisions of the Constitution and the enacted laws and the observations of the Hon’ble Supreme Court in the NDMC; whether in case surplus or gains accrued the corporation or body is permitted to distribute it, and if so only to the Government or State; the extent to the State or its instrumentalities have control over the corporation or its bodies and whether it is subject to directions by the concerned Government. The Court held that as long as the concerned statutory body, corporation, authority while actually pursuing a GPU object carries out activities that entail some trade, commerce or business which entails profit (i.e. amounts that are significantly higher than the cost) and the quantum of such receipts is within the prescribed limited (20% as mandated by second proviso to section 2(15), the concerned statutory or Government organization can be characterized as GPU charity. Therefore, in each case the authority considering granting exemption must take into account the objects of enactment or instrument concerned its underlying policy and nature of the functions and the activities of the entity claiming to be a GPU charity. If in the course of its functioning, it collects fees or any consideration that merely cover its expenditure (including administrative and other costs plus small proportion for provision), such amounts are not consideration towards trade, commerce or business or service in relation thereto, however, amounts which are significantly higher than recovery of costs have to be treated as receipts from trade, commerce or business. It is only for those amounts that the quantitative limit in proviso 2 to section 2(15) of the Act applies and for which separate books of accounts would have to be maintained under other provisions of the act.

It would be appropriate to examine the case of the assessee in the light of these A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 observations of the Hon Supreme Court in the case of Ahmedabad Development Authority (supra). The assessee has been constituted under section 4 of the Uttar Pradesh Planning & Development Act, 1973 and was notified in exercise of power under section 3 of the State Act, 1973 by the State Government by Gazette Notification dated 26.11.1996. Thus, the assessee is a, ‘statutory authority’ which was established under the 1973 State Act. The Preamble to the 1973 State Act provides that it is an act to provide for development of certain area of Uttar Pradesh according to plan and for matters ancillary thereto. The Act was enacted to tackle the problems of town planning and urban development resolutely in the developing areas of Uttar Pradesh. It recognizes that existing local bodies and authorities were not able to cope with the problems to the desired extent and hence the need was felt to create an authority in developing areas on the pattern of Delhi Development Authority. Thus, it becomes clear from the Preamble itself that the predominant object and purpose for the creation of the Moradabad Development Authority, is to tackle the problem of town planning and urban development, to have a planned and integrated development of the town within the development area, according to a plan and not otherwise. The purpose was therefore, to have a planned development and not profit making as its core objective. It is provided in section 4 of the 1973 under the U.P.U.P.D.A., 1973, that the authority shall be a body corporate having a perpetual succession with the power to, ‘acquire, hold and dispose of property both movable and immovable. Thus, the acquisition and sale of property by the authority are well within its share of activity as regulated by the Act. Section 4 of the U.P.U.P.D.A., 1973 also provides that the staff and the officers shall be appointed by the State Government namely the Chairman and Vice Chairman and ex officio Members such as the Secretary to the State Government in charge of the Department to which the business relating to the Development Authorities is interested, the Secretary to the State Government in charge of Department of Finance, the Chief Town & Country Planner, Uttar Pradesh; the Managing Director of the Uttar Pradesh Jal Nigam; the Mukhya Nagar Adhikari; the District Magistrate; 04 Members to be elected by the Sabhasads of the Nagar Palika for the said city from amongst themselves and such other Members as may be nominated by the State Government. Section 5 of the U.P.U.P.D.A., 1973 provides that the State Government may appoint the Secretary and the Chief ITA Nos.273,199/Lkw/2019 A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 Accounts Officer of the Development Authority while section 6 provides that the State Government may appoint an advisory council for the purposes of advising the authority on the preparation of the master plan and on such other matters relating to the planning of development or in connection with the administration of the said act. This clearly shows that the State Government has a deep and pervasive control over the appointment and management of the authority.

