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Income Tax Appellate Tribunal, DELHI BENCH ‘DB’: NEW DELHI
Before: SHRI VIKAS AWASTHY & SHRI AVDHESH KUMAR MISHRA
ORDER PER AVDHESH KUMAR MISHRA, AM These appeals of the Assessment Year (hereinafter, the ‘AY’) 2017-18 and 2018-19 filed by the assessee contain similar facts and issues. Therefore, these appeals were heard together and are being disposed off by this common order.
These appeals filed by the assessee are directed against orders dated 26.10.2023 passed by the Commissioner of Income Tax (Appeals), NFAC, New Delhi [hereinafter, the ‘CIT(A)’].
Page 1 & 96/DDN/2023 MDDA 3. The common ground raised in these appeals are that whether the CIT(A) is justified in rejecting the claim of the assessee that surplus in Infrastructure Fund is not taxable as income in the hands of the assessee applying the principle of diversion of income by overriding title. One more ground taken in the AY 2018-19 is in respect of disallowance under section 43Brws 36(1)(va) of the Income Tax Act, 1961 (hereinafter, the ‘Act’).
The relevant facts giving rise to these appeals are that the assessee, a corporate body (UP Urban Planning and Development Act, 1975), engaged in the business of promoting and securing the development of Mussoorie and Dehradun Urban Area by developing for housing scheme, constructing roads, drains, beautification, etc., filed its Income Tax Returns (hereinafter, the ‘ITR’) of AY 2017-18 and 2018-19 on 31.10.2017 and 30.10.2018 declaring income of Rs.97,26,470/- and NIL respectively. These cases were picked up for scrutiny. During the course of assessment proceedings, the Assessing officer (hereinafter, the ‘AO’) noticed that the assessee was authorized to collect and retain fee & charges for fulfilling its object. The development charges included in fee & charges collected by the assessee had been kept in a separate account; namely, Infrastructure Fund. The incoming & outgoing transactions from the Development Charges werenot routed through the Income & Expenditure Account. In Page 2 & 96/DDN/2023 MDDA other words, the net effect of incomings & outgoings (surplus/loss) from the Infrastructure Fund appeared directly in the Balance Sheet. The AO, holding that the Development Charges, being revenue receipts, were nothing but similar to the ‘fee & charges’ routed through Income & Expenditure Account. Undisputedly, the Development Charges had not been separately collected by the assessee. It had been collected along with “fee & charges”; therefore, the AO held that the same accounting treatment was required to be given for entire incomings & outgoings from the “aggregate fee & charges”. The AO further held that incomings & outgoings from the “aggregate fee & charges” which also included Development Charges kept in the Infrastructure Fund Account, was of revenue in nature and thus, the same was taxable as per the accounting principle (accrual method) followed by the assessee. Accordingly, the AO taxed the surplus of Rs.9,77,48,765/- and Rs.8,02,20,075/- of the Development Charges in the AY 2017-18 and 2018-19 respectively. Besides, the above, the AO, in the AY 2018-19, also made the disallowance of Rs.28,080/- under section 43B r.w.s. 36(1)(va) of the Act. Aggrieved, the assessee filed appeals before the CIT(A) but did not succeed. Hence, it appealed before the Tribunal. Now, we have been tasked to decide this appeal.
Before us, the Ld. AR submitted that the State Government, vide GO No.152/9-A-1-1998 dated 15.01.1998, authorized the appellant assessee
Page 3 ITA No.95 & 96/DDN/2023 MDDA to have an Infrastructure Fund with specified purpose of the infrastructural development. As per the said GO, the appellant assessee had transferred certain specified percentage of its “aggregate fee & charges” to a separate account; namely, Infrastructure Fund. The outgoing/expenditure out of the said Infrastructure Fund had been mandated to be approved by the High Level District Committee comprising of the District Magistrate, Vice President of the appellant assessee, Mukhya Nagar Adhikari, etc. etc. It was further contended that the appellant assessee was duty bound as statutory obligation to transfer certain percentage of the “aggregate fee & charges”to the Infrastructure Fund, which had been complied with. However, the appellant assessee had not hadthe exclusive authority over utilization of the Infrastructure Fund. Therefore, it was argued that the same was not liable to tax keeping in view the principle of diversion of income by overriding title. To buttress the arguments, the Ld. AR placed reliance on the decision of the Hon’ble Allahabad High Court in the case of Lucknow Development Authority in the of 2009, 60 of 2010, 114 of 2010, 4 of 2011 & 31 of 2010 and also on the decisions of the ITAT in the cases of Saharanpur Development Authority, Saharanpur in the ITA No. 1070/Del/2018; Haridwar Development Authority in the ITA No. 3056/Del/2012 & 3013/Del/2013 and Ghaziabad Development Authority in the ITA No. 35 of 2022, 33 of 2022, 41 of 2022, 48 of 2022, 53 of 2022, 67 of 2022. The Page 4 & 96/DDN/2023 MDDA Ld. AR also drew our attention to the decision of the Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority, Civil Appeal No. 21762 of 2017. The Ld. AR thus, prayed for relief on this score.
