DCIT, EXEMPTIONS, CIRCLE, JAIPUR, JAIPUR vs. URBAN IMPROVEMENT TRUST, KOTA

ITA 797/JPR/2024Status: DisposedITAT Jaipur11 August 2025AY 2016-1744 pages
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What did the Tribunal hold?

The Tribunal held that the assessee, Urban Improvement Trust (UIT), Kota, is a "State" within the meaning of Article 289(1) of the Constitution of India, being an instrumentality of the State. The Tribunal found that there was deep and pervasive State control, the assessee enjoyed a State-conferred monopoly status, and its functions were of public importance closely related to governmental functions. Consequently, the Tribunal held that the assessee's income is not chargeable under the Income Tax Act at all. The Tribunal directed the Assessing Officer (AO) to delete all additions made, irrespective of the head of income. Sections 10(46) and 10(46A) of the Act were found to be irrelevant in light of the constitutional provisions. The assessee's appeals were allowed, and the Revenue's appeals were dismissed. The ratio decidendi is that an entity fulfilling the criteria of being an instrumentality of the State under Article 289(1) of the Constitution is exempt from income tax, irrespective of the nature of its activities or the specific provisions of Sections 10(46) and 10(46A) if the constitutional exemption is more fundamental.

What were the facts?

The appeals by the assessee, Urban Improvement Trust (UIT), Kota, and the Revenue (ACIT/DCIT, Exemption, Jaipur) concern various assessment years from 2003-04 to 2016-17. The appeals arise from orders passed by the National Faceless Appellate Authority (NFAC), Delhi, under Section 250 of the Income Tax Act, 1961. The core dispute revolves around the taxability of income earned by the UIT and the allowability of various expenditures claimed by it. The Revenue's grounds of appeal challenge the CIT(A)'s decisions to grant relief to the assessee, particularly regarding the exclusion of amounts collected on behalf of the State Government and Municipal Bodies, the treatment of rental income, and the allowability of certain expenses. The assessee's appeals are not detailed in the provided text, but the outcome suggests they were allowed.

What were the issues?

1. Whether the assessee, Urban Improvement Trust (UIT), Kota, is an instrumentality of the State for the purposes of Article 289(1) of the Constitution of India, thereby exempting its income from taxation under the Income Tax Act, 1961? The Revenue contends that the CIT(A) erred in allowing benefits and relief to the assessee, ignoring facts and law, and specifically in not allowing the benefit of previous orders of CIT(A) and ITAT which had directed setting aside of orders. The Revenue argues that the CIT(A) erred in treating rental income as business income, allowing certain expenses as revenue expenditure, and allowing deductions for amounts collected on behalf of the State Government and Municipal Bodies. The assessee, by implication through its appeal and the Tribunal's decision, argues that its income is not taxable. 2. Whether certain expenditures incurred by the assessee, including non-plan expenditure for development, development of Kachhi Basti, deposit work, repair of vehicles, payments to RUIDP, and social welfare projects, are allowable as revenue expenditure? The Revenue argues that the CIT(A) erred in allowing these as revenue expenditure. 3. Whether amounts collected by the assessee on behalf of the Nagar Nigam and State Government, such as percentages of sale of plots, constructed houses, land regularization receipts, and Nagariya Kar, are includible in the assessee's total income? The Revenue argues that the CIT(A) erred in holding these as not part of the assessee's income and as shares of other parties. The assessee argues these are not its income.

Which sections of the Income-tax Act were involved?

Section 250,Section 10(46),Section 10(46A)

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Income Tax Appellate Tribunal, JAIPUR BENCH “B”, JAIPUR

Before: Dr. S. SEETHALAKSHMI & SHRI GAGAN GOYAL

These appeals by assessee and revenue are directed against the order of NFAC, Delhi dated 22.03.2024, 27.03.2024, 31.03.2024 & 30.0

The order continues below.

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