The objects of the authority have been stated in section 7 of the U.P.U.P.D.A., 1973 which are to promote and secure the development of the area, according to plan. The authority has the powers to acquire, hold, manage and dispose of land and other property, to carry on building, engineering, mining and other operations, to execute work in connection with the supply of water and electricity, to dispose of sewage and to provide and maintain other services and amenities and generally do anything necessary or expedient for the purposes of such development and for purposes incidental thereto. It has also been invested with the responsibility of providing amenities within the development area falling within its jurisdiction which include road, water supply, street lighting, drainage, sewerage, public works and other conveniences, as per section 2A of the Act. Section 8 of the Act provides that the authority shall prepare a master plan for the development of the area and section 9 provides for development area for each zone, which is defined under the master plan prepared under section 8. Section 10 provides for the approval of the master plan and general development plans by the State Government. Under section 15 of the Act provides that the authority is vested with powers to levy fees, for granting permission to any person or body to carry out development of land, once the area is declared as the development area falling within the jurisdiction of the development authority. It is vested with the power to levy development fees, mutation charges, staking fees and water fees in such manner at such rates as may be prescribed. Section 16 of the Act empowers the authority to dispose of the land acquired by the State Government under the Land Acquisition Act for achieving the objects of planned and regulated development of the development area falling within its jurisdiction. Section 20(2) of the Act provides that the funds of the authority shall be meeting the expenses A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 incurred by the authority in the administration of the U.P.U.P.D.A., 1973 and for no other purpose. Section 22 of the Act provides that the accounts of the authority shall be subject to audit annually by the examiner local funds accounts however, State Government may also entrust the audit to the Accountant General, Uttar Pradesh or to the Comptroller & Auditor General of India or any other auditor. Section 23 provides that authority shall prepare an annual report of its activities and submit the same to the State Government for placing the same before both Houses of Legislature. Section 41 relates to control by the State Government and states that the authority, Chairman and Vice Chairman shall carry out such directions as may be issued to it from time to time by the State Government for the efficient administration of this Act and that every order of the State Government made in exercise of such powers would be final. Section 55 deals with the Power of the Govt to make rules and Section 58 gives the Govt the Power to dissolve the authority once its objectives have been met Thus, it is clear from the provisions of the statute under which the appellant authority is constituted that the appellant authority meets the tests laid down by the Hon’ble Supreme Court in that, it is a body that is under a deep and pervasive control of the State Government; that it has been granted the power to acquire and dispose of lands etc as part of its overall objective of planned development or development areas; the fees and charges levied by the authority are levied in such manner and in such rates that have been prescribed under the Act. The Ld AR has brought on record several Govt orders regarding the manner of valuation of properties , the allotment of residential properties by lottery in the first instance and only thereafter by auction, the setting aside of a percentage of properties for accommodation of EWS and LIG categories and the placement of a pricing cap on their cost , the methodology to be adopted for auction of commercial properties and providing of properties for public utilities at concessional rates or at no cost other than payment of annual fees - to demonstrate that firstly, the pricing policy of these properties is determined by the Government keeping in mind the overall objectives of the authority and secondly that these are levied in the manner prescribed under the U.P.U.P.D.A. 1973 and the Govt notifications issued therein. The fact that the appellant authority has been constituted for the specific purpose of planned development, and not for profit is evidenced both from the provisions of the Act under which it is ITA Nos.273,199/Lkw/2019 A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 constituted, as also from the fact that the funds of the authority may not be utilized for any purpose other than the expenses incurred by the authority in the administration of the U.P.U.P.D.A., 1973. Furthermore, as per section 58 of the Act, upon dissolution of the authority, such funds as are left over with the authority would be transferred to the State Government for the specific purpose of carrying out development which has not been fully carried out by the Authority. Thus, the authority seems to satisfy the test laid down by the Hon’ble Supreme Court in AUDA, that it is a general public utility charity and there is no merit in the observation of the ld. Assessing Officer or the ld. CIT(A) that the sale and purchase of land renders it a commercial organization, because the same are seen to be done for furtherance of its objectives of ensuring planned development of its development area and neither the ld. Assessing Officer nor the ld. CIT(A) have brought on record any facts that would suggest that these sales and purchases take place with a huge markup or at rates other than what have been prescribed under the UPUPDA 1973 or the Govt Orders issued under that Act, that may render it ineligible for being regarded as a GPU charity that is eligible for exemption under section 11.