5.1 As far as the second issue; i.e. the disallowance of Rs.28,080/- under section 43B r.w.s. 36(1)(va) of the Act is concerned, the Ld. AR submitted that the amount of Rs.28,080/- had been paid after the due date specified in the said Provident Act. However, the same had been paid before filing of the ITR. The Ld. AR submitted that the issue involved in this regard was that whether the amendments made in Section 36(1)(va) of the Act by inserting explanation via the Finance Act, 2021 had retrospective applicability. He placed reliance on the decision of Mumbai Tribunal in the case of ANI Integrated Services Ltd. [2024] 162 taxmann.com 889 /207 ITD 91 (Mum)(Trib) wherein it was held as under: "Section 36(1)(va) of the Income-tax Act, 1961 Employee's contributions (PF/ESIC) Assessment year 2019-20 Whether subsequent judgment of Supreme Court in case of Checkmate Services (P.) Ltd. v. CIT [2022] 143 taxmann.com 178/[2023] 290 Taxman 19/[2022] 448 ITR 518 that essential condition for deduction of payment towards employees' contribution to PF and ESIC is that same should be deposited on or before due date prescribed under PF and ESIC Acts would not alter finality of earlier judgment of Tribunal which was based on binding precedents of jurisdictional High Court and other High Courts - Held, yes [Paras 19 and 22] [In favour of assessee.
Section 254 of the Income-tax Act, 1961, read with Order XLVII, rule 1 of the Code of Civil Procedure, 1908 Appellate Tribunal Powers of (Power to review) - Assessment year 2019-20-Whether where already existing judgment of Jurisdictional High Court is not brought to notice or attention
Page 5 ITA No.95 & 96/DDN/2023 MDDA of Tribunal, then Tribunal can recall order while exercising powers under section 254(2) -Held, yes Whether order of the Tribunal cannot be recalled based on subsequent judgment of the Supreme Court when order of the Tribunal had attained finality between the parties - Held, yes [Paras 21 and 22] [In favour of assessee]" 5.1.1 Further, the Ld. AR also placed reliance on following decisions: Hebe Infrastructure Pvt. Ltd.in the (Delhi ITAT); Titanic Steel Industries (P.) Ltd. [2022] 139 taxmann.com 82)(Chandigarh ITAT) and prayed for consequential relief on this score.
On the other hand, the Ld. Sr. Departmental Representative (hereinafter, the Sr. ‘DR’), placing emphasis on para 7.3 of the impugned order, submitted that this case got squarely covered by the decision of the Hon’ble Uttarakhand High Court in the appellant assessee’s own case; 140 taxmann.com 192, wherein the core issue of taxability of surplus of the Infrastructure Fund had been held taxable. Our attention was drawn towards the substantial questions of law decided by the Jurisdictional High court in the case of the appellant assessee, which read as under: "a. Under Article 289 of the Constitution of India, whether 'State' would include the statutory authorities particularly those which have been constituted exclusively for effective discharge of one of the State obligations as envisaged under the Directive Principles of State Policy under Part-Iv of the Constitution?
b. Whether the collection of levies in the nature of fees, charges, tax etc. imposed by the State through an enactment, namely U.P. Urban Planning and Development Act, 1973, by the statutory authorities (appellant development authority in the present case) can be said to be the income of such authority to be taxed under the Income Tax Act, 1961?
Page 6 & 96/DDN/2023 MDDA c. Whether the amount of receipts by the development authority (appellant in the present case) under specified heads of levies to be collected in a separate account under the orders of the Government of Uttar Pradesh (G.O. dated 15.01.1998, as adopted by the State of Uttarakhand) and to be spent by the State Government through a Committee to be constituted by it, for the purposes of residential infrastructure strictly as per the orders of the State Government issued from time to time, would be governed by the doctrine of diversion of income by overriding title so as to get excluded from the income of the Development Authority?"
