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

The brief facts of the case (for A.Y. 2012-13) are that the assessee filed a return of income in ITR 7 on 30.09.2012 declaring nil income. The case of the assessee was selected for scrutiny and statutory notices were issued by the ld. AO. The main question that was addressed by the ld. AO, was with regard to the claim of the assessee for grant of exemption under section 11 of the Income Tax Act, 1961. The assessee is registered under section 12A of the Income Tax Act. It was formed for the development of the twin cities of Ayodhya and Faizabad by the Government of Uttar Pradesh on 26.12.1996, under the provisions of the Uttar Pradesh Urban Planning and Development Act, 1973. The ld. AO observed that the objects of the authority, as defined in section 7 of the Uttar Pradesh Urban Planning and Development Act, 1973 (hereinafter known as the U.P.U.P.D.A. 1973) under which it is constituted, were , “to promote and secure the development of the development area according to a plan and for that purpose to have the power to acquire, hold, manage and dispose of land and other property; to carry out building, engineering; mining and other operations; to dispose of sewage and to provide and maintain other services and amenities and generally to do anything necessary or incur expenditure for such purposes and for purposes incidental thereto”. The learned AO observed that in the Uttar Pradesh Urban Planning & Development Act, 1973, words like charity or charitable, poor, economically weaker, subsidy / subsidized, assistance, upliftment were not mentioned. From this he concluded that a perusal of the said Act showed that it was never intended by the State Government, that the Ayodhya Development Authority be a charitable organization, in that it was formed with the sole objective of ensuring the development of Ayodhya-Faizabad, in accordance with a plan. The AO also quoted from section 58 of the U.P.U.P.D.A. 1973, to demonstrate that on dissolution of the Ayodhya Development Authority, all the properties, funds and dues which were vested, or realizable by the authority, would vest in or be realizable by the State Government and he opined, that it was the discretion of the State Government to apply it for any purpose it may deem fit. He expressed the apprehension, that the funds generated during the so-called charitable purpose period may later be utilized for the purposes of business. Therefore, the transfer was not an irrevocable transfer, which was meant exclusively for charitable purposes. The AO observed that the transfers of assets are revocable and sections 11 and 12 of the Income Tax Act, 1961 would not apply. The ld. AO further observed that for the creation of a valid trust, transfer of assets for charitable purposes should be irrevocable, which condition was not being fulfilled in the case of the Ayodhya-Faizabad Development Authority. The AO also observed that the assessee was neither in the field of education, nor in the field of medical relief of poor and held that, at the most, after seeing the objects and activities carried out by the assessee, it could be considered that the assessee was falling within the scope of, “general public utility” as per section 2(15) of the Income Tax Act, 1961.

The ld. AO further observed that the activities of the assessee were in the nature of real estate business and the provisions of the first proviso to section 2(15) of the Income Tax Act, 1961 were applicable to its case. He, therefore, asked the assessee as to why the claim of exemption under section 11 of the Income Tax Act, 1961 should not be disallowed and why the net profit shown in its profit not be brought to tax. In response, the assessee submitted that its activities were of charitable nature and the first proviso to section 2(15), was not applicable in its case because its aims were the coordinated and planned development of the historical cities of Ayodhya and Faizabad. It further relied on the judgment of the Hon’ble Allahabad High Court dated 16.09.2013 in its own case, where the Hon’ble Allahabad High Court had ruled in its favour and held it to be a charitable entity, not covered under the provisions of section 2(15).

The ld. AO was not satisfied with the replies submitted by the assessee. He observed that on 27.04.2014, the Hon’ble Supreme Court had rejected the SLP of the assessee authority in the case of M/s Jammu Development Authority, in which case the ld. CIT, by order under section 12AA (3) of the Act had withdrawn the registration under section 12AA of the Act, which had earlier been granted to the authority. Aggrieved with such withdrawal, the assessee had filed an appeal before the Hon’ble ITAT, Amritsar Bench. In their judgment dated 14.06.2012, the Tribunal had dismissed the appeal of the assessee and upheld the order of the learned CIT, Jammu. Aggrieved, the assessee had filed an appeal before the High Court of Jammu & Kashmir and the Hon’ble High Court had dismissed the assessee’s appeals, holding that the proviso which had been added by the Finance Act, 2008 w.e.f. 1.04.2009, stipulates that the advancement of any other object of general public utility would not be a charitable purpose, if it involved carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. The Hon’ble High Court had accordingly held, that no question of law emerged for the impugned orders of the ITAT, warranting admission of the appeal. The ld. AO further pointed out that aggrieved with the order of the Hon’ble High Court, the assessee had filed a Special Leave Petition before the Hon’ble Supreme Court, which had been dismissed vide order dated 24.07.2014.

Thereafter, the ld. AO observed that the Hon’ble Allahabad High Court, vide its order dated 16.09.2013, in respect of several parties of which the assessee was one, had decided the appeal in favour of the assessee. On the other hand, the Hon’ble Supreme Court had dismissed the SLP of the assessee in the case of Jammu Development Authority. In view of the legal conflict between the two judgments, the ld. AO made a reference to the Additional CIT(Exemptions) Lucknow under section 144A of the Act and directions were sought with regard to the decision to be taken on the issue of allowability of exemption under section 11 and applicability of the first proviso to section 2(15) of the Act in view of this apparent conflict of decisions of the two courts. The ld. Addl CIT (E) issued directions under section 144A in which it was stated as under:- “Going through section 2(15), it is obvious that carrying of any activities for charitable purposes is the back bone for allowability of exemption under section 11. Charitable purpose includes relief of the poor, education, medical relief, preservation of environment and the advancement of any other object of general public utility. At the same time, any trust/institution’s business activities having receipts more than Rs.25 Lacs is beyond the purview of allowability of exemption under section 11, in spite of working for the advancement of general public utility. The above development authorities work like private developers and provide all facilities like private developers with a view to attract investors, so that they can earn more.

Thereafter, the ld. AO quoted extensively from the judgment of the Hon’ble ITAT in the case of Jammu Development Authority, in which the ld. Tribunal had held that after the insertion of these provisos to section 2(15) of the Act, the advancement of any other object of general public utility could not be considered a, ‘charitable purpose’, if it involved the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to trade, commerce or business for a cess or fee or any other consideration, irrespective of the nature of use or application or retention of income from such activity. Therefore, it had held that any institution / trust / society which was involved in such activities and receiving aggregate value of more than Rs. 10,00,000/- from such activities, would not be eligible to continue with registration under section 12A. The Hon’ble Tribunal had further held that the activities of the assessee were aimed at earning profit, as it was carrying out an activity in the nature of trade, commerce or business and that profit making by the assessee was not merely incidental or bye product of its activities. It had held that there was no real object of the assessee and there was no spending of income exclusively for the purposes of charitable activities and there was no obligation on the part of the assessee to spend on charitable purposes only. The Hon’ble Tribunal had also concurred with the view of the ld. CIT(A), that on the dissolution of the authority, all properties, funds, dues and liabilities would vest in the Government and there was no restriction on how the same were to be utilized by the Government. It had also pointed out, that there were other objects like sale and purchase, which made the authority a commercial organization. It therefore, held that the objects pursued by the assessee could not be said to be charitable in nature and therefore, the Jammu Development Authority was an authority established with the motive of profit and the activities of such authority were hit by section 2(15) of the Act read with first and second proviso. It, therefore upheld the decision of the ld. CIT, Jammu to cancel the registration of the said authority.

The Ld. AO also referred to an earlier order by the ITAT, Amritsar Bench in the case of Jalandhar Development Authority, in which the Hon’ble ITAT had held that a charitable institution provides services for charitable purposes free of cost and not for a gain, but the Jalandhar Development Authority was performing activities similar to big colonizers / developers who were earning a huge profit. The Hon’ble Tribunal had held that the assessee authority had turned into a huge profit-making agency and that even for creating / developing institutions of public importance, the assessee was charging the cost of it from the public at large and from the coffers of the Government. It further observed, that the development of facilities by the authority were merely a means of attracting people for purchase of plots and the costs for development of the facilities were hidden in the costs of the plots. It further opined that similar development / infrastructure / facilities were also provided by private developers these days and were incidental to the commercial activity, as they were not only a basic requirement but a tool for attracting investors, wherein the hidden cost of those facilities were already included. The Hon’ble ITAT had observed that the objects of the assessee, though claimed to be charitable, were actually of a purely commercial nature where the profit motive was involved because the assessee was acquiring land at very low prices and selling the same land on much higher rates and earning a profit therefrom. It highlighted the new trend of auctioning plots by way of bidding and charging of interest on belated payments, to state that no charity was involved in such activities but rather the assessee had converted itself into a big businessmen. Therefore, it held that the application of registration under section 12A had rightly been rejected by the ld. CIT in the case of M/s Jalandhar Development Authority.

