DCIT, EXEMPTION CIRCLE, MEERUT vs. MEERUT DEVELOPMENT AUTHORITY, MEERUT
Income Tax Appellate Tribunal, DELHI BENCH ‘E’, NEW DELHI
Before: Sh. Satbeer Singh Godara & Sh. S. Rifaur Rahman
Per Satbeer Singh Godara, Judicial Member:
This Revenue’s appeal for Assessment Year 2014-15, arises against the CIT(A), Meerut’s in case No. 398/2016-17 dated
13.12.2017, in proceedings u/s 143(3) of the Income Tax Act,
1961 (in short “the Act”).
Heard both the parties at length. Case file perused.
The Revenue pleads the following substantive grounds in the instant appeal: “1. The ld. CIT(A) has erred in law and facts in deleting the additions of Rs.6,39,75,943/- made by the AO against surplus raised through commercial activities.
The ld. CIT(A) has erred in law and facts in deleting the additions of Rs.19,64,52,045/- made by the AO against Meerut Development Authority
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Infrastructure Development fund without being credited to Income and Expenditure account.
The ld. CIT(A) has erred in law and facts in deleting the depreciation of Rs. 43,17,034/- made by the AO while capital expenditure on fixed assets have been allowed in respective years.
The order of ld. CIT(A) be cancelled and the order of the AO be restored.”
The first and foremost issue which arises between the parties herein is that of the Revenue’s endeavour to treat the assessee as covered u/s 2(15) 1st proviso of the Act since carrying out it’s activities which are allegedly commercial in nature. It quotes hon’ble apex court recent decision in ACIT (Exemptions) Vs. Ahmedabad Urban Development Authority and Ors. (2022) 449 ITR 1 (SC) that even their lordships have agreed with the departmental stand that such an assessee could not be treated as eligible for claiming both registration u/s 12A as well as u/s 11 exemption; as the case may be, in the given facts.
Learned counsel representing assessee on the other hand has highlighted the fact that the Revenue’s instant first and foremost substantive ground is infact a recurring issue between the parties which travelled upto hon’ble apex court in the very decision and it’s Special Leave Petition (“SLP”) therein stood dismissed in para 254(B) alongwith other similar cases. It is in Meerut Development Authority
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this factual backdrop that we note that their lordships have indeed clarified the matter that such receipts in case of authorities, corporations or bodies established by statute, are prima facie to be excluded from a business or commercial receipts. The Revenue could further not dispute that apart from raising the issue of section 2(15) 1st proviso, learned Assessing
Officer’s assessment discussion dated 30.12.2016 has nowhere quoted any material on record which could lead us to conclusion that the relevant activities herein are in the nature of trade or business, as the case may be. We thus find no merit in the Revenue’s instant first and foremost substantive ground which stands rejected in very terms.
Next comes the second issue between the parties regarding correctness of the CIT(A)’s lower appellate discussion reversing assessment findings making addition of Rs.19,64,52,045/-, reading as under:
“4. Ground No. 3 taken by assessee as under:
A.O is not justified to make an addition of Rs.
19,64,52,045.05/- of Infrastructure development Fund on basis that it was not routed through Profit & Loss
Account but it was the accounting policy of the appellant that such fund is used for the external infrastructure development of the area other than specific scheme as per Government order from more than 10 years and no changes were made in the current year in external development fund accounting. As per
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Income
Tax for calculating
Income
Applied under charitable Activity, Revenue as well as Capital Nature
Expenditure is allowed as deduction.
The Ld.AR submitted ns under:
The assessing officer was wrongly added the receipts capitalized by the assessee on account of money received on other behalf. The assessee was in receipt of some money as collecting agent on passing of Maps.
The assessee was under obligation to pay back the same as follows:
-
Compounding Fees- 50% to be given to Meerut
Municipal Corporation & other statutory authorities.
-
Development
Fee- 90% to be given to Meerut
Municipal Corporation & other statutory authorities.
-
Beautification Charges- 90% to be given to Meerut
Municipal Corporation & other statutory authorities.
This obligation was on account of a G. O. No. 152/9-
A-1998 dated 15.01.1998. The same was placed before the Assessing Officer but didn’t care by him.
The proper test to be applied in such a case has been laid down by Supreme Court in CIT V. Sitaldas
Tirathnath (1961) 41 ITR 367 and the present case is one where accrual to discharge an obligation of the asscssee.
The entire income earned during the year under consideration was not the income of the assessee and was merely applied by the managing State Government funds for the payment to the other bodies. Now applying the obligation the assessee has only credited such sums to those to whom it were due to him. He didn’t carry the amounts received on other behalf to Profit & Loss account and taken to Balance Sheet as capitalization.
The other way was to show other authorities as creditors. Moreover this was the first drafted profit & Loss Account and Balance Sheet as the Authority was exempted U/s 10(22). So it was merely a placing of the amounts in statement of accounts.