Both, the AO and the ld. CIT(A) have highlighted the issue of auction of properties by the development authority to opine that because of such auctions, the development authority is charging much more than the cost for the sale of such properties. It is observed that the issue has been addressed by the Hon’ble Supreme Court itself in the case of Ahmedabad Urban Development Authority wherein the Hon’ble Supreme Court has held in para 144 that statutory Boards and authorities who are under mandate to develop housing, industrial and other state, including development of residential housing at reasonable and subsidized cost, which might entail some sections of beneficiaries, to cross subsidize the main activity cannot be characterized as engaging in business. The character of being, “State” and such Corporations or bodies set up under specific laws, (whether by States or Centre) would therefore, not mean that the amounts, ‘fee’ or ‘cess’ to provide some commercial or business service. Thus the Hon’ble Court has accounted for the fact that certain services may be provided at a slightly higher rate, in order to cross subsidize other activities performed by the development authority. The Learned AR has taken us through various Govt. Orders relating to valuation of properties and their auction. It is observed that in the A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 first instance, the residential properties are offered by way of lottery and it is only the unsold units that are then put up for auction. With Regard to commercial properties, which constitute only 5% of the properties sold by the authority, the State Govt. has both laid down model guidelines for the valuation of properties and outlined a scheme for the auction of properties, which all authorities are bound to follow. It is also observed that with relation to some priority areas such as information technology establishments, public utilities and large industrial undertakings, the reserve price is fixed at concessional rates and these concessions are to be provided on the basis of cross subsidization from receipts of commercial establishments, Offices and group housing schemes. It is also observed that authorities are enjoined to develop the neighboring rural areas to lessen the rural urban divide and that such schemes are also the result of cross subsidization. Furthermore , the question of whether this, ‘higher rate’ charged from commercial establishments amounts to maximization of profits converting the said receipts into commercial receipts, has been addressed by the Hon’ble Varanasi Circuit Bench in the case of M/s Varanasi Development Authority vs. ACIT, Circle-3, Varanasi in 265, 266 & 267/Alld/2017. The Hon’ble Tribunal has pointed out that the process of allocation by State or (State instrumentalities) of natural resources through the process of public auction brings in transparency and efficiency in the entire allocation process and is considered to be the most efficient and transparent process for allocation of natural resources. The process of allocation of natural resources leads to an efficient and transparent method for price discovery of the natural resources being allocated by the State, so that there is no allegation of bias and malafide, and chances of manipulation and distribution of resources at throw away prices is avoided. The Hon’ble circuit Bench, Varanasi drew reference to the decision of the Hon’ble Supreme Court in the 2G Telecom case and the subsequent Presidential reference – special reference no. 1 of 2012 under article 143(1) of the Constitution of India (2012) 9 SCR 31111. Accordingly, the Varanasi Circuit Bench held that merely because the assessee had adopted a method of selling through public auction, it could not be said that the assessee was profiteering and was a commercial enterprise de hors the vast and onerous responsibilities cast upon the assessee under the 1973 State Act, to have planned development of the development area falling within his jurisdiction. We are in complete agreement with views the Hon’ble Varanasi ITA Nos.273,199/Lkw/2019 A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 Circuit Bench. Till such time as the AO can bring on record evidence to show that such public auction generated for the development authority, a far higher cost than the market value of the properties that were sold, it cannot be said that the disposal of the assets through public auction amounts to maximization of profits. Rather it has to be held that it provides for price discovery in a transparent manner. It may not be out of place that section 18(2) of the UPUPDA, 1973 specifically prohibits the authority to dispose of any land by way of gift and specifies that any references to the disposal of land in the said act would be construed as references to disposal by way of sale, exchange, lease or creation of any rights on the land. Accordingly, we are not in a agreement with the ld. AO and the ld. CIT(A) that the assessee authority is a commercial agency on this account.

