TMI Blog2020 (9) TMI 277X X X X Extracts X X X X X X X X Extracts X X X X ..... depository of IDC charges collected by the state for the said purpose, to be utilized as determined by the State. Assessee fund merely represented money set apart/pooled by the government so as to facilitate its user for a specific purpose of infrastructure development in the state, all control over its collection and user remaining with the state - Fund entirely vested in the State and no separate entity, distinct from the state had been created by virtue of the creation of the fund. Argument of the Revenue that the formation of a high powered committee for administration of the Fund sufficiently established that an entity distinct from the State has been created, in our view holds no ground. No merit in the argument of the Revenue that the assessee itself having admitted being a distinct and separate entity from the state, while applying for grant of registration u/s 12A and filing income tax returns, it cannot now take a contrary stand. Undoubtedly the aforesaid admission of the assessee related to an interpretation of facts and did not relate to admitting a fact. Merely because the assessee had interpreted the facts relating to its creation and administration as demons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation u/s 11(2) of the Act. There was a plausible explanation for the different figure reported by the auditor, since the audited profit and loss account did not take into consideration the IDC and IAC receipts, which were reflected as capital receipts in the audited Balance Sheet, as finds mention in the assessment order - only when the AO confronted the assessee with the proposed addition to be made of IDC and IAC receipts to the income, thus increasing the shortfall in 85% utilization of income to ₹ 382 crores, that the assessee filed Form No.10 notifying accumulation of the said shortfall u/s 11(2) - there was a bonafide explanation for the difference in reporting of accumulation by the auditors in form No.10B and by the assessee in Form No.10 being based on different figures of income reflected in the audited profit and loss account and income assessed by the AO respectively. We therefore do not agree with the finding of the Ld.CIT(A) that the form No.10 was unreliable on account of the aforesaid discrepancy - we hold that the assessee was entitled to benefit of accumulation u/s 11(2) of the Act as per Form 10 filed during assessment proceedings - Decided in favour o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut accumulated for use in later years, read with rule 17 of the Income Tax Rule, 1961, of filing the statutorily prescribed Form 10 electronically, so as to be eligible to claim exemption u/s 11 of the Act.He also noted that the figures mentioned in the Form 10, of the Income applied for charitable purposes and that actually claimed by the assessee, did not tally. He also noted that the figures of the amount accumulated for use in later years did not tally with the details submitted and further no specific objects were mentioned for the purpose of accumulating the income. The AO therefore declined the application of income claimed by the assessee fund. Thereafter, he treated the entire interest income and IDC receipts of the year as income of the assessee, allowed the Revenue and capital expenditure incurred against the same during the year, and noted that there was short fall in the application of statutorily prescribed 85% of the income, amounting to ₹ 245.31 crores in A.Y 2013-14 and 382.08 cores in A.Y 2014-15. Accordingly the said amounts were subjected to tax in the respective assessment years. In A.Y 2009-10, the case of the assessee was reopened noting that neither ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... created for the administration of the Fund. We shall therefore deal first with the appeal pertaining to A.Y 2009-10 2013 -14 . 5. The Grounds raised by the assessee in A.Y 2009-10 2013-14 are as under: ITA No.644/Chd/18 A.Y 2009-10 1. That the Ld. CIT(A) has erred in upholding the validity of the notice dated 29.03.2016 issued u/s 148 and consequently the assessment order passed u/s 147 r.w.s 143(3) which is void authorities below-initio and needs to be quashed. 2. That the Ld. CIT(A) has erred in law and facts of the case in upholding IDC receipts as normal trading receipts ignoring that the money belongs to state government and thus upholding addition of ₹ 357.72 Crores which is highly unjustified and uncalled for. 3. That the Ld. CIT(A) has erred in law and facts of the case in not allowing expenditure of ₹ 75.30 Crores incurred during the year on Infrastructure Development Projects which is highly unjustified and uncalled for. 4. That the Ld. CIT(A) has erred in law and facts of the case in upholding addition of ₹ 52.38 Crores on account of interest income from FDR s which is highly unjustified and uncalled for. 5. Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ministered by a High Powered Committee comprising of the Chief Minister and Secretaries of various departments relevant for infrastructure development including the Finance Secretary, so as to enable efficient utilization of the amount for the stated purpose of infrastructure development in the State, which otherwise was difficult to be done out of State Budget. He contended that the Fund vested in the State Government. The brief synopsis of the arguments of the Ld.Counsel for the assessee, made in writing before us is as under: Issue:- Whether the Fund belongs to the State Government or not. Submissions;- Levy and Deposition of IDC In the year 1997, it was first proposed to recover a part of the cost i.e. charges incurred by the State Government directly indirectly on the infrastructural development of the Urban estates in respect of areas under jurisdiction of HUDA Since the colonizers were not paying theses IDC, the proposal was submitted to charge theses IDC from colonizers also at par with HUDA. Prior to the proposal to recover IDC Charges, Section 3A(1) of the Haryana Development Regulation of Urban Areas Act, 1975 provided for levy of service ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Government on 05.10.2006 to be placed before the Council of Ministers Meeting. The recommendations of the Finance Department, Haryana was sought for creation of Fund. The Finance Department approved the proposal as such with an advice that the model of HRDF (Haryana Rural Development Fund) should be followed for the proposed fund after incorporating the necessary Legislation in respect of creation and administration of the fund in consultation with LR Haryana (Legislative Remembrancer) and A. G s Office (Advocate General, Haryana). The approval from Finance Department is placed at Paper Book Page 51-52. After the approval from Finance Department, the matter was placed before the Council of Ministers. The Council of Ministers directed for constitution of High Powered Committee by the State Government to monitor the fund. The Council of Ministers further stated that the Legal Remembrancer may also advice for requirement of any other further provision in Act to follow the HRDF (Haryana Rural Development Fund) model. The advice note from the Legal Remembrancer is placed at Paper Book Page 57. On perusal of the same it can be seen that the draft Ordinance has been prepa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per Section 3(1) the HRDA, the State Govt. for exercising powers conferred on and performing the functions and duties assigned has established and constituted the Haryana Rural Development Fund Administration Board. The Board has been constituted as a body corporate having perpetual succession and a common seal and as per Section 6(1) the fund so constituted is vesting with the Board. However, in the present case, no Board was constituted. The Board was constituted only on 05.04.2013 by amending the Haryana Development and Regulation of Urban Areas Act, 1975. However the fund continued to be monitored by High Powered Committee of the State Government and the fund vests with the State Government. There is no provision in the Act with regards to the identity of the fund the fund is not having perpetual succession or common seal. The fund is only a separate bank account of the State Government. From the above, it becomes clear that the amount has been charged by the State Govt. and it is always remained vested in the State Govt. Fund has been created solely with the object of having separate and dedicated account to meet the expenditure on Infrastructure Development to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng judgments:- CIT Vs. Karnataka Urban infrastructure Development Finance Corp. 284 ITR 582 (Ker.) (P. B. Page 7 of Ist Paper Book. Saharanpur Development Authority Vs. ACIT 8 TR (Trib.) 263 Del.(Ist PB Page 12) CIT Vs. DTTDC 119 Taxman 26 (Del. H.C.) and other judgments on Ist PB Page 7-9 The aforesaid submissions prove that the amount received belongs to the government. To substantiate further reference is drawn to the following fact:- (Refer Page 15of CIT(A) s order) The assessee had applied for grant of registration u/s. 12-A in Form 10-A on 30.03.2007. After considering the details given in the application and the statement made before CIT (A), the grant of registration was denied to the assessee vide order dt. 11.10.2007. The main reason for denying was that the Commissioner was of the opinion that the assessee fund is not Artificial Judiciary Person . In view of the above we request the Honorable bench to adjudicate that whether the fund belongs to government or not and whether the assessee is an artificial judicial person or not. ISSUE Interest on FDR s SUBMISSIONS The amounts lying in the fund which remained unutilized were de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me earned during the year. The expenditure incurred has to be allowed as the same has been incurred for the purposes for which the fund has been created irrespective of the fact that whether the receipts from IDC are taken as capital receipts or revenue receipts. 7. The Ld.DR on the other hand contended that the inference that was drawn from the facts leading to the creation of the fund above was that the fund was a separate entity from the state. The Ld.DR, pointed out that the conduct of the assessee fund while applying for registration u/s 12A of the Act as a charitable society, stating that the members of the High powered Committee were the Founders/Authors of the Trust and had complete control over its functioning, cemented the Revenues version. He further pointed out that as per the assesses own admission it was a separate entity having filed Income tax returns since 2009-10 and complied with other provisions of the Act also of getting its accounts audited and filing audited accounts to the department. He heavily relied on the findings of the Ld.CIT(A) in this regard. Brief synopsis of the arguments of the Revenue before us submitted in writing are as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no means just a bank account for receipt of IDC's but a specific and separate entity