The Assessing Officer also quoted further from the order of the Hon’ble ITAT in the case of M/s Jammu Development Authority where the Tribunal had analyzed the provisions relating to the distribution of assets of the authority, in the light of the decision of the Hon’ble Supreme Court in the case of CIT vs. Surat Art Silk Cloth Manufacturers Association (1997) 121 ITR and CIT vs. Andhra Pradesh State Road Transport Corporation (1986) 159 ITR 1 and pointed out, that the Hon’ble ITAT had held that since there was no restriction as to the utilization of left over properties for charitable purposes, the authority had failed the test laid down by the Hon’ble Supreme Court in the above cases and therefore, it could not be termed as a charitable organization within the meaning of section 2(15) of the Act. From the same, the ld. AO concluded that the activities of the Ayodhya-Faizabad Development Authority could not be said to be charitable in nature. He held that the assessee authority was involved in the activity of trade/commerce/business and as such was hit by the provisions of the first proviso to section 2(15) of the Act. Hence, he rejected the assessee’s claim of exemption under section 11 of the Act and assessed its income under the head, ‘profits and gains from business and profession’. The net surplus disclosed by the assessee of Rs.2,24,59,203/- in the income and expenditure account was therefore added to the total income of the assessee and penalty proceedings under section 271(1)(c) were initiated.

Moving on further, the ld. AO observed that the assessee had transferred funds to the infrastructure development fund. However, it had not included these receipts in its income for the year. The assessee had transferred the amounts to the infrastructure development fund in its balance-sheet, which according to the ld. AO was against normal accounting principle. Furthermore, since he had already denied the assessee’s claim of exemption under section 11, the receipts of the infrastructure development fund of Rs.92,10,505/-, was treated to be the income of the assessee and was accordingly added back. The ld. AO further observed that during the year, the assessee had received a grant of Rs.8,68,50,000/- under the head, ‘tourism development grant-U.P.’. However, the assessee had not included these receipts in its income for the year, but had directly transferred the amount to the balance-sheet, which was against normal accounting principles. Since, he had already denied the assessee’s claim for exemption under section 11, the ld. AO decided to treat the grant of Rs.8,68,50,000/-, as the income of the assessee, and it was accordingly added back to the income of the assessee. Finally, the ld. AO observed, that during the year the assessee had debited Rs.1,06,11,658/- to the head, prior period expenses. The assessee had failed to justify the inclusion of this amount in the expenses for the current year and since in his view, this was not an allowable expenditure, he added the same back to the income of the assessee. Accordingly, the income of the assessee was computed at Rs.12,91,31,370/- and it was assessed on this total income.

In his order for the assessment year 2015-16, the ld. AO also drew reference to a U.P. Government order dated 7.12.1999 in which there was reservation of 2% to the employees of the development authorities, in respect of the allotment of residential and commercial properties. He held that the employees of the development authorities also included persons specified in section 13(3) of the Income Tax Act, 1961. Hence, he held that the exemption under section 11 was not allowable to this assessee for this reason also. Reproducing the order dated 17.12.2019 in his assessment order, he also observed that the development authorities were giving a 10% discount on the present value of the property allotted to the employees of the development authority. Since, it was his view that the employees of the development authority were persons covered under section 13(3) of the Income Tax Act, 1961, he concluded that the activities of the assessee could not be said to be charitable in nature, because of such concessions allowed to the employees. Accordingly, he decided to deny the exemption under section 11, on this ground also.

It is also pertinent to mention that during the assessment for the assessment year 2015-16, the assessee moved an application under section 144A before the JCIT(Exemption), Lucknow relying upon the case laws in of 2017 in the case of CIT(E) vs. Moradabad Development Authority and CIT(E) vs. Yamuna Expressway Industrial Development Authority, but the ld. JCIT(Exemption) issued a direction to the ld. AO, to take a decision as per law and directions /circulars issued by the CBDT regarding matters where SLP was filed /processed/accepted before the Hon’ble Supreme Court on an issue where the Hon’ble High Court had decided a similar issue against the Revenue, and in pursuance of these directions the ld. AO declined to accept the ratio of these judgments quoted by the assessee, on the grounds that the Department had either filed SLPs or had recommended SLPs against these decisions, which were pending for consideration.

In his order for the assessment year 2017-18 ,the ld. AO observed that the assessee had generated income from rent received from guest houses, community centres and convention centres, which were let out for various functions. He held that this was a separate income of the assessee and was a commercial activity to derive the maximum profit from the asset owned by the assessee. It was not an income incidental to the business activity of the assessee, because the assessee had no byelaws and it had submitted that its main activity was developing plots and making flats. The ld. AO also referred to the provisions of sub section 4A of section 11 and pointed out that as per the same, this sub section stated that first of all, the business needed to be incidental to the attainment of the objectives of the trust or institution and that separate books of accounts needed to be maintained by such trust / institution for availing the benefits, but rental income was not incidental to the attainment of the objects of the trust / institution and separate books had not been maintained for it. He, therefore, held that on this account also, it was not eligible for exemption under section 11. On the issue of the Government Order dated 20.11.1999 giving concessions to the officers and employees of the authorities in price and allotment, he quoted from the orders of the Hon’ble Supreme Court in the case of Noida Entrepreneurs Association vs. Noida in 2011 W.P. (Civil) No.150 of 1997 to show that there was no legal sanction for the said Govt Order and there was no mention in the said order regarding from where they were deriving the strength to issue this order. Therefore, he held that decision had no backing of any rule or law. It was arbitrary and not touching the corner stone of article 14 of the Constitution and because of this order, since the assessee did not remain a public trust but rather was one in violation of section 13(3) of the Act, the claim made by the assessee under section 11 was not maintainable. The ld. AO also made additions on account of depreciation claimed of Rs. 31,53,656/- as per the provisions of section 11(6). The issues of rental income and violation of section 13(3) were also raised in the assessment for the assessment year 2017-18.

Aggrieved by the rejection of its claim for exemption in all these assessment orders, the assessee went in appeal to the ld. CIT(A). Before the ld. CIT(A), it was submitted that the assessee authority was constituted under the Uttar Pradesh Urban Planning and Development Act, 1973 solely for the planned development of twin cities of Ayodhya and Faizabad. It was submitted that the assessee on the basis of objects contained in section 7 of the U.P.U.P.D.A. 1973 had applied for registration under section 12A and that these activities were examined at different appellate levels, after which the registration under section 12A was granted by the ld. CIT vide his order dated 28.01.2010. The assessee was continuously filing returns of income claiming exemption under section 11, which had been allowed since 2003-04 and even after the amendment to section 2(15) w.e.f. 1.04.2009. The last such assessment order related to A.Y. 2011-12, wherein the declared nil income was accepted under section 143(3) by the assessment order. It was submitted that in the assessment order under appeal, the ld. AO had not brought on record any evidence relating to change in the activities of the appellant since the grant of registration under section 12A. It was submitted that the ld. AO had been misguided by the direction of the ld. JCIT issued under section 144A allowing the AO, the liberty to apply the judgment of the Hon’ble Supreme Court in the case of Jammu Development Authority and also the directions of the CBDT. It was submitted that the instruction of the Board was only to examine the nature of activities of the assessee, while the judgment of the Hon’ble Supreme Court related to the denial of registration under section 12A. It was further submitted that as the activities of the assessee had already been considered by the Hon’ble ITAT while directing the grant of registration under section 12A, the judgment in Jammu Development Authority was not applicable to the assessee’s case. It was submitted that there were a series of judgments, including the binding judgment of the Hon’ble Allahabad High Court on the issue of activities which were being carried out by development authorities. It was further submitted that the assessee was carrying out its activities strictly in accordance with its objects as contained in section 7 of U.P.U.P.D.A. 1973 and the statute did not allow for any commercial activities. The surplus appearing in the books was incidental to the other activities carried out by the assessee. It was further pointed out that the issue as to whether authorities like the assessee were carrying on any business activity, had been considered by the jurisdictional High Court as well as the Benches of the ITAT at various places. In the case of Lucknow Development Authority, an authority constituted under the same statute, the Hon’ble High Court had examined the nature of activities and had held that these activities were not business activities and consequently that exemption under section 11 should have been allowed. Reference was also invited to the judgment of the Delhi Bench of the ITAT in the case of ITO vs. Moradabad Development Authority in wherein the Hon’ble Bench of the ITAT had held that development authorities would not be hit by the proviso to section 2(15). References were also invited to the judgment of the Delhi Bench of ITAT in New Okhla Industrial Development Authority and the ITAT Jaipur Bench in Jaipur Development Authority, where similar views had been taken and copies of these orders were furnished before the ld. CIT(A) for his consideration. It was submitted that the nature of the activities of the assessee, being identical with those of the Lucknow Development Authority, Moradabad Development Authority, New Okhla Industrial Development Authority and the Jaipur Development Authority, the exemption under section 11 may kindly be allowed to it. With regard to the receipts on account of the infrastructure development fund, it was submitted that the same were not direct receipts of the assessee authority against any activity. These funds were specifically received by virtue of Government Order dated 15.12.1998, for making expenditure on development activities in terms of the Resolution passed by an independent committee, in which, the assessee authority was one of the Members. It was submitted that the Hon’ble jurisdictional High Court in the case of Lucknow Development Authority had held in para 29 of the said order, that the said fund could not be treated as belonging to the authority and the receipt was not taxable in its hands. In view of this binding judgment, it was pointed out that the capital receipts were not of taxable nature or at worst did not disqualify the assessee for exemption under section 11. The addition was wholly illegal and may therefore, be deleted. With regard to the addition of Rs.8,68,50,000/- being the grant received from the Tourism Department, Government of India and the U.P. Government, It was submitted that the grants from the Government of India and the U.P. Government were specifically given to develop the city, in order to attract the tourism. Such receipts were not the income of the appellant within the meaning of section 2(24) of the Act, as the institution receiving such grant had to spend the funds on the projects specified in the Government order. It was further submitted, that the assessee had incurred expenditure of Rs.11,08,84,212/- during the year on the given projects and placing reliance on the decisions such as DCIT vs. Gujarat State Council (2014) 41 taxman.com 449 (Gujarat) and DIT vs. Society for Developing Alternatives (2012) 18 taxman.com 364 (Delhi), it was submitted that such grants were merely capital receipts and not Revenue receipts therefore, the addition made in this regard was not sustainable. Finally, it was submitted that the addition of prior period expenses claimed as expenditure during the year, was not warranted, because his expenses had not been claimed in earlier years. In subsequent hearings, the assessee submitted that the order of the Hon’ble ITAT granting registration under section 11 of the I.T. Act, 1961, passed in the case of Moradabad Development Authority, had been challenged by the Revenue before the Lucknow Bench of Hon’ble High Court and the Hon’ble High Court had dismissed the appeal of the Revenue, vide its judgment dated 3.05.2017. In view of this, it was prayed that the ld. CIT(A) may kindly direct that the exemption under section 11 be granted to the assessee and the addition of Rs.12,91,31,370/- may be deleted. With regard to the addition of Rs.8,68,50,000/-, being the grant received from Tourism Department, Government of India and the U.P. Government. It was submitted that the authority was bound to maintain a separate account of such receipts as per Government order and the assessee had in fact spent much more than the receipts on this account. Thus, there was no question of making any addition in this regard. With regard to prior period expenses, it was submitted that the expenses had been claimed on the basis of payment made during the financial year under consideration and as the assessee maintained its account on cash basis. Therefore, the assessee was legally entitled to claim deduction on these expenses under section 11. In its submissions for the assessment year 2014-15, the assessee quoted from the judgments of the Hon’ble Allahabad High Court in the case of Lucknow Development Authority and from the order of the ITAT Delhi Bench in the case of Moradabad Development Authority, to point out that the authorities like the appellant had been held to be eligible for exemption under section 11 by the jurisdictional High Court and the Tribunal. In its submissions to the ld. CIT(A), NFAC in the assessment years 2016-17 and 2017-18, the assessee authority also submitted a list of cases in which the Hon’ble Courts had held that exemption under section 11 were allowable to authorities like the assessee authority, where the jurisdictional High Court had held that section 2(15) of the I.T. Act was inapplicable to the authorities like the assessee authority and where the Courts had held, that other institutions whose objects were similar to that of the assessee, were also entitled to exemption under section 11 of the I.T. Act. The assessee further submitted, with regard to the stand of the ld. AO in basing his order on the dismissal of the SLP in the case of Jammu Development Authority, that the dismissal of SLP in limine could not operate as a confirmation of the reasoning in the decision sought to be appealed against. For this proposition, it placed reliance on the decision of the Hon’ble Supreme Court in Hemlata Gargya vs. CIT (2003) 259 ITR 1 (SC) and the decision of the Hon’ble Supreme Court in Kunhayammed & Ors vs State Of Kerala & Anr (2000) 245 ITR 360 (SC), in which their Lordships had held that an order refusing special leave to appeal did not stand substituted in place of the order under challenge. It was submitted that the mere dismissal of the SLP by the Hon’ble Supreme Court against the judgment of the Hon’ble Jammu & Kashmir High Court in the case of Jammu Development Authority could not be construed as having the effect of elocution of law by the Hon’ble Supreme Court on the subject against the assessee authority and therefore, the view point of the Income Tax Department that the mandate of the Hon’ble jurisdictional High Court on the issue in the case of Lucknow Development Authority and Ors (including the assessee itself) in of 2011 for A.Y. 2006-07 and of 2010 for A.Y. 2004-05 dated 16.09.2013 could cease to have its binding force and hence preference should be given to the judgment of the Hon’ble Jammu & Kashmir High Court, had been held and observed by the Hon’ble ITAT in the case of Moradabad Development Authority to be a position that could not be countenanced. In the circumstances, it was submitted that the benefit of section 11 could not be denied to the assessee.

