TMI Blog2014 (11) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... as allowed the assessee to collect fees and charges directly instead of infusing the funds by it in the assessee - the assessee could retain the funds collected by it under this Act - its powers to collect the funds are already in existence u/s 20 of the Act - It has to credit the fees and charges collected by it to its own funds and which is to be applied towards fulfillment of assessee's object. The office memorandum specifically provides that 80 per cent of the amount from this account would be spent on capital expenditure and 20 per cent can be spent on revenue account - it reveals that assessee has source of income from more than 18 counts, out of that certain incomes are miscellaneous income, rental income, interest income on FDRs – the 'infrastructure funds' as a separate entity, independent of assessee is a fiction - It is not registered under s. 12A of the Act and claimed the benefit of exemption under ss. 11 and 12 of the Act – thus, the order of the CIT(A) is upheld - Decided against the assessee. - I.T.A. No. 2147 /Del/2013 - - - Dated:- 21-3-2014 - Shri U. B. S. BEDI And Shri T. S. KAPOOR, JJ. For The Assessee by : Shri S. Krishna, Adv. For The Departm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authenticating it or without following legal procedure laid down u/r 29 of ITAT Rules for filing the additional documents before the Tribunal, therefore, request of the assessee being of no consequence is rejected and the unsigned and unattested piece of paper will not form part of the appeal record. 5. After having considered arguments of both the sides and material on record, we find that the issue is squarely covered in favour of the Revenue by the decision of E Bench of the Tribunal in assessee s own case in the assessment year 2006-07 and 2007-08 (supra), which is contained from para 3 to para 23 and is reproduced as under: 3. Ground No.1 in assessment year 2006-07, is verbatim same with solitary ground of appeal pleaded in the assessment year 2007-08. The same read 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 infra-structure contribution is untenable . 4. The brief facts in assessment year 2006-07 are that assessee has filed its return of income on 23.1.2007 declaring nil income. This return was proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s income because of this G.O., it vests in the State Government and not in the assessee. This argument of the assessee has been rejected by the Assessing Officer in this year also. He made the addition of ₹ 20,28,01,927 in assessment year 2007-08. 6. Dissatisfied with the action of the Assessing Officer, assessee carried the matter in appeal before the learned CIT(Appeals). Learned First Appellate Authority had made a lucid enunciation of law and facts in assessment year 2007-08. The Learned CIT(Appeals) took into consideration the Office Memorandum issued by the UP Government as well as the provisions of UP Urban, Planning and Dev. Act, 1973 which brought the assessee into existence. After a detailed analysis, Learned First Appellate Authority has observed that there is no overriding title over the alleged infra-structure fund account by the State Government and this amount deserves to be included in the income of the assessee. Learned CIT(Appeals) also observed that assessee is a body corporate. It does not enjoyed 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. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the amounts collected on three counts, namely, development fees, fees collected for giving certificates of change of land user and stamp duty is being transmitted to alleged infra-structure funds. The assessee is unable to point out distinction between other charges collected by it, vis- -vis this amount as far as its right to collect them. The amounts were collected in its independent rights. They were part of the assessee's funds and there is no overriding title of the State Government over such collection. He took us through the order of the Learned CIT(Appeals) in assessment year 2007-08 and relied upon the orders of the Revenue Authorities Below. He also relied upon the following decisions for apprising us the meaning of concept, diversion of income by overriding title viz. viz application of income. According to him, it is the case of application of income. 1. CIT v Mehsana Distt. Co-op. Milk Producers Union Ltd. [2008] 307 ITR 83/[2009] 176 Taxman 416 (Guj.); 2. Colaba Central Co-op. Consumers Wholesale Retail Stores Ltd. v. CIT [1998] 229 ITR 209/ 97 Taxman 1 (Bom); 3. CIT v Jodhpur Co-operative Marketing Society [2005] 275 ITR 372/[2004] 140 Taxman 541 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Nag Mahapalika for the said city from amongst themselves, Provided that any such member shall cease to hold office as such as soon as he ceases to be Sabhasad of the (Municipal Corporation): (j) such other members not exceeding three as may be nominated by the State Government. (4) The appointment t of the Vice-Chairman shall be whole time. (5) The Vice-Chairman shall be entitled to receive from the funds of the Authority such salaries and allowance-and be governed by such conditions of service as may be determined by general or special order of the State Government in this behalf. (6) A member referred to in Clause (c) Clause (d) Clause (e) or Clause (f) of Sub-section (3) may instead of attending a meeting of the Authority himself depute an officer, not below the rank of Deputy secretary in the department, in the case of a member referred to In Clause (c) or Clause (d) and below the rank of Town Planner in the case of a member referred to in Clause (e) and not below the rank of Superintending Engineer in the case of a member referred to in clause (f) to attend the meeting. The officer so deputed shall have the right to take part in the proceedings of the me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny other source, (2) The fund shall be applied towards meeting the expenses incurred