Similarly another issue that has been raised by the authorities below to hold that the assessee is not a charitable organization but one functioning on market principle is the issue of, ‘betterment charge’. We find that the matter has been also been considered by the Varanasi Circuit Bench in its order dated 6.07.2022. The Varanasi Circuit Bench has pointed out that these charges are levied under the authority of section 35 of the 1973 State Act and that they are levied only in situations where, in the opinion of the authority, as in consequence of any development scheme having been executed by the authority in any development area, the value of any property in that area which has been benefited by the development, has increased or will increase. In such circumstances, the authority is authorized to levy upon the owner of the property or any person having an interest therein, a betterment charge in respect of the increase in value of the property resulting from the execution of the development. From this, the Hon’ble Varanasi Circuit Bench concluded that there was a quid pro quo and only where the value of the property had been benefited by some development undertaken by the authority was a betterment charge levied. The Circuit Bench, Varanasi also held that to carry out the administration of vast and onerous responsibilities cast upon the authority by virtue of 1973 State Act to have planned development of the development area, and to provide various amenities, the authority has to raise funds from various sources to fulfill its responsibilities and to make itself self-sustainable and recovery of such betterment charges would not render the authority to implicate commercial enterprise. Most importantly, the Varanasi Circuit Bench pointed out that there are cost associated with A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 implementation of any particular development scheme which is to be incurred by the authority, and if the said costs are recouped from the property owners of that area, it could not make the authority a commercial enterprise existing for profits, even some surplus is generated on that count, as section 20(2) of the 1973 State Act mandates that the authority was bound to apply its funds towards meeting the expenses incurred by the authority in the administration of this Act and for no other purpose. We are in complete agreement with our Ld. Brothers that the levy of betterment charges has to be viewed as a means of recovery of costs towards execution of development in a particular area and since the surplus, if any, generated from the said levy is required to be applied towards the objectives of the authority, as per the provisions of section 20(2) of the U.P.U.P.D.A., 1973, the view of the ld. Assessing Officer and the ld. CIT(A) that this would confer a commercial nature on the development authority is not concurred with. Furthermore, as the power to levy betterment charges arise out of section 35 of the Act and the process of assessment of such betterment charges are laid down in section 36 of the Act, following the judgment of the Hon’ble Supreme Court in the case of AUDA (supra), such charges cannot be held to be fee or a cess and thereby taken into consideration for computation of receipts from commercial activities.

The ld. Assessing Officer and the ld. CIT(A) have also held as one of the justifications for denying the benefit of exemption relief to the authority, their belief that the authority was not complying with the test laid down by the Hon’ble Supreme Court in the case of CIT vs. Andhra Pradesh State Road Transport Corporation reported in (1986) 159 ITR 1 (SC), in view of the provisions of section 58 of the U.P.U.P.D.A., 1973 which held that upon dissolution of the authority, the funds of the authority of the authority would vest to the State Government and the State Government was free to apply it in any manner that it chose. However, a plain reading of section 58 does not bear out this belief of the ld. Assessing Officer and ld. CIT(A) for the reason that they have omitted to consider the provisions of sub section (d) of section 58 which state the purposes for which the properties, funds, dues, liabilities, lands etc., vested in, realizable, enforceable against, or placed at the disposal of the authority shall vest in the State Government, ‘for the purpose of carrying out any development which has not been fully carried out by the authority and A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 for the purpose of realizing funds, properties and dues referred to in Clause (a), the functions of the authority shall be discharged by the State Government’. For this essentially means that the funds of the authority on its dissolution will vest in the State Government for the specific purpose of carrying out development which has not been carried out by the authority and the functions of the authority will be performed by the Government. Thus, to hold that there is no restriction on the Government in the way the funds of the authority are applied, is an incorrect assumption, not borne out by a plain reading of the law.