With regard to some of the specific issues raised by the ld. Assessing Officers in the course of their assessment orders, it was submitted that the ld. AO was misplaced in making a comparison of the assessee with private colonizers and real estate developers. The major source of the income of the assessee authority, was from the sale of plots, houses, shops, rent, sundry receipts and interest but the assessee could not be compared with a private real estate developer because the development undertaken by the assessee authority benefited the public at large. These benefits were not restricted to an individual or particular groups of individuals, because its primary purpose and predominant object were to promote the welfare of the general public and therefore, its purpose was charitable. Regarding surplus of income, if any, it was submitted that the surplus of funds could not be distributed, but were to be used in subsequent years for the development of Ayodhya and Faizabad only and therefore, surplus of funds could not be equated to profit motive. With regard to vesting of the property of Ayodhya Development Authority with the State Government on its dissolution, it was submitted that the authority could only be dissolved by virtue of section 58 of U.P.U.P.D.A. 1973 if the Government was satisfied that the purposes for which the authority had been established under the act had been substantially achieved, so as to render its continued existence as unnecessary. It was further submitted that on dissolution, accreted income would be taxable as per the provisions of section 115TD of the Income Tax Act and therefore what would happen on the dissolution of the Ayodhya Development Authority should not be of concern to the Revenue. With regard to the applicability of section 13(1)(c) r.w.s. 13(3) of the Income Tax Act, 1961, it was submitted that the State Government can give directions to the authority by way of Government Order by virtue of section 41 of the U.P.U.P.D.A. 1973. Furthermore, the Members of the Board were not the employees of the Development Authority as they were either appointed by the State Government directly or were ex officio, who belonged to different departments of the State Government. Hence, they were not beneficiaries of the said scheme. Furthermore, even they could not be equated with managers of the assessee authority as they did not have the ultimate power. This was because the Members were appointed by the State Government by virtue of section 4 of the U.P.U.P.D.A. 1973 and as per section 58, the U.P.U.P.D.A. 1973, the State Government was empowered to dissolve the development authority. Furthermore, State Government had the power to call for records of the authority under section 41, approve the budget under section 20, make the Rules under section 55 etc. Thus, from the above, it was clear that the main powers were vested with the State Government and the members of the authority were appointed merely for managing the daily affairs of the assessee authority. Further, the members of the authority being ex officio State Government employees could not be said to have any interest whatsoever in the assessee authority. Hence, the benefits provided by the assessee to its employees could not be equated to have been provided to the persons defined under section 13(3) of the Income Tax Act.

In consideration of the matter, the ld. CIT(A) observed that the authority had been created by a revocable transfer of assets, as all the assets and liabilities would be transferred back to the State Government under section 58 upon dissolution of the Authority and there was no restriction as to how the same would be utilized by the State Government. On perusal of the objects of the authority, he concluded that the objects within which the authority were set up may appear to be of general public utility for the development of the area but then there were objects like sale and purchase of land and property which made the authority into a commercial organization. Therefore, the objects pursued by the authority could not be said to be charitable. The ld. CIT(A) pointed out that in order to find out whether an organization was a charitable one, tests have been laid down by the Hon’ble Supreme Court in the case of Addl CIT vs. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1 and CIT vs. Andhra Pradesh State Road Transport Corporation (1986) 159 ITR 1. The ld. CIT(A), after quoting from the order of the Hon’ble Supreme Court in the case of Surat Art Silk Cloth Manufacturers Association (supra) pointed out, that since the U.P. Government enjoyed exclusive right over the properties left over after dissolution of the society with no restriction as regards the utilization for charitable purposes, the authority failed the test laid down by the Hon’ble Supreme Court and therefore, could not be termed to be a charitable organization within the meaning of section 2(15) of the Act. Quoting further from the decision of the Hon’ble Supreme Court in the case of Andhra Pradesh State Road Transport Corporation (supra), the ld. CIT(A) held that because the properties left over to the Government as per the provisions of section 58 of the U.P.U.P.D.A. 1973 would become a part of general Revenue of the State and the State Government was not under any obligation to utilize the same for the purpose for which the authority was set up, the assessee did not fulfill the conditions required for claiming the status of charitable organization as envisaged under the fourth limb of the definition of charitable purposes as contained in section 2(15). The ld. CIT(A) also held that the assessee was engaged in acquiring land, development, constructing buildings on commercial lines just like any commercial developer. He pointed out that the provisions of section 2(15) as amended by w.e.f. 1.04.2009 specifically prescribed that advancement of any other object of general public utility shall not be considered as a charitable activity if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering of any service relating to a trade, commerce or business for a cess or any other consideration, irrespective of the nature or use of application or redemption of income from such activity. The ld. CIT held that the intention behind the charitable activity was always philanthropic and not to recoup or reimburse in monetary terms, what was given to the beneficiaries and the fee charged and the quantum of income could be indicative of whether the person was carrying out business or not.