with a definite purpose. b) The conduct of the assessee and facts leading to Registration u/s 12A on 2.9.2010. ( para 9.4.2, to 9.4.5 pages 14-17 of CIT(A) order) First it applied for registration u/s 12A vide application 30.3.2007 which was rejected by the CIT(E) vide order dt 11.10.2007 ( DPB pages 18-23) for the reason that the assessee fund was not an artificial juridical person. Then it applied again for 12A registration on 19.2.2010 and argued vehemently before the CIT Panchkula that it was a distinct, separate and autonomous body managed by its Chairman, Vice Chairman, Member secretary and Members who had complete power and control over its functioning and hence eligible for 12A registration. Utmost reliance is placed on the Note Sheet signed by Jaswant Singh DTP(HQ) dt. 29.11.2006 ( pg 16-17 of DPB) where it is stated that Since this fund is to be created on the lines of HRDF, hence will operate outside the normal financial procedures i.e no concurrence of the Finance Department as such will be required for incurring the expenditure from this Fund . Also 1% of IDC were allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by CIT(A) (Ground 4 of AY 2009-10 and Ground 2 of A.Y 2014-15) This is consequential to the main Issue 2 discussed in detail above and the stand of the department is that since the IDC is the income of the assessee, it follows that the interest on FD's made out of IDC receipts is also a revenue receipt and hence income of the assessee. Reliance is placed on the CIT(A) order for AY 2009-10 at para 11 pages 27 to 29. Furthermore, reliance is also placed on the the judgement at Sr No 12 of the Case law compilation which is applicable to the facts of the present case.. 8. We have heard the rival contentions carefully, gone through the orders of the authorities below and also the various documents and case laws referred before us. 9. The issue to be adjudicated is regarding taxability of Infrastructure Development Charges, ( IDC )receipts in the hands of the assessee Fund. The contention of the Ld.Counsel for the assessee is that the Fund was just a bank account of the State Government and was not a separate legal entity. That the fund belonged entirely to the state government and therefore there arose no question of taxing the IDC receipts in the hands of the Fund.Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... installment to be deposited within six months from the date of grant of license. (2) The Haryana Urban Development Authority {local authorities, firms, undertakings of Government and other authorities involved in land development} shall also be liable to deposit the {infrastructure development charges} and shall be deemed to be {colonizers}for this purpose only. The date of first inviting applications for sale of plots in any colony by it shall be deemed to be the date of granting of license under this Act for the purpose of deposit of {infrastructure development charges}. (3) The {infrastructure development charges}shall be deposited by the colonizer with such officer or person as may be appointed by the government in this behalf. (4) The colonizer shall in turn be entitled to pass on the {infrastructure development charges} paid by him to the plot holder. (5) The amount of {infrastructure development charges} if not paid within the prescribed period shall be recoverable as arrears of land revenue. (6) The amount of infrastructure development charges so deposited by the colonizer shall constitute a fund called the Fund, for stimulating socio-economic growth and deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Financial Commissioner and Principal Secretary to Government Haryana, Power Department Member 6. Financial Commissioner and Principal Secretary to Government Haryana, Public works, Building Roads Department Member 7. Financial Commissioner and Principal Secretary to Government of Haryana, Transport Department Member 8. Commissioner and Secretary to Government Haryana, Town and Country Planning Department Member 9. Director, Town and Country Planning Department Haryana Member Secretary D.S. DHESI Commissioner and Secretary to, Government Haryana Town and Country Planning Department As is evident from the above, the high powered committee was headed by the Chief Minister and comprised of Secretaries of various departments relevant for infrastructure development including the Finance Secretary. The committee therefore was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the state had been created by virtue of the creation of the fund. 12. The argument of the Revenue that the formation of a high powered committee for administration of the Fund sufficiently established that an entity distinct from the State has been created, in our view holds no ground. The constituents who make up the committee coupled with the fact of exercise of power by the committee whether in its own right and distinct from the State would be essential factors determining whether an entity distinct and separate from the State had been created on the formation of the committee. In the facts of the present case as stated above, the committee comprised of the Chief Minister of the state, who headed it, and heads of government departments concerned with implementation of infrastructure projects. The constituents of the committee represented the State. This committee was empowered to administer the Fund as per the HDRUA Act, 1975. The documents filed before us show that the expenditure out of the Fund was incurred only with the directions and approval of State Government. Reading it