Rs. 19,64,52,045/- has been added by The Leaned
Officer on account of money taken by MDA as receipts on other behalf as revenue receipts without considering the amount directly debited to the fund without being debited to the Income & Expenditure account amounted to Rs. 17,72,67,453/-.
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The learned officer has failed to identify the thin lining between the capital & revenue receipt. The receipt whether capital or revenue could only be assessing by going through the true character of the receipt for propose of Income Tax Act. This is the most relevant point to assess the nature of receipt, which have been ignored. Here the receipt was for & other behalf.
The MDA is only a collecting agency and after deducting its share has to maintain the balance money for and on other behalf as trustee. The funds so created are not at the disposal of the assessee. Here the income was not to discharge an obligation of the assessee hence cannot be added to revenue income. The confusion is on the part of the presentation of Account as the word
“Capitalized have been added. The receipts were on other behalf & require to be discharge in the mode &
manner as decided by the Government so how can such income be include in the revenue income of the Authority. Receipts can be classified into two kinds. A)
Revenue receipt B) Capital receipt. The general rule under the Income tax Act is that, all revenue receipt are taxable unless a receipt is specifically exempted and all capital receipts are exempt from taxation unless there is a provision to tax it.
Within ambit of income by way of specific provisions of the Income
Tax
Act.
We are, therefore, of the considered view that the receipt in question cannot be brought to tax unless the same is held to be a revenue receipt in nature or unless, in case it is held to be a capital receipt, there are specific provisions to artificially treat this capital receipt as income. It is not the case of the revenue that there are any specific provisions to artificially treat this receipt as an income and, therefore, taxability of this receipt solely hinges on the nature of receipt i.e. whether the receipt is capital receipt or revenue receipt.
As observed by Hon'ble Supreme Court, in the case of CIT v. Kamal Behail Lal Singha (1971) 82 ITR 460 (SC), it is now well capital receipt inter alia, on the question as to what were the considerations of payment being made by Sime Derby Holdings Limited a factor which, in our opinion, cannot influence the character of receipt in the hands of the assessee-company.
Consistency in Accounting Policies.
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Meerut Development Authority is a statutory authority of the State Government of Uttar Pradesh. There are specific accounting policies and procedures used by an authority to prepare its financial statements. These include the methods, measurement systems and procedures for presenting disclosures. The policies regarding recognition of expenditure, their allocation, sale point etc are being following since long & being adopted and followed consistently.
Sir your good-self in your Previous Year Appellate Order in the case of Same Appellant for the A/y 2011-12 &
A/y 2012-13 stated that assessing officer either could not understand the true nature of accounts and transaction or in a prejudicial manner made the addition. When assessee authority has no control over the infrastructure fund and amount lying in infrastructure fund is to be spent in the manner to be directed by State Govt. Control over the account is of High Powered Committee under the Chairmanship of Divisional Commissioner. Amount to be spent under the control of High powered committee and through various agencies. Assessee authority actually works as Nodal
Agency as trustee of the fund. Amount received and spent is directly shown in the audited balance sheet in liability side which is capital receipt in nature. Assessee authority has rightly shown the amount under the head liability directly and no infirmity in the accounting of assessee has been found by assessing officer.
To conclude the discussion we wish to state that Appellant was spend money in the manner which has been directed by the state government who control over the account and such amount was applied under the control of High Power Committee and though Various agencies, & Appellant actually works as Nodel Agency as Trustee of the Fund
1 Decision and Reasons:
I have considered the facts and appraised the law. From the record, it also appears that the "Authority" had been maintaining infrastructure, development and reserve fund
IDRF as per the notification dated
15.01.1998, the money transferred to this funds is to be utilized for the purpose of project as specified by the committed having constituted by the State Government under the said notification and the same could not be treated to be belonging to the "Authority" or the receipt
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is taxable nature in its hands. For this reason also, it appears that the funds are utilized for general utility.
Assessee authority has no control over the IDRF and its receipt during the year cannot be taxed in the hands of assessee.
Hence,
I delete the addition of Rs.
19,64,52,045/- made by assessing officer on account of Infrastructure and Development Fund.
For the sake of arguments, It is also rightly pointed out by the assessee that if receipt of IDRF is taxed then expenditure on this account should also have allowed to Assessee on the same principle, because neither receipt is routed through income and expenditure nor the relevant expenditure is routed through income and expenditure account. Since, entire addition has been deleted, so there is no requirement to adjudicate alternate argument.”
Suffice to say, it transpires during the course of hearing that the taxability of the assessee’s infrastructure development fund in question is indeed a recurring issue between the parties wherein this tribunal’s common order dated 29.09.2016 has already accepted the assessee’s stand in preceding A.Ys. 2003- 04 to 2005-06, as the case may be. We make it clear that there is no distinction in law or on facts forthcomings from the Revenue side. Faced with this situation, we adopt judicial consistency to uphold the CIT(A)’s action under challenge deleting the impugned addition.