The ld. CIT(A) considered the order of the Hon’ble Allahabad Court in the case of CIT vs. Lucknow Development Authority & Ors dated 16.09.2013 which was relied on by the assessee and pointed out that in that case, the Hon’ble Court had held that where the trust was carrying out its activities with no motive to earn profit, for the fulfillment of its aims and objectives and in the process earned some profit, the same would not be hit by the proviso to section 2(15). However, referring to section 35 of the U.P.U.P D.A 1973 , dealing with the power of authority to levy betterment charges, which he reproduced in his order, the ld. CIT(A) held that the levy of betterment charges was akin to the activity of a builder or a developer and a profit motive was clearly involved in the provisions of this section of that Act. It was pointed out that the Hon’ble & 333/Lkw/2013 (in the case of Kanpur Development Authority) had discussed this clause in detail and held that the levy of such charges was akin to Mahajan’s charging compound interest at high interest rates on the amounts lent out from the poor people of the society. The ld. CIT(A) held therefore, that the order of the Hon’ble Allahabad High Court in the case of Lucknow Development Authority & Ors did not help the assessee, but went against it. Quoting again from the decision of the Hon’ble ITAT Amritsar Bench in the case of Jammu Development Authority vs. CIT, Jammu (2012) 23 taxman.com 343 (Asr), he pointed out that this judgment shows that though the object of the development authority under government control was to promote and secure development of the area, its activities were found to aim at earning profit and this was not merely incidental to its activity. It further found that there was no obligation on the part of the assessee to spend its income on charitable purposes only and that there was no restriction on how the funds of the authority that devolved to the Government after its dissolution could be spent by the Government. For all these reasons, it had been held that authority was not entitled to registration under section 12A. The ld. CIT(A) pointed out that this decision of the Hon’ble Amritsar Bench had been confirmed by the Hon’ble Punjab and Haryana High Court in of 2012 dated 12.01.2003 and the SLP against the same had been dismissed by the Hon’ble Supreme Court on 24.07.2014. The ld. CIT(A) also referred to the decision of the ITAT Cochin Bench in the case of Greater Cochin Development Authority vs. JDIT(OSD)(Exemption), Range-4, wherein the ITAT had held that the said development authority had turned into a huge profit making agency and the decision of the ITAT in the case of Kanpur Development Authority in ITA Nos. 332 & 333/Lkw/2013, where the Hon’ble ITAT had held that the activity carried on by the assessee was no different from that carried out by private entrepreneurs on account of offering of plots / space by way of auctioning / tender. He also quoted from portions of the order in the case of Kanpur Development Authority, wherein the Hon’ble Bench had held that the amendment to section 2(15) of the Act had in fact limited the scope of general public utility charities by pointing out, that if the same involved the carrying of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business, for a fee or a cess or any other consideration- then that activity would not be regarded as a charitable activity, irrespective of the nature or use of application of income from such activity or the retention of such income by the concerned entity. Therefore, the Lucknow Bench of the ITAT had held in the case of Kanpur Development Authority, that after the insertion of the proviso in section 2(15), in such cases, the eligibility for registration stood cancelled and therefore, the ld. CIT had the power to rectify his earlier order granting registration by withdrawing the same. In the said order, the Bench had also referred to the order of the Lucknow Bench of the Hon’ble Allahabad High Court in the case of Lucknow Development Authority and Ors (including the assessee) and after referring to the questions posed before the Hon’ble High Court, pointed out that since it pertained to an assessment year prior to the insertion of the proviso w.e.f. 1.04.2009, it could not be said to be an authority for the subject.

The ld. CIT(A) also referred to the judgment of the Hon’ble High Court in the case of CIT (Exemption), Lucknow vs. Moradabad Development Authority dated 3.05.2017 and observed that the decision was not applicable in the assessee’s case, as the decision was made in that case on the basis of a decision delivered in the case of YEIDA, but the case was distinguishable from that of YEIDA, because in the case of Moradabad Development Authority, the registration had been granted prior to amendment of section 2(15) of the Act, whereas in the case of YEIDA, the registration had been granted after amendment to section 2(15) of the Act. The ld. CIT(A) pointed out, that the cases of YEIDA and MDA had been admitted on different questions of law and therefore, the granting of registration and exemption to MDA on the basis of the YEIDA was incorrect. Thereafter, the ld. CIT(A) examined the major sources of income of the assessee as reflected in the income and expenditure account of the assessee. He concluded that the activity of sale of housing plots through which the Revenue was being generated by the assessee was exactly the same to that adopted by any other builder or colonizer. The assessee could not be held to be charitable because of interest charged by it on delayed payments and it was further observed that it was not as though the same property was being sold cheap to the weaker section of the society and expensive to the more affluent section of society, but the cheaper properties were cheaper on account of their shape, size and location rather than other consideration. With regard to other receipts, the ld. CIT(A) observed that they included nearly 23 heads of receipts for the assessee which included development fees, compounding fees, anurakshan fees, application fees, parking and corner charges etc. The ld. CIT(A) observed that the assessee charged its customers for each and every facility that it provided and was therefore, operating on the lines of a commercial enterprise. With regard to interest received, he submitted that the assessee earned interest from bank deposits and the same was reinvested to generate fresh investment. It had more than Rs.11.11 Crores of investment in the form of FDRs and savings accounts and was earning interest on the same. This earning of interest was devoid of any charitable purpose and was also not incidental to the nature of activity performed by the assessee. Furthermore, the assessee was earning interest from persons who had taken the properties of the assessee. The ld. CIT(A) also observed that the assessee had not made any byelaws and what was being done was being done as per the byelaws of the U.P.U.P.D.A. 1973 and while the assessee had submitted that it was working for the weaker section of the society and costing was decided for the benefit of the weaker section, it was unable to respond to the query as to how the sales of properties made by it had benefited the weaker sections. The assessee was also unable to back up its claim that HIG/ MIG/ LIG/EWS were sold at lower value than cost price. It was also unable to demonstrate that the properties were disposed of on cost- to-cost basis, as the assessee had not submitted any details in this regard. The ld. CIT(A) observed that interest income by way of an installment from respective allottees are on the same footing as interest taken by the builder while allotting the flat to a buyer. From all these, the ld. CIT(A) came to the conclusion that the assessee is involved in the activities of profit making and is unable to substantiate that it was meant for the weaker sections of society, as claimed by it during the course of proceedings.

With regard to the various case laws relied upon by the assessee, the ld. CIT(A) held that they were distinguishable. Therefore, the ld. CIT(A) held that the ld. AO had rightly disallowed the exemption under section 11 and 12 of the assessee and had rightly assessed its income as taxable business income.

With regard to the addition on account of infrastructure development fund, the ld. CIT held, that the fact remains that the assessee had received this sum for doing infrastructure work and had not utilized the full amount. He held that the receipts on account of infrastructure fund were undoubtedly in the nature of trading receipts and whatever amount had been incurred as expenditure had already been allowed by the ld. AO and only the net surplus was added to the income of the assessee. Since the exemption had already been denied under section 11, he found no infirmity in the orders of the ld. AO in adding the net surplus of the infrastructure development fund and accordingly, he sustained the addition made by the ld. AO in this regard.

With regard to the addition of Rs.8,65,50,000/- on account of tourist development grant, the ld. CIT(A) rejected the argument of the assessee and stated that the submissions of the assessee did not support why this receipt was not an income and how the Government order may overrule accounting principles and why it was not taxable. He held that the receipt of tourist development grant was in the nature of Revenue receipts and whatever amounts had been incurred as expenditure, may be considered for deduction against receipts and the ld. AO had done it. Since, the receipts were of a revenue nature and taxable, he did not find any infirmity in the order of the ld. AO.

With regard to prior period expenses, he pointed out that the assessee had failed to submit relevant details to justify the claims of expenditure incurred therefore, merely on the principle of allowability of prior period expenses as necessary for business, the claim of the assessee could not be entertained. Therefore, he dismissed all these grounds of the assessee and the appeal itself.

The ld. CIT(A) dealt with the issue of disallowance on account of violation of section 13(3) of the Act by the assessee in his order for the A.Y. 2015-16. He pointed out that section 13(3) of the Act demands that if any part of the income or property of the trust is used or applied directly or indirectly for the benefit of specified persons as per section 13(3), then he income of the trust will not be exempt under section 11 and he observed that the ld. AO had pointed out, that the assessee was allowing reservation of 2% in the allotment of property and was also allowing discount of 10% in the present value of the property to the employees of the assessee. He pointed out that the employees of the assessee authority also included persons specified under section 13(3) of the Act. The ld. CIT(A) noted that the submissions made by the assessee were completely silent on this aspect of the assessment order as nothing had been submitted on this issue during the course of appeal before him. He, thereafter referred to the decision of the Hon’ble Patna High Court in the case of Buddha Vikas Samiti vs. CIT reported in 199 taxman 395 (Patna) and pointed out that it was an established position in law, that when any part of the income or property of the trust was directly or indirectly utilized for the benefit of any person referred to in sub section 3 of section 13, the trust would forfeit exemption from income tax. The ld. CIT(A) emphasized that the benefit of reservation in allocation of property and discounts in payments had not been advanced for any purpose which was even remotely connected to the objects of the trust. On the other hand, the income of the trust had been utilized for the benefit of persons referred to in sub section 3 of section 13. Therefore, he held that the ld. AO had rightly disallowed the exemption under section 11 and 12 to the assessee and he had rightly assessed the income as taxable business income of the assessee on this account.