6.1 The relevant part of the decision of the Hon’ble Uttarakhand High Court in the appellant assessee’s own case (supra) reads as under “On scrutiny of the accounts, the learned Assessing Officer found that the assessee had claimed to be maintaining an"infrastructure fund" to which a fixed portion of its receipts are credited and, out of which infrastructure related expenses are incurred. The amount credited to this account in assessment year 2006-07 is of Rs.11,63,38,117/- only. The assessee had incurred expenses towards development at Rs.3,14,12,303/- only. The learned Assessing Officer has allowed this amount. With regard to the balance of Rs.8,49,25,814/-, it was submitted by the assessee that the State Government has a overriding title on these receipts and, therefore, they do not form part of the total income ofthe assessee. The learned Assessing Officer rejected the arguments of the assessee in respect of diversion of income by overriding title and made the addition of Rs.8,49,25,814/-. The learned Assessing Officer further found that there is deficit of Rs.1,18,12,436/- in the income and expenditure account. He allowed this deficit while computing the total income of the assessee. However, he did not allow the prior period expenses of Rs.61,11,000/-. In this way, income of the assessee in the assessment year 2006-07 has been determined at Rs.7,92,24,3789/-. ……. ……. The First Appellate Authority, took into consideration the Office Memorandum issued by the Uttar Pradesh Government, as well as the provisions of the U.P. Urban, Planning & Development Act, 1973, which Page 7 & 96/DDN/2023 MDDA brought the assessee into existence. After a detailed analysis, the learned First Appellate Authority observed that there is no overridingtitle over the alleged infrastructure fund account by the State Government, and this amount deserves to be included in the income of the assessee. The learned CIT (A) further observed that the assessee is a body corporate. It does not enjoy the status of a State Government which is exempt from taxation. Accordingly, the appeals of the assessee have been rejected in both the assessment years. Both such orders passed by the learned CIT (A) were again challenged before the Income Tax Appellate Tribunal (Delhi Branch 'E' New Delhi). The Tribunal, after careful discussion of the provisions of law, as well as taking into consideration different provisions of different statutes, came to the conclusion that the First Appellate Authority did not commit any error of law in dismissing the appeals of the assessee. Such order is assailed in these appeals.
Mr. Vinay Garg, the learned counsel for the appellant, would argue that the provisions of the Bihar Industrial Area Development Authority Act, 1974, in particular Section 17, is distinct from the provisions of Section 58 of the U.P. Urban, Planning & Development Act, 1973, as applicable to the State of Uttarakhand. It is also argued that the amount received by the Development Authority under specified heads of levies to be collected in a separate account under the orders of the Government of Uttar Pradesh, i.e. G.O. dated 15.01.1998, as adopted by the State of Uttarakhand, to bespent by the State Government through a Committee to be constituted by it for the purposes of residential infrastructure strictly as per the orders of the State Government, which would be governed by the doctrine of diversion of income by overriding title so as to get excluded from the income of the Development Authority.
On the contrary, Mr. Hari Mohan Bhatia, the learned counsel appearing of the Revenue, would argue that this question is no more res integra in the sense that the Hon'ble Supreme Court has already decided the said question in the case of Adityapur Industrial Area Development Authority vs. Union of India, [2006] 153 Taxman 107 (SC). He would further submit that this question has already set at rest by the Hon'ble Supreme Court, and hence, there is no merit in these appeals.
In order to understand the contentions raised by the learned counsel for the appellant as well as the Revenue, we have to take into consideration
Page 8 & 96/DDN/2023 MDDA Article 289 of the Constitution of India. Article 289 of the Constitution provides for Exemption of property and income of a State from Union taxation. We find it appropriate to quote the exact words used in Article 289 of the Constitution, which are as under:- …… …….