by Authority in the administration of this Act and for no other purpose; (3) Subject to any directions of the State Government, the Authority may keep in current account of any Scheduled Bank such sum of money out of its fund as it may think necessary for meeting its expected currents requirement and invest any surplus money in such manner as it thinks fit. (4) The State Government may, after due appropriation made by Legislature by law in that behalf, make such grants, advances and loans to the Authority as that Government may deem necessary for the performance of the functions of the Authority under this Act and all grants, loans and advances made shall be on such terms and conditions as the State Government may determine. (5) The Authority may borrow money by way of loans or, debentures from such sources (other than the State Government) and on such terms and conditions as may be approved by the State Government. (6) The Authority shall maintain a sinking fund for the repayment of moneys borrowed under Sub-section (5) and shall pay every year into the sinking fund such sum as may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the audit shall be payable by the Authority to the auditor). 41. Control by State Government.- (1) The [Authority),the Chairman or the (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. (2) If in, or in connection with, the exercise of its powers and discharge of its functions by the [Authority, the Chairman or the Vice- Chairman) under this Act any dispute arises between the authority, the Chairman or the Vice-Chairman) and the State Government the decision of the State Government on such dispute shall be final. (3) The State Government may, at any time, either on its own motion or on application made to it in this behalf, call for the records of any case disposed of or order passed by the [Authority or the Chairman) for the purpose of satisfying itself as to the legality or propriety of any order passed or direction issued and may pass such order or issue such direction in relation thereto as it may think fit: Provided that the State Government shall not pass an order prejudicial to any person without affording such person a reasonable opportunity of being hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is diversion of income at source which relates to this infra-structural fund account and, therefore, the amounts transmitted in this account do not belong to the assessee. Before adverting ourselves to the alleged office memorandum and how it to be construed, we would like to refer the decisions relied upon by the parties, in order to understand the concept of diversion of income on account of overriding title.. 12. The first decision referred by the Learned DR is of Hon'ble Gujarat High Court in the case of Mehsana Distt. Co-op. Milk Producers Union Ltd. (supra). The facts in this decision are that assessee is a co-operative society. According to it, as per sub-section (2) of sec. 67 of the Co-operative Societies Act, 1962. It was required to maintain a reserve fund by which at least 1/4th of the net profit of the society are required to be carried to such reserve fund every year. According to the assessee, the reserve fund is not a free fund and hence before the profits are transferred to the reserve fund at the appropriate rate, there is a diversion at source by virtue of section 67(2) of the Co-operative Societies Act, which operate as a overriding title. Alternatively, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan and securities in consultation with registering authorities as contemplated under sec. 70 of the Maharashtra Co-op Societies Act, 1960. The assessee society was not entitled to use the fund standing to the credit of the above account in its business of wholesale stores. The assessee society in the previous year relevant to assessment year 1975-76, set apart a ₹ 2,10,000 for repayment of the government shares capital contribution and transferred the amount to the government shares capital redemption fund account. The assessee claimed the deduction of the above amount in computing its business income. It claimed that this income cannot form part of total income of the assessee because of diversion of income at source. The claim of the assessee was rejected by the Assessing Officer and upheld up to the ITAT. Hon'ble Mumbai High Court has considered the judgment of the Hon'ble Supreme Court in the case of Associated Power Co. Ltd. (supra) and held that the amount appropriated to the government shares capital redemption fund belonged to the assessee. It never got diverted to anybody. According to the Hon'ble High Court, the mandate of section 70 of the Maharashtra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessee. 15. The next judgment relied upon by the Learned DR is of Hon'ble Supreme Court in the case of Associated Power Co. Ltd. (supra). The facts of this case are that assessee is a company engaged in the business of generation of electricity and distribution thereof to consumers. It is governed by the Electricity Supply Act, 1948. By virtue of provisions of Electricity Supply Act and the schedules thereunder, the assessee company was required to maintain a reserve account where it credited a sum of ₹ 46,460 out of its revenue's to such contingency reserve account. It claimed the deduction of this amount which was rejected by the Assessing Officer. The learned Appellate Assistant Commissioner allowed the claim of assessee relying upon the decision of Hon'ble Kerala High Court rendered in the case of Cochin State Power Light Corpn. Ltd. v. CIT [1974] 93 ITR 582. The ITAT found a diversion of opinion amongst various Hon'ble High Courts, therefore, made a direct reference to the Hon'ble Supreme Court under sec 257 of the Income-tax Act, 1961. Hon'ble Supreme Court while taking note of clauses (iii)(iv) and (v) of 6th Schedule to the Electri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the revenues of the undertaking, the money put into the contingency reserve reaches electricity company and are not diverted away from it. The Hon'ble Court has rejected the contention of the assessee for excluding the amount credited in the contingency reserve from the total income. 