In his orders for the A.Ys. 2016-17, 2017-18 and 2018-19, the ld. CIT(A) traced the legislative history of exemption status of local authorities. He pointed out that prior to abolition of section 10(20A) of the I.T. Act, local authorities enjoyed tax exempt status, but the section was removed from the Act by Finance Act, 2002 (w.e.f. 1.04.2003). Subsequently, the income of local authorities became subject to taxation. However, such authorities began to apply for registration under section 12A and exemption under section 11. In many cases, these were granted after judicial intervention, though in some cases including that of Jammu Development Authorities, the Courts held otherwise. However, Finance Act, 2010 (w.e.f. 1.04.2009) inserted a proviso below section 2(15) of the Act to restrict the scope of definition of charitable purpose if the assessee fell under the last limb of, ‘general public utility’ and undertook any activity in the nature of trade, commerce or business and received any cess or fee or any other consideration for the same, if the same exceeded a particular amount. That most of the decision of the Hon’ble Courts that held that registration under section 12A ought to be granted and an exemption under section 11 ought to be allowed to the assessee were for years prior to the introduction of this proviso to section 2(15). The ld. CIT(A) also pointed out that subsequently section 10(46) had been inserted into the Act to provide exemption in respect of income of authorities established by the Central Government or the State Government of regulating or administering any activity for the benefit of the general public. The decisions relating to the Greater Noida Authority, Noida and YEIDA relied upon by the assessee actually pertained to approval under section 10(46) of the Act. The ld. CIT(A) pointed out that the assessee is not approved under section 10(46) and the very fact that such provision was enacted, itself went to show that entities such as the assessee were not previously eligible to claim exemption under section 11 of the Act, because they would invariably be hit by the first proviso to section 2(15) of the Act, 1961.

Finally, in his orders for the A.Ys. 2017-18 and 2018-19, the ld. CIT(A) dealt with the claim of depreciation claimed by the assessee and disallowed by the ld. AO in accordance with the provisions of section 11(6) of the Act. The ld. CIT observed that as the exemption under section 11 had been disallowed and the income had been taxed as income from business and profession as per commercial principles, the depreciation should have been allowed. However, because the cost of assets would have been allowed as application in earlier years therefore depreciation on the same could not be allowed. However, for the new assets added in the relevant year, the ld. CIT(A) held that depreciation was allowable as the same had not been allowed as application. He, therefore, partly allowed this ground of appeal

The ld. AR, then questioned the decision of the ld. CIT(A) to uphold the addition in the case of Infrastructure Development and Reserve Fund (IDRF). It was submitted that though that fund stood in the name of the development authority but it was administered by a committee appointed by a State Government and the authority had no say in the matter of how those funds would be utilized. The State Government, vide its order dated 15.01.1998 had also laid down what proportion of its income had to be set aside for the Infrastructure Development and Reserve Fund (IDRF). The ld. AR further pointed out that the Hon’ble Allahabad High Court in the case of Lucknow Development Authority and Ors vide its order dated 16.09.2013, in which the assessee was also a party, had pointed out that the Infrastructure Development and Reserve Fund (IDRF) could not be said to be belonging to the assessee or the receipt taxable in its hands. It was submitted that this was a binding decision of the jurisdictional High Court and the ld. AO and the ld. CIT(A) should not have ignored the same. The ld. AR, replying to the submissions of the ld. DR that there was no diversion of income by overriding title on account of the said Government order, by relying on the orders of the Hon’ble Uttarakhand High Court in the case of Mussoorie Dehradun Development Authority, pointed out that the basic issue that was there before the Hon’ble Uttarakhand High Court was whether the Mussoorie Dehradun Development Authority was a State or not. Secondly, it was pointed out that in para 19 of the Tribunal order with regard to Mussoorie Dehradun Development Authority, the Tribunal had wrongly interpreted the decision of the Hon’ble Supreme Court in the case of M/s Sitaldas Tirathdas and had in fact drawn a conclusion that was opposite to what had been stated by the Hon’ble Supreme Court. She also pointed out that there were mistakes in the order of the Hon’ble Delhi Bench of the ITAT in the case of Mussoorie Dehradun Development Authority, in that, it had failed to recognize the fact that stamp duty was not collected by the authority, but rather by the Sub-Registrar and passed on to the authority. On account of these factors, she submitted that the order of the Hon’ble Delhi Bench in Mussoorie Dehradun Development Authority was not a correct precedent to follow. Reiterating her stand that the order of the Hon’ble Allahabad High Court in the case of Lucknow Development Authority and Ors (including the assessee) dated 16.09.2013, was a binding precedent to be followed, she pointed out that the same had been followed by the ITAT Lucknow Bench in the cases of Lucknow Development Authority, Awas Vikas Parishad and Meerut Development Authority and also by the Delhi Bench of ITAT in the case of Saharanpur Development Authority. She, therefore, prayed that the judgment of Hon’ble Allahabad High Court be followed and added that reliance could not be placed on the decision of the Hon’ble Delhi Bench in the case of Mussoorie Dehradun Development Authority, because the same did not enjoy exemption under section 11, as it was not registered under section 12A. When asked as to how the lack of exemption affected the issue of diversion / application of income, she pointed out that once registration under section 12A had been granted, the computation was to be done as per section 11 and if some amount was a corpus or part of capital receipt, then the same could not be taken into the income and expenditure account. Furthermore, she submitted that where two or more decisions were there on a subject, the one that was favorable to the assessee ought to be applied as per the ratio laid down by the Hon’ble Supreme Court in the case of Vegetable Products in 88 ITR 192 (SC) . She also submitted that it had been held by the ITAT in Sarvodaya Agency vs. ITO (1989) 34 TTJ 214,that an Obiter Dicta was also worthy of respect and therefore, even if the findings of the Hon’ble Allahabad High Court in the case of Lucknow Development Authority and Ors on the issue of Infrastructure Development and Reserve Fund (IDRF) were considered an Obiter Dicta, it still was worthy of consideration as the views of the Hon’ble High Court. On the issue of tourism grant, the ld. AR pointed out that the same had been provided by the Government for the beautification of the city and because it was a part of the corpus, therefore, it was not routed through the income and expenditure account. The ld. AR pointed out that the grant was for promoting tourism and it had not been allowed because the ld. AO had denied the exemption. However, it had been judicially held that such grants were in the nature of capital receipts and therefore, they could not be brought to tax in the hands of the assessee. She, therefore, prayed that the addition made on this account may be deleted. With regard to the issue of prior period expenses, the ld. AR submitted that the authority followed a cash system of a counting and therefore, was claiming prior period expenses paid during the year, as application of income. If section 11 was allowed to the assessee then it was also entitled to deduction for all application of income during the year. On the issue of claim of depreciation under section 11 (6) in the income and expenditure account, the ld. AR submitted that while it was there in the income and expenditure account, it did not reflect in the computation filed under section 11. She further submitted that, if the exemption under section 11 was allowed to the assessee, then the claim of depreciation was not allowable but if the assessee was to be assessed under the head, ‘profits and gains from business or profession’ then depreciation was allowable to it. In support of her arguments, the ld. AR also filed a detailed written submission prepared 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:

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.

In conclusion, the ld. AR placed reliance on two more judgments i.e. that of the ITAT Amritsar Bench in the case of Jalandhar Development Authority vs. DCIT in to 379/Asr/2023 where the external development charges collected by that assessee on the directions of the State Government collected and spent as per the provisions of the Punjab Apartment and Property Regulation Act, 1995 had been held to be only in the custody of the Urban Development Authority and accordingly, the additions made by the ld. AO by treating such funds as assessable in the hands of that assessee had been deleted. The ld. AR also placed reliance on the judgment of the Hon’ble Chandigarh Bench of the Tribunal in the case of Improvement Trust Sungrur vs. ACIT (Exemption), Circle, Chandigarh in where the Hon’ble Bench had held that neither the second proviso to section 2(15) or section 13(8) were applicable to the assessee’s case and therefore, the aggregate receipts of the assessee trust from its activities of sale of plots, flats and commercial booths and also its income earned from non-construction fee, transfer fee, penal interest and compounding fee etc., were held to be entitled for exemption under section 11.