all together, the committee represented the State carrying out the activities relating to uti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds No.1 2 in ITA No.528/Chd/17, are accordingly allowed. Taking up the remaining grounds in ITA No. 644/chd/18, for A.Y 2009-10, Ground No .1, challenging the validity of the assessment framed u/s 147 of the Act, has not been pressed before us and the same is therefore treated as dismissed. Ground No.3 relating to allowance of expenditure against the IDC receipts is rendered infructuous in view of our findings treating the Fund as belonging to the State and the IDC receipts therefore not being taxable. In effect therefore the appeal of the assessee for A.Y 2009-10 in ITA No. 644/chd/18 is partly allowed. Taking up now the remaining grounds of ITA No. 528/chd/17, pertaining to A.Y 2013-14, Ground No . 1 2, relating to disallowance of accumulation of income u/s 11(2) of the Act and non acceptance of Form 10 disclosing income accumulated for future use for charitable purposes, is rendered infructuous in view of our findings treating the Fund as belonging to the State. The additional grounds having been allowed as above, in effect therefore the appeal of the assessee for A.Y 2013-14 in ITA No. 528/chd/17 is partly allowed. We shall now take up the appeal for A.Y 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Director and passed on for the purpose of its further utilisation to the Board to be constituted by the Government for this purpose. . . . 3AA. Establishment and constitution of Board.-(1) The State Government shall, by notification in the Official Gazette, establish a Board consisting of the following members, namely:- (i) The Chief Minister of Haryana. Chairman (ii) The Chief Secretary to Government of Haryana Vice-Chairman (iii) The Principal Secretary to Government of Haryana, Member Finance Department (iv) The Principal Secretary to Government of Haryana, Member Irrigation Department (v) The Principal Secretary to Government of Haryana, Member Power Department (vi) The Principal Secretary to Government of Haryana, Member PWD (B R) Department (vii) The Principal Secretary to Government of Haryana, Member Town Country Planning Department (viii) The Principal Secretary to Government of Haryana, Member Transport Department (ix) The Director General, Town Country Planning Member Department, Haryana. (x) The Chief Administrator, Haryana Infrastructure Member Secretary Development Board (xi) Any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any of its functions; and (vii) do such other things and perform such other acts as it may think necessary or expedient for the proper conduct of its functions and for carrying into effect the purposes of creation of the Board, as contained in this Act. What conclusively emerges from the above is that the Board was a distinct and separate entity from the State and its income and property could not be regarded as that of the State Government. 14. Having said so, the question now arises whether the Board was merely a nodal agency of the State, in which circumstance the receipts in the Fund of IDC charges would not be Revenue receipts of the Fund/Board.A nodal agency of the government, as is common knowledge, is that which is deputed merely for execution/implementation or supervision or combination of all above, for a particular scheme or project initiated by the government. It only channelizes the Funds of the Government in pre determined projects/schemes of the Government.Neither the collection of funds nor its usage is within the control of the nodal agency which acts only on behalf of the government for the said purposes, collecting funds levied by the government and u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfrastructure projects; (f) formulate clear and transparent policies related to the infrastructure sectors so as to ensure that project risks are clearly identified and allocated between the stakeholders; and (g) identify the sectoral concessions to be offered to concessionaires to attract private participation and secure availability of viable infrastructure facilities to the consumers; Provided that where participation is sought by any person by participating in disinvestment process, the provisions of this Act shall not apply: Provided further that any authority or body, constituted to implement such disinvestment, may seek assistance from the Board; (ii) prepare internally or through external consultants or service providers engaged for the purpose, all necessary documents including the bid or tender documents, draft contracts including the various contractual arrangements and incentives to be offered by the Government; (iii) assist public infrastructure agencies and concessionaires in obtaining statutory and other approvals; (iv) recommend the grant of concessions to a public infrastructure agency in accordance with the provisions of this Act, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. The Section 3AA is accordingly proposed to be introduced for the constitution of Board. The sub-section 7 of section 3A is also proposed for amendment to enable transfer of amount collected under the Fund by the Director to the Board. The Preamble of the Act is also proposed for appropriate amendment to reflect the said intent and purpose. The Board is likely to evolve as a multi-disciplinary Techno-Legal-Financial Institution for Promotion of Infrastructure Development in the State under the Haryana Development and Regulation of Urban Areas Act, 1975, with professionals drawn from Administration, Engineering, Town