17. The next judgment referred by the Learned DR is again of the Hon'ble Supreme Court in the case of Sunil J. Kinariwala (supra). In this case, the assessee is a partner in the partnership firm known as Kinariwala R.J. K. Industries, Ahmedabad. He was having a 10% shares therein. On December 27, 1973, he created a trust namely Sunil Jeevan Lal Kinariwala Trust . By a deed of settlement assigning 50% out of his 10% right title and interest (excluding capital as a partner in the firm and a sum of ₹ 5,000 out of his capital in the firm in favour of the said trust. There are three beneficiaries of the trust, namely, assessee's brother's wife, assessee's niece and the assessee's mother. In assessment year 1974-75, he claimed that as 50% of the income attributable to his shares from the firm stood transferred to the trust resulting in diversion of income at source, the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the alternative contention based on section 60 of the Act. For the aforementioned reasons, we are of the view that the order under challenge cannot be sustained. It is, accordingly, set aside. Consequently, the share of the income of the assessee assigned in favour of the Trust has to be included in the total income of the assessee. The questions are, accordingly, answered in favour of the Revenue and against the assessee. 18. The learned counsel for the assessee on the other hand mainly relied upon by the decision of Hon'ble Karnataka High Court in the case of Karnataka Urban, Infrastructure Development Finance Corpn. (supra) which has been followed by the Hon'ble Karnataka High Court in subsequent assessment year of this very assessee Karnataka Urban, Infrastructure Development Finance Corpn. (supra ) .The facts of this case are that respondent Karnataka Urban, Infra-structure Development Corporation is a fully Karnataka State Government owned company. It was appointed as a nodal agency for the implementation of the Mega City Scheme worked out by the planning commission of the Ministry of Urban Employment for Development of Urban Infra-structures to Bangalore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emorandum dated 15.1.1998 and how it provides a diversion of income on account of overriding title i.e. how the income would vest in the State Government. This Memorandum reads as under: Uttar Pradesh Government Residential Department-l No. : 152/9/Aa-I-1998 Lucknow dated January 15, 1998 Office Memorandum Development Authorities for the development of infrastructure in the cities and for the development of the income and its sources and their partly disposal as according it has been decided and as per the order of the Governor these directions have been given. 1. That the income of the Development Authorities described in Clause 5 will not be deposited in ordinary pool but it will be deposited in separate account which will be exclusively for residential infrastructure. 2. That this account will be under the Development Authorities but the amount deposited in this account will be spent by a committee under the Chairman-ship of commissioner and their directions. This committee will have members or their representatives of District Magistrate, Vice Chairman, Development Authorities, Chief City Office, Municipal Corporation, Executive Officer, Municipal Parish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fees and charges directly instead of infusing the funds by it in the assessee. According to section 20, extracted supra, the assessee could retain the funds collected by it under this Act. Thus, its powers to collect the funds are already in existence under sec. 20 of the Act. It has to credit the fees and charges collected by it to its own funds and which is to be applied towards fulfillment of assessee's object. 22. The nature and scope of the so called 'infra-structure fund' has to be understood in the light of statutory contexts available in section 20 of the UP Urban, Planning and Development Act, 1973. As observed earlier, section 20 contemplates that all the fees tolls and charges have to be credited by the assessee to its own funds and to be applied towards meeting the expenses incurred by the authority in the administration of the Act and not other purposes. If we go through the office memorandum then it would reveal that paragraph 1, contemplates that the income of the development charges described in clause 5 of the Memorandum will not be deposited in ordinary pool but it will be deposited in a separate account which will be exclusively for residential inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udited in the course of audit of its own account. This also indicates that there is nothing called 'infrastructure funds'. It is just a bank account which is designated for crediting the specific part of the assessee's receipt. The important factor is that alleged fund has to be used for the fulfilment of assessee's objects. 23. As far as the decision relied upon by the learned counsel for the assessee is concerned, we find that Hon'ble Karnataka High Court has specifically observed that assessee was appointed as a nodal agency for implementing certain central and State Governments objects. Hon'ble Court further observed that it is not the case of the revenue that the assessee was carrying on any business or activities of its own while implementing the scheme in question. Thus, the decision of Hon'ble Karnataka High Court cannot help the assessee. The assessee is not to be regarded as a State. It is not registered under sec. 12A of the Act and claimed the benefit of exemption under sections 11 and 12 of the Act. There is no distinction between the other receipts collected by the assessee and taken to the main account which if remained unutilized would ..... X X X X Extracts X X X X X X X X Extracts X X X X
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