TMI Blog2024 (2) TMI 922X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee by applying proviso to Section 2(15) and deny exemption available under Section 11. The intention of the trustees and the manner in which the activities of the charitable trust institution are undertaken are highly relevant to decide the issue of applicability of proviso to Section 2(15). There is no material/evidence brought on record by the revenue which may suggest that the assessee was conducting its affairs on commercial lines with motive to earn profit or has deviated from its objects as detailed in the trust deed of the assessee. In these facts and circumstances of the case, the proviso to Section 2(15) is not applicable to the facts and circumstances of the case, and the assessee was entitled to exemption provided under Section 11 for the relevant assessment year. From the record, it also appears that the authority had been maintaining infrastructure, development and reserve fund IDRF as per the notification dated 15 th January, 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 belongi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and further erred in observing that the assessee authority is carrying activity with the motive to earn profit and further erred in treating the assessees income as taxable. 3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in treating the income/loss earmarked as an amount of Rs. 96,81,09,136/- relating to infrastructure fund as taxable and that too by recording incorrect facts and findings and without observing the principles of natural justice. 4. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in charging interest u/s 234A, 234B, 234C and 234D of Income Tax Act, 1961. 5. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other. 2. Since, the issue involved in the present appeals are identical, both the appeals are heard together and decided a common order. ITA No.589/Del/2023 for AY 2016-17 3. The brief facts of the case as mentioned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court therefore the assessment order was passed subject to the outcome of the judgment of Hon ble Supreme Court in this case in the issue of granting registration u/s. 12AA of IT Act. However, in this particular year, it was found by the AO that the assessee has indulged in the commercial activities since it has traded in the land and properties, therefore provisions of sec. 13(8) r.w.s. 2(15) were invoked. 3.3 The Finance Act 2008 had substituted the erstwhile subsection (15) of section 2 of the Act, with effect from 01. 04. 2009, with a new subsection. In the substituted provision, proviso to sub-section had been introduced which stated that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business for a cess or fee or any other consideration irrespective of the nature of use or application, or retention, of the income from such activity. Subsequently, the Finance Act 2010 introduced a second proviso with retrospective effect from 01.04.2009, which stated that the first proviso shall not apply if the aggregate value of the receipts fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act, in the case of the assessee, is much more than the prescribed limit and as such the assessee authority will not be entitled to the benefit of exemption under section 11 of the Act with effect from 01/04/2009 when the amended provision become operative, Further, on perusal of the accounts reveal that the activity of the assessee authority was in the nature of trade/business. The assessee authority is operating on commercial lines and the claim that it is engaged in the advancement of an object of general public utility and was therefore eligible to be considered as having a charitable purpose , notwithstanding the amended provisions of section 2(15) of the Act, is certainly not tenable. The predominant purpose of the assessee authority is to engage in trade/business in as much as land is acquired by it, through the state government, at low rates, such land is either developed or constructed upon with attendant infrastructure and is disposed off at higher prices generating profits. Besides the assessee has substantial income in the nature of rental/lease/ hiring income. It is also understood that the disposal of properties by the assessee authority is by several modes i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed up. These authorities being controlled by Government statutes are more or less during and after being winded up following written statutes. The possibility of distribution of properties and funds among the specified persons is only in case of private trusts and not in case of organizations created by Government statutes, hence the tests in this regard cannot be applied in this case of the assessee. Still in the former judgment, it was held that since the income and the property of the assessee was liable to be applied solely or exclusively for the promotion of the object set out in the memorandum and no part of such income or property could be distributed amongst its members in any form or utilized for their benefit, either during its operational existence or on its winding up as such the object was a charitable one In the case under consideration as mentioned above, clause 58 of the U P Urban Planning and Development Act 1973 states that on dissolution all properties funds and use which are vested in or are realizable by the authority shall vest in or be realizable by the state government The assessee authority does not qualify the above test laid down by the Apex Court inasmuc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT. Amritsar Bench dated 14.06.2012 in ITA No.30(Asr)/2011 in the case of Jammu Development Authority, Jammu has been upheld by the Hon'ble High Court of Jammu Kashmir in ITA No. 164/2012 dated 07 11 2013. This order of Hon'ble High Court of Jammu Kashmir has been confirmed by Hon'ble Supreme Court in Special Leave to Appeal No. 4990/2014 vide order dated 24.07.2014. The facts in the aforesaid case laws are similar to the assessee. 