Planning, Legal and Finance cadres. Enabling provision for appointment of officers and employees for the Board has accordingly been made in Section 3AB. The Powers and Functions of the Board has been detailed under Section 3AC. Provision enabling the formulation of bye-laws by the Board for efficient administration of the Board has been provided under Section 3AD and the Government has been empowered under Section 3AE to issue directions to the Board for carrying out provisions of the Act. The Section 24 is also proposed for amendment to add enabling provisions for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable as Revenue receipts of the assessee, as opposed to capital receipts shown by the assessee, and after allowing Revenue and capital application of the same, found that there was shortfall in application of 85% of the income of the assessee, as stipulated by law for the purpose of claiming exemption of income from taxation u/s 11 of the Act. The shortfall was found to be ₹ 3, 82, 08, 83, 403/-.He further found the assessee ineligible for the benefit of excluding from the total income, the income accumulated for future utilization, as provided by section 11(2) of the Act, on finding that it had failed to fufil the conditions provided in the section and the relevant Rule 17 of the Income Tax Rules, 1962, for availing the benefit, of filing notice of accumulation in prescribed Form No.10 electronically by the due date of filing return of income u/s 139(1) of the Act.Accordingly he denied the benefit of accumulation of the shortfall of ₹ 382 Crs and subjected the same to tax. This was contested by the assessee before the Ld.CIT(A) who upheld the order of the AO in this regard. 20. The issue therefore is whether the denial of benefit of accumulation u/s 11(2) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) 0292 (Agra) o V. RAMAKRISHNA CHARITABLE TRUST vs. DEPUTY DIRECTOR OF INCOME TAX (EXEMPTIONS)-II (2015) 155 ITD 0727 (Chennai) In view of the aforesaid judgments, it is clear that where the assessee has furnished Form 10 before the completion of the assessment, the same has to be considered. The assessee has furnished the Form 10 manually as well as electronically before the completion of the assessment. Therefore we request that the same be considered. 22. The Revenue on the other hand has relied heavily on the findings of the Ld.CIT(A) pointing out therefrom that the Rules relating to filing of Form No.10, i.e Rule 17 of the Income Tax Rules, 1962, provided for the filing of the form before the due date of filing of return of income. That this limitation was introduced in the statute in section 11(2) w.e.f 01-04-2016. Therefore the contention of the assessee that for the impugned year there was no limitation for filing of form no.10 was incorrect. That in any case there were gross inconsistencies in the figures of amount accumulated reported in the audit report filed in form No.10B and that reported in Form No.10. Ld.DR pointed out that while the audit report refl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rief submissions in writing were also filed before us which are reproduced hereunder: Issue 5: (a) Denial of benefits of exemption u/s 11 by disallowing the claim of accumulation of income u/s 11(2) of the Act. (Ground 3 of AY 2014-15 and Ground 1 of AY 13-14) (b) Non acceptance of form No 10 submitted during asst. proceedings (Ground 2 of AY 2013-14) Reliance is place on the CIT(A) order for A.Y 2014-15 at para 10 pages 26 to 36 and para 5 pages 3 to 7 of CIT(A) order for A.Y 2013-14 where the various discrepancies in the documents submitted by the assessee and the issue of non filing of Form 10 has been discussed in detail along with reliance on various judicial pronouncements. In addition, reliance is also placed on the judgments at Sr No 6, 7, 8, 9 of the case law compilation which are applicable to the facts of the present case and in favour of the Revenue. 23. We have heard both the parties. One of the reason for denying benefit of accumulation of income to the assessee u/s 11(2) of the Act, we find, is the non-filing of notice of accumulation in prescribed Form No.10, before the due date of filing of return of income . Clearly the section does not mandate s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly the shortfall in application of 85% of the said income was reported as accumulated by the auditors u/s 11(2) of the Act . That it was only when the AO confronted the assessee with the proposed addition to be made of IDC and IAC receipts to the income, thus increasing the shortfall in 85% utilization of income to ₹ 382 crores, that the assessee filed Form No.10 notifying accumulation of the said shortfall u/s 11(2) of the Act. Therefore there was a bonafide explanation for the difference in reporting of accumulation by the auditors in form No.10B and by the assessee in Form No.10 being based on different figures of income reflected in the audited profit and loss account and income assessed by the AO respectively. We therefore do not agree with the finding of the Ld.CIT(A) that the form No.10 was unreliable on account of the aforesaid discrepancy . 25. In view of the above, we hold that the assessee was entitled to benefit of accumulation u/s 11(2) of the Act as per Form 10 filed during assessment proceedings. Ground of appeal No.3 is therefore allowed. 26. In effect the appeal of the assessee for A.Y 2014-15 is partly allowed. 27. All appeals of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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