Lastly comes depreciation disallowance issue of Rs.43,17,034/- deleted in the lower appellate discussion reading as follows: Meerut Development Authority
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“5.1 Decision and Reasons:
I have considered the facts and case laws cited. It is correct that claiming of deprecation by charitable institutions are under dispute and challenged before different higher forums. W.e.f. 1.6.2015 an amendment has been made in section 11 by inserting the provision
(6) of the Act. From A.Y. 2015-16 deprecation shall not be allowed is assessee has claimed the capital expenditure as application of income, but in the present appeal assessment year 2014-15 is involved, so amended provision cannot be made applicable.
Deputy Director of Income-tax (Exemption) v. Bhardwaj
Welfare Trust [2015] 59 taxmann.com 201 (Delhi - Trib.) it has been held:-
“Section 32, read with section 11, of the Income-tax Act,
1961 - Depreciation -Allowance/rate of (Charitable trust, in case of - Assessment years 2008-09 and 2009-10 -
Assessee-trust claimed depreciation on certain assets -
Assessing Officer disallowed claim on ground that it would amount to double deduction
-
Commissioner
(Appeals), following decision of Delhi High Court in DIT v.
Vishwa
Jagriti
Mission
[2014]
227
Taxman
144
(Mag.)/47
taxmann.com
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allowed depreciation
-
Whether when decision of juri ictional High Court was available on any issue, it was binding upon authorities working under juri iction of High Court - Held, yes -
Whether, therefore, order of Commissioner (Appeals) could not be interfered with - Held, yes [Para 7] [In favour of assessee]’’.
Income-tax Officer (Exemption) v. S.D. College Society
(Lahore) [2014] 50 taxmann.com 414 (Delhi - Trib.) it has been held that:-
“Section 32, read with section 12A, of the Income-tax
Act, 1961 - Depreciation -Allowance of (Charitable trust)
- Assessment year 2008-09 - Assessee-society had been carrying out activity of imparting education and running institutions - Assessing Officer noticed that assessee had claimed depreciation on fixed assets although it had already claimed investment in related fixed assets as application of income - He held that allowance of depreciation would amount to double deduction
-
Assessee claimed that income of assessee being exempt, depreciation should be reduced from income for determining percentage of funds which had to be applied
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for purposes of trust - Whether it was not a case of double deduction - Held, yes [Paras 6-8] [In favour of assessee]”
In the case of Charanjiv Charitable Trust v. Director of Income-tax
(Exemption),
New
Delhi
[2014]
52
taxmann.com 243 (SC) Hon’ble Supreme Court while granting SLP of assessee has held as under:-
“ Section 32, read with section 11, of the Income-tax
Act, 1961 - Depreciation -Allowance/Rate of (in case of trust) - Assessment years 2006-07 and 2007-08 - High
Court by impugned order held that since in case of a assessee-trust cost of asset had been allowed as deduction by way of application of income, depreciation on same asset could not be allowed - Whether Special leave petition filed against impugned order was to be granted - Held, yes [In favour of assessee]”
Director of Income-tax
(Exemption) v.
Indraprastha
Cancer Society [ 2015 ] 53 taxmann.com 463 (Delhi) categorically allowed the deprecation distinguishing the decision of Lissie Medical Institution v. CIT and Escorts
Ltd. v. Union of India. It is also submitted that in Lissie
Medical Institution v. CIT case a SLP has been admitted in Supreme
Court and notice has been issued to department.
“Section 32, read with section 11, of the Income Tax Act,
1961 – Depreciation – Allowance/rate of (in case of trust) – Whether a charitable institution, which has purchased capital assets and treated amount spent on purchase of capital asset as application of income, is entitled to claim depreciation on same capital asset utilized for business - Held, yes [Para 4] [In favour of assessee]“
Delhi Bench of ITAT has allowed the depreciation as discussed above and binding force as the juri ictional
Bench of ITAT and respectfully considering the above decision, I delete the disallowance of depreciation of Rs.
43,17,034/- as made by assessing officer.”
The Revenue could not dispute herein as well that the statutory amendment in section 11(6) of the Act carries prospective effect only than retrospective one and therefore, we Meerut Development Authority
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find mo merit in it’s last ground seeking to disallow the assessee’s depreciation claim on the fixed assets which stood accepted for the purpose of application of income as well in preceding assessment years. Ordered accordingly.
This Revenue’s appeal is dismissed. Order Pronounced in the Open Court on 27/01/2025. (S. Rifaur Rahman) (Satbeer Singh Godara) Accountant Member Judicial Member
Dated: 27/01/2025
*Subodh Kumar, Sr. PS*