It is also seen that in the assessment year 2015-16 ,the ld. Assessing Officer has observed that the assessee violated the provisions of section 13 of the Act by allowing some rebate towards employees and reservation of some plots for its employees. The ld. CIT(A) while considering the matter in his orders for the Assessment year 2016-17, has pointed out to the judgments of Hon’ble Patna High Court in the case of Buddha Vikas Samiti vs. CIT 199 taxman 395 Patna and the Hon’ble Supreme Court in the case of Noida Entrepreneurs Association vs. Noida & Others in WP (Civil) No. 150 of 1997. In consideration of their orders, we find that the Hon’ble Lucknow Bench of the ITAT has dealt with this issue in its order of Lucknow Development Authority, dated 10.03.2022 in 186, 163, 164, 439/Lkw/2019, which we have already discussed earlier and relying upon the decision of the Hon’ble Patna High Court in the case of CIT vs. Tata Steel Charitable Trust 78 taxman 98 (Pat) dated 7.01.1993 in which the Hon’ble High Court had held that the employees of the author of the trust do not fall in the specified category of persons referred to in section 13(3) of the Act and held that the application of part of the income of the trust for the benefit of the employees of TISCO and their relatives could not disentitle the trust from claiming exemption, under section 11(1)(a), the Hon Lucknow Bench had held that the Govt order in question did not result in violation of section 13(1)(c) read with section 13(3) ." The Hon’ble Lucknow Bench, thereafter, distinguished the case laws relied upon by the Revenue among which one was that of Noida Entrepreneurs Association, which has also been relied upon by the ld. CIT(A) in this case. The Hon’ble Lucknow Bench held that the said case law was not applicable to the facts of the appellant authority because in the case of Noida Entrepreneurs Association, a CBI enquiry had been enquiry had been conducted into gross violation of the funds of the assessee which was not there in the A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 case of Lucknow Development Authority, therefore, the said case law could not be applied to the facts of the assessee’s case. We are in complete agreement with the view expressed by our ld. Brothers on the aforesaid matter as pointed out by the Hon’ble Patna High Court in CIT vs. Tata Steel Charitable Trust (supra), the employees of the development authority do not fall in the specified category of persons referred to in section 13(3) of the Act. The decision of the Hon’ble Supreme Court in the case of Noida Entrepreneurs Association vs. Noida & Others (supra), would also not apply because the said judgment related to passing of colourable orders by the CEO to favour himself and certain contractors. The rebate and reservation allowed to the employees of the appellate authority, are not on account of any colourable exercise of power by the Managers of the authority, but on account of implementation of a Government Order, hence the facts of the case being entirely different, the case of Noida Entrepreneurs Association vs. Noida & Others (supra) cannot be relied upon to withdraw the exemption from the assessee authority. Similarly, it is observed that in the case of Buddha Vikas Samiti vs. CIT (supra), the appellant had utilized the form and organization of the trust to confer benefits on members of the family who were the trustees in violation of the parameters of the Act and the objectives of the trust whereas the instant case, the concessions have been allowed to the employees as a part of Government policy. Hence, there cannot be any comparison between the two situations. Moreover, looking in detail through the said Government Order which has been scanned and reproduced by the ld. Assessing Officer in the assessment order for assessment year 2015-16, it is observed that the reservation of plots is not confined to the employee of the development authorities but is provided to them among many other categories such as Scheduled Castes, Scheduled Tribes, Other Backward Classes, MPs, MLAs, Freedom Fighter, Government Employees, Defense Services Employees above 50 years of age, handicapped persons, ex-serviceman and their dependents, employees of U.P. Housing Board, Water Board, Municipal Corporation etc,. Therefore, the said Government Order must be viewed as a social welfare measure for a broad category of citizens and not as an order to confer benefit on the employees of the authority in violation of the provisions of section 13(3) of the Act. Furthermore, the said Government Order, in fact, shows that the process of allotment and pricing of land to be based on social rather than commercial consideration, which would further buttress ITA Nos.273,199/Lkw/2019 A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 the argument that the objective of such sale is not the maximization of profit. Hence, we are not able to agree with the ld. CIT(A) or the ld. Assessing Officer that the exemption to the development authority should be denied on this account.

Another issue that has been raised by the learned CIT(DR) is the non-filing of form 10 and the Learned AR has responded that the same was duly filed by post in the Assessment Year 2016- 17 and in view of the judgment of the Hon Delhi High Court in the case of Associated chambers of commerce(supra) where the same has been held to be a procedural matter not a mandatory condition forming part of substantive law and the judgment of the Hon Bombay High Court in the case of Shree Jain Swetamber Murtipujak Tapagachha Sangh that condoned the delay in the filing of the same , it was prayed that since the delay was unintentional, it may be condoned and the exemption not denied on this count . We have perused the order of the learned AO and the Learned CIT(A) and we do not observe that the AO or the CIT(A) have formally invoked the delay in filing of form 10 as a ground to deny the exemption, though the AO did issue a show cause notice in this regard . Be that as it may, we observe that the courts have held that 2016-17 being the first year of electronic filing there were glitches in the portal and unfamiliarity with the process and for this reason the CBDT had issued a circular permitting Commissioners to accept forms filed belatedly, and since this was a procedural matter that could not be held to be substantive law and delays were unintentional, exemption should not be denied on this count. Accordingly, after considering that the assessee had manually filed the form on 17.10.2016 giving details of its intention to accumulate, and the fact of accumulation or investment in specified modes is not doubted, we hold that the exemption under section 11 could not be denied on this count.