On the other hand, Shri. Ghayasuddin, 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, 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). On the issue of Infrastructure Development and Reserve Fund (IDRF), the ld. CIT DR took us through the Government order in question, to point out that the very first line of the said Government order talked of, ‘income of the development authority/Vikas Parishad’ and this demonstrated the fact that the income had already reached the hand of the assessee and not been diverted by the overriding title. Refuting the contention of the ld. AR that the order of the Hon’ble Allahabad High Court in the case of Lucknow Development Authority and Ors dated 16.09.2013 contained an exposition of law which created a binding precedent upon lower authorities, the ld. CIT DR pointed out, that the issue of the nature of and title to the Infrastructure Development and Reserve Fund (IDRF) was not one of the questions of law placed before the Hon’ble High Court in that case and no arguments were advanced with respect to that issue before their Lordships. Thereafter, the ld. CIT DR took us through the decision of Hon’ble Supreme Court in the case of State of U.P. M/s Synthetics 1991 SCR (3) 64 to point out that a decision that was rendered sub silentio, did not constitute a declaration of law. The ld. CIT DR also referred to the Hon’ble Supreme Court decision in the case of Union of India vs. Dhanwanti Devi and Ors in 1996 Supp. (5) S.C.R. 32, to point out that the decision of a Court could only be ascertained from the questions raised before it and answered by the Court, after considering arguments and it was not every comment of the Court that was to be regarded as the decision of the Court, but only the order with regard to the issues that were before the Hon’ble Court. The ld. CIT DR therefore, submitted that there was no order of the Hon’ble Allahabad High Court on the issue of nature of and title to the Infrastructure Development and Reserve Fund (IDRF). On the contrary, he pointed out that in the case of Mussoorie Dehradun Development Authority, the specific issue as to the nature of and title to the Infrastructure Development and Reserve Fund (IDRF) had been considered by the Delhi Bench of the ITAT and while doing so, the Bench had considered the provisions of U.P.U.P.D.A. 1973. He also questioned the contention of the ld. AR, that the Government O.M. diverted the title to the fund to the State Government, by pointing out that the O.M. only said that a portion of the funds should be transferred to Infrastructure Development and Reserve Fund (IDRF), which continued to remain the fund of the assessee, as per the Act. On the issue of whether or not the funds transferred to the IDRF stood transferred to the corpus, the ld. CIT DR submitted that the O.M. did not make any such provision. It only stated that a portion of the income of the authority had to be used in a particular manner therefore, it was not a corpus. With regard to the tourism fund, the ld. CIT DR pointed out that the as per the scheme of the Income Tax Act and the U.P.U.P.D.A. 1973 (particularly section 20), the tourism fund had to be passed through the income and expenditure account as it was the fund of the authority and the expenditures out of the same had also to be recorded. Thereafter, if 85% had been spent towards charitable purposes, the authority would be considered exempt from tax under section 11. On the issue of prior period expenditure, the ld. CIT DR pointed out that the assessee had not submitted any relevant details with regard to the ld. AO or the ld. CIT(A) and in the absence of any details, no concessions could be allowed to the assessee on a theoretical basis. On the issue of disallowance of depreciation under section 11(6), the ld. CIT DR pointed out that if the income of the assessee was assessed under the head business and profession, then the depreciation was allowable, but if it was to be granted exempt status, the same was disallowed. Therefore, in summing up his arguments, the ld. CIT DR submitted that it was a fit case to be restored back to the file of the ld. AO to re-examine the issue in the light of the decision of the Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority. In support of his arguments, the ld. CIT DR submitted a detailed written submission which is reproduced as under:-

Subsequently , Sh Mazhar Akram Ld CIT(DR) , who also appeared on behalf of the Revenue pointed out that the judgment of the Amritsar Bench in the case of Jalandhar Development Authority that had been cited by the ld AR , was based on the judgment of the Punjab and Haryana in the case of Pr. CIT vs. Punjab Police Housing Corporation Limited as reported in 195 DTR 150 P & H wherein it had been held that interest on grants received by the State Government could not be treated as income of the assessee. However, the ld. CIT DR argued that it had been pointed out by the Hon’ble Patna High Court in the case of Bihar Police Building Construction Corporation Private Limited vs. Pr. CIT (2023) (09) PAT CK 0020 that circulars of the State Government providing for deduction of grants in successive years to the extent of interest earned from the grants of early years, could not regulate the taxability under the Income Tax Act and if the interest was brought to tax in the hands of the assessee corporation, then the assessee corporation could request the Government not to deduct the amounts paid as income tax from grants of subsequent years, but the circular issued by the State Government regulating the 74 business / transaction between the Government and its corporation could not have any effect on the taxability of the interest income which is deemed to be income from other sources in the hands of the assessee. The ld. CIT DR submitted that the said judgment could therefore not be a proper precedent to determine the question before the Tribunal in this present matter. 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 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 threshhold 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.

We have duly considered the facts and circumstances of the case, heard the rival parties and gone through the material placed on record. There are essentially two main issues to be decided in this appeal. The first 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 Act and secondly whether the assessee is justified in not including funds collected and grants received on account of infrastructure activities in its income and expenditure account but carrying it directly to the balance-sheet on account of the plea that such income stood diverted by overriding title and could not be included in its own income. 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 75 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 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 76 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 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 77 venture, is whether the performance of a function is actuated by a profit motive. It thereafter 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 by law, or rules having the force of law, per se, the recovery of such charges, fees, interest etc., 78 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 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 & 79 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 patter of Delhi Development Authority. Thus, it becomes clear from the Preamble itself that the predominant object and purpose for the creation of the Ayodhya-Faizabad 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 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 80 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 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 81 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 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 82 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 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, 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 neighbouring rural areas to lessen the rural urban divide and that such schemes are also the result 83 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 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 84 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 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 some profits, even some surplus is generated on that count, as section 20(ii) 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(ii) 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 85 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.

Another issue that has been raised by the Assessing Officer is that the assessee was in receipt of rent and since this was not a receipt that was incidental to its business, the same could not be held to be exempt. He has also pointed out that the Assessee has invested it’s surplus funds in Banks and earned interest on the same and therefore the interest earned from such investments was not incidental to its objects. We must disagree with the Learned AO on both counts. In the first place, the authority has been given the power to dispose of property and as per section 17(2)of the U.P.U.P.D.A. 1973 , Lease has been defined as one of the means of disposal. Furthermore, in section 20 (1)(e) of the U.P.U.P.D.A. 1973 it has been stated that all moneys received by the Authority by way of rents or profits or any other manner from any other source will also constitute the fund of the authority. Thus, it cannot be said that the earning of rent from leased properties is not in accordance with the objectives of the Authority. Furthermore, it is observed that deposits of surplus funds for future utilization in a Scheduled Bank is one of the prescribed modes of deposits under section 11(5) and therefore interest earned on such activities has to be held as incidental to its objectives. It is not out of place to mention, that all receipts from whatever source have to be utilized by the Authority towards the administration of the U.P.U.P.D.A.1973 as per the provisions of section 20(2) and for no other purpose. Therefore, the denial of exemption on such grounds is held to be unwarranted.

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 86 have committed 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 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 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, wherein after going through the provisions of sub section (3) of section 13, it has found that the list of persons mentioned in sub section (3) does not contain employees as a category. The ld. AO and the ld. CIT(A) have held that the employees are, ‘managers’ as per Clause (d) of sub section (3) of section 13 however, the Lucknow Bench has referred to 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. In the said judgment, the Hon’ble Patna High Court had held that “as regards, the second condition, it seems that even if a trust has been created wholly for charitable purposes, when subsequently it is found that its income either ensures or is used or applied directly or indirectly for the benefit of any 87 person specified under sub-section (3) of section 13, then such trust becomes disentitled to claim any exemption under section 11. But the list of such persons as contained under section 13(3) does not include the employees of the author of the trust. The employees of the author of the trust do not fall within the specified categories of persons referred to in section 13(3). Even section 13(3)(d), which includes any relative of the author, can have no application in the case of the employees of the author because 'relative' means a person connected by birth or marriage with another person. The person having any other relationship pursuant to a contract like that of employer and employee cannot be said to be a relative. Therefore, 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’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 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 88 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 the said assessment year, 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 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.

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 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 89 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. We have duly noted the submissions of the learned CIT DR that the Hon Supreme Court has pointed out that in each year the Assessing Officers should examine the expenses of the assessee to see whether they were on cost to cost basis or whether there was a significant mark up and thereafter to compute the threshold limit for applying the proviso to section 2(15) and his request to send back the matter to the Assessing Officer, so that this could be done. 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). 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(A) or 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 seen that almost all the valuation and pricing has been done on the basis of Govt Orders 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 90 (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), the appellate 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). Therefore, 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 hereby deleted. Accordingly ,Ground Nos. 1 to 3 for the Assessment Years 2012-13 & 2014-15, ground nos. 1 to 4 for the Assessment Year 2015-16, Ground number 3 to 7 for the Assessment Year 2016-17, Ground Numbers 3 to 8 for the Ay 2017-18 and ground nos. 3 to 8 for the Assessment Year 2018-19 stand allowed.

With regard to Ground Nos. 4 of assessment years 2012-13 and 2014-15 and ground number 5 of Assessment year 2015-16, relating to the addition made by the learned Assessing Officer on the issue of Infrastructure Development Reserve Fund (IDRF), in view of the arguments presented by the learned AR and refuted by the learned CIT (D.R) on the subject, it is imperative to decide whether there was an exposition of law that created a binding precedent on the issue, in the order of the Hon'ble Allahabad High Court in the case of CIT vs. Lucknow Development Authority & others (2013) 38 taxman.com 246 Allahabad. It is an established principle of law, that a decision of a Court is to be ascertained from the questions involved in the case and the judgment rendered with respect to the same. The Hon’ble Supreme Court in the case of CIT vs. Sun Engineering (P) Ltd., ITD 198 ITR 197 SC, held that a decision could not be interpreted out of the context to the questions of law which were raised before it. The Hon’ble Court held as under:-