In the case of Adityapur Industrial Area Development Authority (supra), a similar question arose 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 at Paragraph Nos. 8 and 9 has dealt with this matter. It is appropriate to take note of the exact words used by the Hon'ble Supreme Court, which are as under:-
"8. A mere perusal of Article 289(1) discloses that a claim of exemption under it must proceed on the foundation that the exemption is claimed in respect of property and income of a State. Once it is held that the property and income is that of the State, a question may well arise whether it is still taxable in view of the provision of Clause (2) of Article 289 which dominantly is in the nature of a proviso. Clause (2) empowers the Union to impose any tax tosuch extent as Parliament may by law provide, in respect of a trade or business of any kind carried on by, or on behalf of, the Government of a State, or any operation connected therewith. Thus, even the income of the State within the meaning of Clause (1) of Article 289 may be taxed by law made by the Parliament, if such income is derived from a trade or business of any kind carried on by or on behalf of the Government of a State or any operations connected therewith. Clause (1) of Article 289, therefore empowers Parliament to frame law imposing a tax on income of a State which is earned by means of trade or business of any kind carried by or on behalf of the State Government.
It is true, as submitted by Sri Venugopal, that Clause(2) of Article 289 empowers the Parliament to make a law imposing a tax on income earned only from trade or business of any kind carried by or on behalf of the State. It does not authorize the Parliament to impose a tax on the income of a State if such income is not earned in the manner contemplated by Clause (2) of Article 289. This, to our mind, does not answer the question which arises for our consideration in this appeal. Clause (2) of Article 289 pre- supposes that the income sought to be taxed
Page 9 & 96/DDN/2023 MDDA by the Union is the income of the State, but the question to be answered at the threshold is whether in terms of Clause (1) of Article 289, the income of the appellant/ Authority is the income of the State. Having regard to the provisions of the Bihar Industrial Areas Development Authority Act, 1974, particularly Section 17 thereof, we have no manner of doubt that the income of the appellant/ Authority constituted under the said Act is its own income and that the appellant/ Authority manages its own funds. It has its own assets and liabilities. It can sue or be sued in its own name. Even though, it does not carry on any trade or business within the contemplation of Clause (2) of Article 289, it still is an Authority constituted under an Act of the Legislature of the State having a distinct legal personality, being a bodycorporate, as distinct from the State. Section 17 of the Act further clarifies that only upon its dissolution its assets, funds and liabilities devolve upon the State Government. Necessarily therefore, before its dissolution, its assets, funds and liabilities are its own. It is, therefore, futile to contend that the income of the appellant/ Authority is the income of State Government, even though the Authority is constituted under an Act enacted by the State Legislature by issuance of a Notification by the Government thereunder."
In that view of the matter, the matter is settled as far as Substantial Question Nos. 'a' and 'b' are concerned, as mentioned hereinabove.
It is further appropriate to take note of the exact words under by the Statute which was under consideration before the Hon'ble Supreme Court in the aforesaid reported case, i.e. Section 17 of the Bihar Industrial Area Development Authority Act, 1974. It reads as under:-
"17. When the State Government is satisfied that the purpose for which the Authority was established under this Act has been substantially achieved so as to render the continuance of the Authority unnecessary, the Government may by notification in the official Gazette, declare that the Authority shall be dissolved with effect from such date as may be specified in the notification and the authority shall be deemed to be dissolved accordingly from the said date and all the properties, funds and dues realizable by the authority alongwith its liabilities shall devolve upon the State Government."
Page 10 & 96/DDN/2023 MDDA 12. It is also appropriate to take note of the corresponding provision, i.e Section 58 of the U.P. Urban, Planning & Development Act, 1973. It reads as under:- "58. Dissolution of Authority. – (1) Where the State Government is satisfied that the purposes for which the Authority was established under this Act have been substantially achieved so as to render the continued existence of the Authority in the opinion of the State Government unnecessary, that Government may by notification in the Gazette, declare that the Authority shall be dissolved with effect from such date as may be specified in the notification; and the Authority shall be deemed to be dissolved accordingly. (2) From the said date- (a) all properties, funds and dues which are vested in or realisable by, the Authority shall vest in, or be realisable by, the State Government; (b) all nazul lands placed at the disposal of the Authority shall revert to the State Government: (c) all liabilities which are enforceable against the Authority shall be enforceable against the State Government: and (d) for the purpose of carrying out any development which has not been fully carried out by the Authority and for the purposes of realising properties, funds and dues referred to in Clause (a) the functions of the Authority shall be discharged by the State Government."
13.It appears from the comparison that both the provisions are parimateria in substance. Only, there is a word 'when' in the Bihar Industrial Area Development Authority Act, 1974, and in the U.P. Urban, Planning & Development Act, 1973, the word is 'where'. The rest of theprovisions, as far as sub-section (1) of Section 58 of the U.P. Urban, Planning & Development Act, 1973 is concerned, are same. But there is a further clarificatory note in sub-section(2) of Section 58 of the U.P. Urban, Planning & Development Act, 1973, which contain another portion of the provision.