Finally, even while we have already observed that with the decision of the Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority (supra), the issue of whether the activities of a statutory corporation or body entrusted with housing, development town planning etc., constituted an activity of general public utility is no res integra, it bares merit to point out that the Hon’ble Allahabad High Court in its order in the case of Lucknow Development Authority vs. CIT (supra) and others dated 16.9.2013 had, held that the objects of the assessee society were admittedly charitable and therefore registration under section 12A could not be A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 denied to it . The Hon’ble Allahabad High Court, being the jurisdictional High Court, there was no justification for the authorities below to draw cue from the judgments of the Hon’ble Jammu & Kashmir High Court and the Amritsar Bench of the ITAT to hold that the objects and the activities of the society were not for charitable purposes. Be that as it may, as the matter has been settled by the decision of Hon’ble Supreme Court, the decision to deny the exemption to the appellate authority on account of the judgments of the ITAT, Amritsar Bench, in Jammu Development Authority, Jalandhar Development and Jammu & Kashmir High Court in Jammu Development Authority cannot be upheld.

In summation, it was observed that the development authority is constituted under a statute with the objective of developing the development area allotted to it and it’s empowered to indulge in various activities such as buying, selling, leasing etc., in order to further its objectives. There is nothing on record to suggest that it has been charging exorbitant amounts from the general citizens for the services that it provides. In fact, it is seen that the pricing and allotment mechanisms are controlled by the statute under which it has been established. It is also seen that it is under deep and pervasive control of the Government in various ways and is obliged to apply of its earnings towards the objectives for which it has been set up. Thus going by the test laid down by the Hon’ble Supreme Court in Ahmedabad Urban Development Authority (supra), the amounts that it charges for services cannot be considered as, ‘fee’ or ‘cess’ or business receipts for the purpose of quantifying the limits under section 2 (15). We have duly noted the submissions of the learned CIT DR that the Hon Supreme Court has pointed out that its’ decision was final in respect of those assessees that were in appeal before it for the relevant assessment years, but Assessing officers were free to apply the law laid down on the given facts of the case in other cases and other assessment years. However we note that the Hon Court has quite categorically pointed out in sub para (d) of Para 190 that in the case of statutory corporations or bodies, where rates are fixed on a pre-determined statutory basis or based on formulae regulated by law or rules having the force of law and where money is invested in deposits or govt securities then any such receipts as laid down in sub para (d) of Para 190 of the said order cannot be characterized as “ fee, cess or other consideration” for the purposes of computing the threshold under the provisos to section 2(15). ,199/Lkw/2019 A.Ys. 2014-15 & 2015-16 1072, 1073/Del/2020 A.Ys. 2014-15 to 2016-17 Therefore it is clear that in terms of the orders of the Hon Court, such receipts that are provided for in the statute, or in the rules and Govt orders framed under the powers granted to the State Govt under the statute, cannot be considered as “fee, cess or other consideration” for the purposes of computing the thresh hold of section 2(15). We observe that, the Assessing Officer or the CIT(appeals) or even the Ld CIT(DR), have not till now brought on record any single instance of profiteering activity or pricing outside the ambit of the statute or the Govt orders issued thereunder, while we have observed that valuations and pricing by the authorities are guided by Govt Orders, issued under the Act and instances of cross subsidization as envisaged in para 144 of the AUDA order, have been brought on record. In the facts and circumstances of the case , going by the test laid down by the Hon’ble Supreme Court in Ahmedabad Urban Development Authority (supra), that the amounts that it charges for services cannot be considered as, ‘fee’ or ‘cess’ or business receipts for the purpose of quantifying the limits under section 2 (15), therefore, we hold that the assessee authority must be held as a general public utility charity within the mandate of the judgment of the Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority (supra) and in view of the same, it is held that the denial of exemption under section 11 is not justified and the additions made by the ld. Assessing Officer on account of the surplus in the income and expenditure account are not sustainable. Accordingly they are deleted. Resultantly the assessee’s appeal in assessment year 2016-17 is allowed , while the Departments appeals in Assessment Years 2014-15 and 2015 -16 are dismissed.