2025 (7) TMI 371 - AT - Income Tax

Exemption u/s 11 - activity of assessee/ development authority u/s 2(15) - HELD THAT - This issue is squarely covered by the decision of the Tribunal in assessee s own case in 2021 (2) TMI 1253 - ITAT DELHI relevant to assessment year 2012-13 wherein the Tribunal relied upon the earlier decision in assessee s own case 2018 (6) TMI 685 - ITAT DELHI for assessment years 2009-10 to 2011-12 which has been approved by the Hon ble High Court. Recently in two decisions of the Coordinate Bench the present issue is fully covered by the decision of the ITAT Delhi E Bench in the case of DCIT vs. Meerut Development Authority 2025 (1) TMI 1577 - ITAT DELHI and also covered in another case of Kanpur Development Authority 2025 (3) TMI 1417 - ITAT DELHI . In these cases being similar type of organization under the same Act the issue was decided in assessee s favour after considering the decision in the case of Ahmedabad Urban Development Authority (AUDU) 2022 (10) TMI 948 - SUPREME COURT 2022 (11) TMI 255 - SUPREME COURT . Amount credited to infrastructure development fund - As respectfully following the precedents we are of the considered view that now the issue is no longer res integra as it has already been held that there is no good reason for holding that Statutory bodies could not be treated as charitable within the meaning of section 2(15) of the Act as its object is to provide shelter to the homeless people and thus the proviso to section 2(15) of the Act is not attracted in this case and the assessee was entitled to exemption provided u/s. 11 of the Act. Therefore this ground of appeal is decided in favour of the assessee. Amount credited to infrastructure development fund - We note that the issue is also covered by the decision of the Tribunal in assessee s own case 2021 (2) TMI 1253 - ITAT DELHI held issue in favour of the assessee by holding that infrastructure fund development and reserve fund IDR as per Notification dated 15.01.1998 belongs to State and the assessee- authority is a mere custodian the same cannot be taxed in its hand. Even otherwise the same has been utilized for general utility. Infrastructure fund development and reserve fund IDRF as per Notification dated 15.01.1998 belongs to State and the assessee authority is a mere custodian the same cannot be taxed in its hand. Even otherwise the same has been utilized for general utility. Therefore this ground of appeal is decided in favour of the assessee.

Summary

The core legal questions considered by the Tribunal in this appeal pertain to the validity of the orders passed by the Assessing Officer (AO) and the First Appellate Authority under sections 143(3) and 250 of the Income Tax Act, 1961 ("the Act"); the applicability of section 2(15) of the Act concerning the charitable nature of the assessee's activities; and the treatment of amounts credited to the Infrastructure Development Fund Account in the context of exemption claims under sections 11 and 12 of the Act.

Firstly, the Tribunal examined whether the AO and the First Appellate Authority's orders were invalid or arbitrary due to a lack of application of mind and failure to consider settled legal precedents, including the assessee's own prior decisions and binding rulings of the jurisdictional High Court and Supreme Court.

Secondly, the Tribunal considered whether the activities of the assessee fell within the ambit of "charitable purpose" under section 2(15) of the Act, which is a prerequisite for claiming exemption under section 11. The Revenue contended that the assessee's activities did not qualify as charitable, thereby attracting taxability.

Thirdly, the Tribunal addressed the issue of whether the addition of Rs. 9,19,31,085/- to the income on account of amounts credited to the Infrastructure Development Fund was justified, or whether such amounts were exempt and not taxable in the hands of the assessee, consistent with binding precedents.

Regarding the first issue on the validity of the AO and CIT(A) orders, the Tribunal noted the assessee's contention that these orders were passed without due consideration of settled legal principles and prior decisions, including those in the assessee's own case. The Tribunal acknowledged that the Revenue did not dispute the factual matrix but supported the impugned orders.

On the second issue concerning section 2(15), the Tribunal relied heavily on a series of precedents, including the Tribunal's own earlier decisions in the assessee's cases for assessment years 2009-10 to 2011-12 and 2012-13, which had been upheld by the jurisdictional High Court. These decisions established that statutory development authorities engaged in activities aimed at public welfare, such as providing shelter to homeless persons, qualify as charitable entities under section 2(15). The Tribunal referred to the principle of consistency as enunciated by the Supreme Court in Radhasoami Satsang vs. CIT, emphasizing that the Revenue had not produced any new or distinguishing facts to deviate from the earlier favorable rulings. The Tribunal also referenced coordinate Bench decisions involving similar development authorities, which followed the Supreme Court's ruling in the Ahmedabad Urban Development Authority case, reinforcing that statutory bodies with welfare objectives are entitled to exemption under section 11.

The Tribunal's reasoning underscored that there was no material evidence to suggest that the assessee carried on activities with a profit motive or on commercial lines, which would attract the proviso to section 2(15) and disqualify exemption. Consequently, the Tribunal concluded that the assessee's activities were charitable in nature and the exemption claim under section 11 was valid.

On the third issue related to the Infrastructure Development Fund, the Tribunal again referred to its own prior decisions in the assessee's cases and decisions of the jurisdictional High Court. The High Court had held that the amounts credited to the Infrastructure Development and Reserve Fund (IDRF), maintained as per a government notification dated 15th January 1998, are not taxable receipts in the hands of the assessee since the fund belongs to the State and the assessee is merely a custodian. Further, the funds were utilized for general utility projects, negating any claim that these were income or taxable receipts. The Tribunal noted that the Revenue did not dispute the factual position that expenditure had not exceeded receipts during the relevant period. Therefore, the addition made by the AO on this account was contrary to binding judicial precedents and was set aside.

In addressing competing arguments, the Tribunal gave due weight to the principle of consistency and the binding nature of prior decisions, including those of coordinate Benches and the jurisdictional High Court. The Revenue's support for the impugned orders was noted but found insufficient to overcome the established precedents favoring the assessee. The Tribunal emphasized that absent any new evidence or distinguishable facts, the Revenue could not depart from settled law.

The Tribunal's conclusions were as follows: the orders of the AO and the First Appellate Authority were not sustainable to the extent they disregarded binding precedents; the assessee's activities qualified as charitable under section 2(15) and were entitled to exemption under section 11; and the amounts credited to the Infrastructure Development Fund were not taxable income but funds held in trust for the State and used for general utility, thus exempt.

Significant holdings of the Tribunal include the following verbatim legal reasoning:

"There is no good reason for holding that Statutory bodies could not be treated as charitable within the meaning of section 2(15) of the Act, as its object is to provide shelter to the homeless people."

"The proviso to section 2(15) of the Act is not attracted in this case and the assessee was entitled to exemption provided u/s. 11 of the Act."

"Infrastructure fund, development and reserve fund IDRF as per Notification dated 15.01.1998 belongs to State and the assessee authority is a mere custodian, the same cannot be taxed in its hand. Even otherwise, the same has been utilized for general utility."

Core principles established include the recognition that statutory development authorities engaged in public welfare activities fall within the definition of charitable purpose under section 2(15), entitling them to exemption under section 11; the application of the principle of consistency in tax proceedings, preventing the Revenue from reversing settled positions without new material; and the treatment of funds held in trust or as custodian for the State as non-taxable receipts.

Final determinations on each issue are that the appeal succeeds on all grounds: the orders of the AO and CIT(A) are quashed to the extent they contradict settled law; the assessee's activities are charitable and exempt under section 11; and the addition on account of the Infrastructure Development Fund is invalid. The appeal is allowed accordingly.