The ld. AR had also submitted that a number of decisions rendered by various Benches of the ITAT in the cases of Lucknow Development Authority, Varanasi Development Authority and Meerut Development Authority had followed this judgment. However, we observe that the various benches have not considered the issue on its merits, but have merely accepted the arguments of the assessees in those cases, that they were bound by the observations of the Hon’ble Allahabad High Court in para 29 of their order. With regard to the judgment of the ITAT Amritsar Bench in the case of Jalandhar Development Authority (supra), we observe that the same is distinguishable, because in that case, the External Development Charges (EDC) were collected by that assessee on the basis of various notifications issued by the Government of Punjab and the same could not be 93 spent without the previous permission of the Government of Punjab, which is different from the case of the assessee because the charges from which the Infrastructure Development and Reserve Fund (IDRF) was constituted, were collected by the Ayodhya Development Authority, as per the powers assigned to it under the U.P.U.P.D.A. 1973 and even the committee constituted by the State Government was only to ensure, that funds so constituted were spent in a targeted manner, on certain objects of the assessee authority that were already enshrined in U.P.U.P.D.A. 1973. Furthermore, it is observed that the decision by the ITAT Amritsar Bench in the case of Jalandhar Development Authority (supra) was given after considering the provisions of the Punjab Apartment and Property Regulation Act, 1995, and the ld. AR has not brought any material on record, to show us that the provisions of the Punjab Apartment and Property Regulation Act, 1995 were para materia to the U.P.U.P.D.A. 1973. Furthermore, it is also seen that the judgment by the ITAT Amritsar Bench, was delivered following the judgment of the Hon’ble Punjab and Haryana High Court in the case of Punjab Police Housing Corporation Limited(supra), which related to taxability of interest on bank deposit made out of unutilized government grants, which in our view is a different issue altogether and with regard to which there is a contrary decision by the Hon’ble Patna High Court in the case of Bihar Police Building Construction Corporation(supra), which in turn, has been delivered on the basis of the findings of the Hon’ble Supreme Court in Tuticorin Alkali Chemicals and Fertilizers Ltd v. CIT (1997) 6 SCC 117. Therefore, the only judgment the ownership of the Infrastructure Development and Reserve Fund (IDRF), among the decisions cited by the learned AR is the judgment of the Hon’ble Delhi Bench in the case of Saharanpur Development Authority. Here too, we observe that the basic question before the Hon’ble Delhi Bench was whether, if the principal amount (of the Infrastructure Development and Reserve Fund) had not been brought to tax by the ld. AO, whether the interest from the investment of such principal, could be brought to tax by him. It is true that the Hon’ble Delhi Bench held in the course of that order, that the said Infrastructure Development and Reserve Fund (IDRF) did not belong to the assessee but to the State Government, but it did so by relying on the judgments of the Hon’ble Delhi High Court in the case of Delhi State Industrial Development Corporation (supra) and the ITAT Bangalore in Karnataka Urban Infrastructure Development and Finance Corporation(supra). While doing so, the Delhi Bench did not delve into the provisions of the U.P.U.P.D.A. 1973 and therefore, its judgment was rendered without reference to the same. Nor did the said judgment look into the 94 status of the assessee as an independent entity, possibly because that issue was never before them. Subsequently, the same Member who authored the judgment in the case of Saharanpur Development Authority, had occasion to consider the nature and title over the Infrastructure Development and Reserve Fund (IDRF), while authoring the judgment in the case of Mussoorie Dehradun Development Authority vs. Additional CIT, Dehradun in and 853/Del/2011. We observe that the ITAT Delhi Bench has analyzed the judgment in Karnataka Urban Infrastructure Development and Finance Corporation in great detail and rendered a different finding with regard to the ownership over the infrastructure fund, on account of conjoint reading of the O.M. dated 15.01.1998 viz. a viz., the provision of the Uttar Pradesh Urban Planning & Development Act, 1973 and after consideration of the status of the assessee as an independent entity. The Bench had rendered the finding that since the assessee was not a State and since it was performing activities of its own, which was not the case in Karnataka State Industrial Development Corporation, which was essentially implementing certain Central and State Governments projects, the facts of that case would not help the assessee.

Ongoing through the judgment of the Delhi Bench in the case of Mussoorie Dehradun Development Authority, we find that the Hon’ble Bench has duly considered both the O.M. dated 15.01.1998 issued by the U.P. Government and the provisions of the U.P.U.P.D.A. 1973. After a conjoint reading of both these provisions, it has held that authority had been given to the assessee for collecting certain fees and charges in the process of its functioning and according to section 20 of the U.P.U.P.D.A. 1973, the assessee could retain the funds collected by it under the Act. Thus, the powers to collect the funds were already in existence under section 20 of the Act and it had to credit the fees and charges collected by it, to its own funds, which were to be applied to the fulfillment of the assessee’s object. The ld. Bench observed, that going through the office memorandum, would reveal that paragraph 1 of the said O.M. contemplates that the “income” of the development authorities described in Clause 5 of the said memorandum, would not be deposited in an ordinary pool, but would be deposited in a separate account, which would be used exclusively for residential infrastructure. Thus, it held that the provisions of the said memorandum itself showed that firstly, the fees and charges collected by the assessee in Clause 5 of the memorandum, would be the income of the development authority but it would not be deposited in 95 the ordinary pool, rather it would be earmarked to ensure the development of residential infrastructure. It therefore held, that the memorandum only provided a regulatory mechanism for incurring the expenses and carving out a preferential area within the assessee’s objects. The Hon’ble Bench had observed, that the arguments of the assessee demonstrating that the infrastructure funds were a separate entity independent of the assessee, were a fiction and there was nothing in the memorandum to this effect. The memorandum only spoke of a designated bank account in which a fixed portion of the assessee’s receipts would be deposited and out of which, expenses would be incurred in a preferred area of the assessee’s objects, with an approval of an empowered committee. The Hon’ble Bench observed, that all these receipts formed part of the normal receipts of the assessee and that the committee referred to in the memorandum as well as in the Act, was not alien to the assessee (possibly because other than the Chairman, all others were also involved in the management of the authority). Thus, the Hon’ble Bench held, that the empowered committee was only concerned with giving approval for specific items of work to be done by the assessee, and not for the administration of funds. The funds formed part of the assessee’s balance-sheet and were audited in the course of audit of its own accounts. Therefore, there was no separate entity called infrastructure fund, but just a bank account which was designated for channelizing a portion of the assessee’s receipts, for the fulfilment of a preferential area of the assessee’s deposit.

On consideration of the various judgments presented before us by both parties, it is important to consider the fact that the judgment and order of the Delhi Bench in the case of Mussoorie Dehradun Development Authority (supra), is the only judgment where a detailed analysis had been conducted of the said O.M. dated 15.01.1998 along with the provisions of the U.P.U.P.D.A. 1973. It may be important for us at this stage, to consider some of these provisions of the U.P.U.P.D.A. 1973 which have been referred to by the Hon’ble Delhi Bench in the case of Mussoorie Dehradun Development Authority (supra). Section 20 of the Act (U.P.U.P.D.A. 1973) states, that the authority shall have and would maintain its own fund, to which would be credited all the monies received by the authority from the State Government, by way of grants, loans, advances or otherwise; all monies borrowed by the authority from the State Government from sources other than the State Government by way of loans and debentures; all fees, tolls and 96 charges received by the authority under the Act; all monies received by the authority from the disposal of lands, buildings and other properties, movable and immovable and all monies received by the authority by way of rents and profits, or in any other manner from any other source. Sub Section 20(2) states that that fund shall be applied towards meeting the expenses incurred by the authority, in the administration of this act and for no other purpose. Section 41 of the Act relates to control by the State Government and empowers the State Government to issue such directions to the authority from time to time, as may be necessary, for the efficient administration of the Act and it states, that if there is any dispute between the authority and the State Government with regard to the exercise of its powers and discharge of its functions by the authority, then the decision of the State Government on such dispute shall be final. Thus, the provisions of the U.P.U.P.D.A. 1973 as laid out above makes it quite clear that all the money received by the authority from the State Government, from loans, from its earnings or from any source, would constitute the funds of the Authority. Furthermore, the provisions of section 41 allow the State Government to issue directions to the authority for the effective administration of the Act. A conjoint reading of these two provisions, make it abundantly clear that the O.M. dated 15.01.1998, which arises out of the powers of the State Government under section 41 of the U.P.U.P.D.A. 1973, cannot divert the title to the funds of the authority to the State Government, but rather has to be viewed as directions to the authority, for efficient administration of the Act, in accordance with the objects of the authority. This interpretation is further reinforced by the judgment of the Hon’ble Uttarakhand High Court in the case of Mussoorie Dehradun Development Authority in & 6 of 2012 which were filed in appeal against the aforesaid order of the Hon’ble Delhi Bench in and ITA No.853/Del/2011. The Hon’ble Uttarakhand High Court, while taking note of the dispute observed, that in the case of Adityapur Industrial Area Development Authority vs. Union of India (2006) 153 taxman 107 (SC), a question had arisen regarding interpretation of article 289 of the Constitution of India as well as section 17 of the Bihar Industrial Area Development Authority Act, 1974.The Hon’ble Supreme Court had held, that the income of the authority constituted under the said Act was its own income and that the authority managed its own funds. It had its own assets and liabilities. It could be sued and could sue in its own name and since it was an authority constituted under an act of the Legislature of the State, it had a distinct legal personality, being a body corporate, as distinct from the State. The Hon’ble Supreme Court 97 further clarified, that section 17 of the said Act, stated that only upon its dissolution, would the funds, assets and liabilities of the authority, devolve upon the State Government. It accordingly stated, that therefore before its dissolution, its assets, funds and liabilities were its own. For this reason, it held that it was futile to contend that the income of the authority was the income of the State Government, even though the authority was constituted under an Act, enacted by the State Legislature, by issuance of a notification by the Government thereunder. Accordingly, basing itself on this judgment of the Hon’ble Supreme Court, the Hon’ble Uttarakhand High Court dismissed two questions of law raised by Mussoorie Dehradun Development Authority relating to Article 289 and whether the collection of levies by statutory authorities in the nature of fees, charges, tax etc. imposed by the State through an enactment (U.P.U.P.D.A. 1973) can be said to be income of such authority. Thereafter, it compared the provisions of section 17 of the Bihar Industrial Area Development Authority Act, 1974, with the corresponding provision in the Uttar Pradesh Urban Planning and Development Act, 1973, i.e. section 58 and pointed out that both the provisions were effectively para materia in substance. The Hon’ble High Court thereafter pointed out, that since the Mussoorie Dehradun Development Authority, also constituted under the Uttar Pradesh Urban Planning and Development Act, 1973, was a separate entity which was distinct from the State, having its own legal identity, as a cooperate body which could sue or be sued in its name and having its own assets and liabilities, it was only when the State Government decides that the purpose of the development authority had been achieved and there was no need for continuance of such an authority, then upon dissolution of that authority the income, assets and liabilities of the authority would vest with the State Government and not before. It, therefore, held that in deference of the orders of the Hon’ble Supreme Court in the case of Adityapur Industrial Area Development Authority (supra), any fees collected for infrastructure development by the development authority, would be treated as the income of the authority and the expenses incurred by the authority for the purposes of infrastructure development would be deductible from its’ income. What emerges from the said order , is that the funds of the authority, which are defined vide section 20 of the U.P.U.P.D.A. 1973 cannot devolve or be diverted to the State Government, prior to the dissolution of the authority as envisaged in section 58 and therefore, to view the O.M. dated 15.01.1998, as diverting the funds of the authority to the State Government, is not maintainable in view of the express provisions of the Uttar Pradesh Urban Planning and 98 Development Act, 1973. In fact, as has been clearly pointed out by the ld. CIT DR in his arguments and by the Delhi Bench of the Tribunal, is that Clause 1 of the said O.M., itself refers to the deposit of, ‘income of the development authorities described in Clause 5’ to be deposited in a separate account for residential infrastructure. The fact that the State Government has deep and pervasive administrative control over the authority is established and is, in fact, one of the grounds on which the assessee has been held eligible to be regarded as a general-purpose utility, having charitable objects, that are not for profit. Therefore, the O.M. dated 15.01.1998 has to be viewed in the context of the powers of supervision enjoyed by the State Government under the U.P.U.P.D.A. 1973 for the better administration of the Act, and not as creating any diversion of income by overriding title, as has been contended by the assessee and the ld. AR in their submissions before us, because the State Government did not have the power to divert the income under the Act prior to the dissolution of the authority. For this reason, the Judgments cited by the assessee claiming diversion of income, ie Imperial Chemicals and Jit & Pal X Ray, will have no application to the facts of the assessee’s case. Therefore, after analysis of the various legal pronouncements, the provisions of the U.P.U.P.D.A. 1973 and the O.M. dated 15.01.1998, the plea that the assessee did not have any right, title or interest over the said infrastructure fund and that it was merely a Nodal agency for implementing the projects of the State Government, is fit to be rejected. The Learned AR has pointed to some inconsistencies in the order of the Delhi Bench and also pointed out that the Adityapur Development Authority ( whose case was followed by the Hon High Court) was seeking exemption under another section as also the fact that one of the items of receipt ie stamp duty was collected by the state Govt, but to our mind those arguments are not material because the specific provision of the U.P.U.P.D.A. 1973 render diversion of income to the state prior to the dissolution of the authority as an impossibility and the Govt Order dated 15.01.1998 could not be read as being issued for a purpose that was vires of the Act. It could only be read as issued under section 41 of the U.P.U.P.D.A. 1973 for better administration of the Act by channelizing some portion of the funds to certain preferential areas of the assessee’s objects and nothing more. Therefore, following the Judgment of Hon. Uttarakhand High Court in Mussoorie Dehradun Development Authority (Supra), we hold that the Infrastructure Development and Reserve Fund is also the fund of the Assessee authority and liable to be considered in its hands. Needless to say, before any part of the same is considered as income of the authority, the expenditure made out of 99 the same has to be considered as application towards the objects of the assessee authority (as the assessing Officer has already done).