Thus, it is apparent from the record that Mussoorie Dehradun Development Authority, constituted under the U.P. Urban, Planning & Development Act, 1973, is a separate entity and distinct from the State, having its own legal identity. It is a corporate body. It can sue or be sued in its own name. It has its own assets, liabilities. But only when the State
Page 11 & 96/DDN/2023 MDDA Government decides that the purpose of the Development Authority has been achieved, and there is no need for continuance of such Authority, then it may pass the order of dissolution of the same. In that event, the income, assets, liabilities of the Authority will vest with the State Government, and not otherwise. Thus, it is apparent from the record that the Hon'ble Supreme Court has already dealt with this matter, and we, are in deference to the observations made by the Hon'ble Supreme Court in the case of Adityapur Industrial Area Development Authority (supra), come to the conclusion that substantial Question Nos. 'a' and 'b' are already covered, and there is no need to further agitate with the issue.
15.As far as substantial Question No. 'c' is concerned, the learned counsel for the appellant, would argue that the amount that has been collected for infrastructure development is being spent on infrastructure development, and it should also be excluded from the income o the basis of doctrine of diversion of income by overriding title.
16.We make it clear that the earlier observations regarding substantial Question Nos. 'a' and 'b' also cover this issue. Any fees collected for infrastructure development by the Development Authority will be treated as income and the expenses incurred by the Authority for the purposes of infrastructure development would be deducted from the income, and the rest is taxable, and that has been done, and in fact, this issue was not at all raised before the first and second appellate authorities.
17.We find it appropriate to mention herein that before the ITAT, the only ground that has been taken by the assessee is as under:- "That on the facts and in the circumstances of the case and in law, the authorities below erred in holding that the claim of the appellant that there was diversion by overriding title in respect of infrastructure contribution is untenable."
18.However, by filing these appeals before this Court, the assessee has developed its case, and included thesubstantial Question No. 'C', and that is also a good ground to dismiss the appeals.
19.Thus, in the conspectus of the facts of the case, and the law applicable to this case, along with the ratio decided by the Hon'ble Supreme Court in the case of Adityapur Industrial Area Development Authority (supra), we are of Page 12 & 96/DDN/2023 MDDA the opinion that there is no merit in these appeals, and the same are, hereby, dismissed.”
6.2 The Ld. Sr. DR. placed reliance on the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. 143 taxmann.com 178 and contended that the disallowance of Rs.28,080/- under section 43B r.w.s. 36(1)(va) of the Act was justified. Further, he contended that the cases relied upon by the Ld. AR were distinguishable on the facts and thus, were not applicable in this case. He contended that the Ld. AR tried to build a case by citing few findings and observations of the Hon’ble Courts and Tribunal without highlighting the facts and context thereof. Hence, such case laws were of no relevance. The Ld. Sr. DR, placing reliance on orders Hon’ble Courts cited above and on the finding of the lower authorities, prayed for dismissal of appeal.
We have heard both the parties and have perused the material available on record. We find merit in the arguments and submission of the Ld. Sr. DR. We are of the considered view that this case is squarely covered by the decision of the Hon’ble Uttarakhand High Court in the assessee’s own case (supra) on the first issue; the taxability of surplus of Infrastructure Fund raised in both years. The other issue; the disallowance of Rs.28,080/- under section 43B r.w.s. 36(1)(va) of the Act in the AY 2018-19 is also held covered with the decision of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. (supra). We Page 13 & 96/DDN/2023 MDDA therefore, following the reasoning given by the Hon’ble Uttarakhand High Court in the assessee’s own case (supra) hold that there are no infirmities in orders of lower authorities. Hence, impugned orders of both years are upheld. The finding shall apply mutatis mutandis in AY 2018-19 also. Thus, both appeals stand dismissed as above.
In the result, both appeals of the assessee are dismissed as above.
Order pronounced in the open Court on 21st February, 2025 Sd/- Sd/- (VIKAS AWASTHY) (AVDHESH KUMAR MISHRA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 21/02/2025 Binita, Sr. PS Copy forwarded to: 1. Appellant 2. Respondent 3. PCIT 4. CIT(Appeals) 5. Sr. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI
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