The ld. AR has also made an alternative argument against routing this amount through the income and expenditure account, pointing out that because of the effect of the OM, the receipts to the fund were capital receipts and were therefore to be considered as accretion to the corpus of the Authority rather than its income. We observe that the receipts listed the OM dated 15.01.1998 are not voluntary contributions with specific directions, within the meaning of section 11 (1)(d) of the Act, but it is also noted that the OM dated 15.01.1998, issued under section 41 of the UPUPDA 1973, earmarks certain portion of receipts to the infrastructure fund for capital expenditure and the Hon. Supreme Court has held, in the case of Padmaraje. R. Kadambande vs CIT 62 Taxman 456(1992), that it is settled law, that in order to find out whether a receipt is a capital receipt or a revenue receipt, one has to see what it is in the hands of the receiver and not its nature in the hands of the payer. In other words, the nature of the receipt is determined entirely by its character in the hands of the receiver and the source from which the payment is made has no bearing on the question. Therefore, we deem it appropriate to restore this matter back to the file of the assessing officer to analyze the nature of the receipts with reference to the OM dated 15.01.1998, and thereafter take an appropriate decision on the quantum that is required to be routed through the Income and Expenditure account. Ground number 4 of assessment year 2012-13 & 2014-15 and Ground number 5 of assessment year 2015-16 is accordingly partly allowed.

The issue of addition of Rs 8,68,50,000/- on account of receipts shown in the 'Tourism Development Grant UP', in the assessment year 2012-13, is a matter that is somewhat similar to that of the Infrastructure Development and Reserve Fund. Here too, the assessee carried this amount directly to the balance sheet on the grounds that the funds belonged to the State Government and had been given to it to implement tourism projects in the city of Ayodhya. It had also submitted that the addition was unfair, because it had spent more than the amount received and finally it had contended that if they were held to be the receipts of the assessee authority, then they were capital receipts which were not income within the meaning of section 2(24). In view of our detailed reasoning given on the issue of Infrastructure Development and Reserve fund, where we have observed that since the authority is an independent entity having its own funds and 100 further that, as per the provisions of section 20 of the U.P.U.P.D.A. 1973, all Grants received by the authority also constitute its funds and, the power to divert the funds to the state Govt only arises upon dissolution of the authority under Section 58 of U.P.U.P.D.A. 1973, we hold that the funds received by way of tourism grant are the funds of the authority and not the state Govt. However we agree with the assessee, that before any portion of the same could be held to be its income and added to surplus, the expenditures incurred against the same have to be have to be allowed as application against that receipt. However, we also note the assessee’ s submissions that the grants were received from the state Govt for setting up certain specific tourism projects in Ayodhya & Faizabad. If true, that would make them capital receipts, which are not income as per section 2(24) and therefore the funds would form part of the corpus, whether specifically mentioned or not. In the case of CIT Vs. Gujarat Safai Kamdar Vikas Nigam (supra), citied by the learned Counsel for the assessee, the grants were received by the assessee-trust from the Government of Gujarat under a scheme envisaged for implementation of certain Government programs and although it was not expressly made clear that the grants were being made available to form the corpus of the Trust and to be applied for such purpose, it was held by the Hon’ble Gujarat High Court after considering the entire purport of the scheme that the grants made available to the assessee-trust for implementing the scheme in a particular manner cannot be treated as income of the assessee-trust. In our opinion, the ratio of this decision of Hon’ble Gujarat High Court is equally apply to the facts of present case, since the grants have been received for execution of certain specific projects and creation of facilities for development of tourism. Therefore, they cannot be added back to the assessees income and must be held to be part of the corpus. Thus there is no necessity to route these grants through the Income & expenditure account. Accordingly ground number 5 of assessment year 2012-13 is held to be allowed.

The next issue is the claim of prior period expenditures. It is observed after consideration of arguments of both Parties, that the issue is linked to the allowance of exemption under section 11. Since the exemption under section 11 has been held to be allowable, amounts expended during the year towards the objectives of the Authority, have to be held as application in the present year, no matter that they pertained to earlier years, especially because the authority maintains its accounts on cash basis and has not claimed them as application in a previous year. The Addition made in this 101 regard is deleted and accordingly Ground number 6 for the assessment year 2012-13 is held to be allowed.

Finally, to address the issue of depreciation, which pertain to assessment years 2017-18 & 2018 -19. The Learned CIT(A) had granted the assessee relief on this account, as its income had been assessed under the provisions of “income from Business or profession”. However, now that the Authority is to be assessed as per the provisions of section 11, depreciation would clearly be disallowable in its hands under section 11(6), unless the authority could show that it had not claimed expenditure on acquiring the asset as application of income. To enable the assessee to present the necessary evidences in this regard, we restore the matter to the file of the assessing officer for this purpose. Ground number 9 for assessment years 2017-18 & 2018 -19 are accordingly partly allowed as above.

Ground numbers 1 & 2 for the assessment years 2017-18 & 2018-19 are general and no arguments have been offered in support thereof. They are therefore dismissed. Similarly ground numbers 8 & 9 of Assessment year 2016-17 and ground numbers 10 & 11 of Assessment Years 2017-18 & 2018-19 are non-specific and not pressed. Accordingly, they too are dismissed.

In the result all six appeals filed by the assessee are partly allowed.

In view of the fact that the appeals have been disposed of and most of the demand vacated, the three stay petitions filed by the assessee against the demands raised in assessment years 2012- 13, 2014-15 and 2015-16 are rendered infructuous. Accordingly, they are dismissed as such Order pronounced on 31.01.2025 under Rule 34(4) of the ITAT, Rules, 1963.