3.9 Thus the AO contended that the assessee authority i.e. Ghaziabad Development Authority is an authority constituted under the UP Urban Planning and Development Act, 1973 and the activity of the assessee authority is hit by subsection 15 of section 2 of the Act. Therefore, the same is not entitled to benefits in terms of section 12A of the Act and is not at all a charitable entity. The authority is found to be engaged in activity in the nature of trade, commerce or business in as much as one of the dominant activities of the authority is purchase- sale, development and management of properties the receipts from which are in excess of Rs. 25 lakh being the ceiling stipulated in the second proviso of section 2(15) of the Act. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso been become mandatory to upload audit report online m form 108. However, in the case of assessee audit report was fled on 30.03.2018 which is delay from the date of its filing as prescribed in Income Tax Act 1961. Thus, the income of the assessee is considered as taxable. The assessee has incurred loss of Rs. 145 18,06,231/-. 3.14 It was found by the AD that the assessee has not credited as income a sum of Rs. 479 94,88, 809/- and has earmarked the same as amount relating to infrastructure fund However, the expenditure to the tune of Rs. 576,75 97,545/- has also been made without passing in the P L account, therefore the set off was sought by the assessee. The assessee submitted that it is working as a development agency to the State Government for collecting the funds and spending the same in development activities and it is only a custodian of funds which can be utilized only after approval of state authorities. Therefore, the reserve created by the assessee is diverted by over riding title and not chargeable to tax. The AD observed that no separate books of accounts are maintained for infrastructure development fund and the receipts are undoubtedly revenue receipts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of activity of the respondent - assessee is charitable and it is not hit by proviso of Section 2(15) of the Act, 1961. The Tribunal has remanded the matter to the Assessing Officer to examine the activity of the respondent - assessee and if it is found to be inconsonance with the object the benefit of exemption under Section 11 has been directed to be allowed. The Tribunal has also considered the taxability of the amount transferred to the Infrastructure Development Fund and followed its decision dated 24.03.2021 in ITA No.4113/DEL/2017 and directed the Assessing Officer to adjudicate the issue afresh keeping in mind the ratio laid down by Co-ordinate benches of the Tribunal in Saharanpur Development Authorities case and Khurja Development Authorities . Thus, the tribunal has remanded the matter to the assessing officer to examine the activities of the respondent assessee for allowing benefit of exemption under Section 11 of the Act. The assessing officer has also been directed to adjudicate the issue of transfer of fund to infrastructure development fund in terms of the ratio laid down by Co-ordinate benches of the Tribunal in the case of Saharanpur Development Authorities and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is warranted by the facts of the case. Revenue Authorities are always at liberty to cancel the registration under Section 12AA(3). Moreover, it may be mentioned that the benefit of Section 11 is not absolutes or conclusive. It is subject to control of Sections 60 to 63. If it is found by keeping in view the provisions of Sections 60 to 63 that it is not so includible then such income does not qualify for any relief. 25. Further, it may be mentioned that Section 12AA of the Act lays down the procedure for registration in relation to the conditions for applicability of Sections 11 12 as provided in Section 12A. Therefore, once the procedure is complete as provided in sub-section (1) of Section 12AA and a certificate is issued granting registration to the trust or institution the certificate is a document evidencing satisfaction about (i) the genuineness of the activities of the trust or institution, and (ii) about the objects of the trust or institution. Section 12A stipulates that the provisions of Sections 11 12 shall not apply in relation to income of a trust or an institution unless the conditions stipulated therein are fulfilled. Thus, granting of registration under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying out its activities on non-commercial lines with no motive to earn profits, for fulfillment of its aims and objectives, which are charitable in nature and in the process earn some profits, the same would not be hit by proviso to section 2(15). The aims and objects of the assessee-trust are admittedly charitable in nature. 30. Mere selling some product at a profit will not ipso facto hit assessee by applying proviso to Section 2(15) and deny exemption available under Section 11. The intention of the trustees and the manner in which the activities of the charitable trust institution are undertaken are highly relevant to decide the issue of applicability of proviso to Section 2(15). 31. There is no material/evidence brought on record by the revenue which may suggest that the assessee was conducting its affairs on commercial lines with motive to earn profit or has deviated from its objects as detailed in the trust deed of the assessee. In these facts and circumstances of the case, the proviso to Section 2(15) is not applicable to the facts and circumstances of the case, and the assessee was entitled to exemption provided under Section 11 for the relevant assessment year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 096/2012 is pending in this Court. However, the office has given a report stating that C.A. No. 7096/2012 was decided by this Court as far back as on 27.09.2012. In other words, the petitioners have given a totally misleading statement before this Court. We are shocked that the Union of India through the Commissioner of Income Tax has taken the matter so casually. As we have noted, there is an inadequate explanation of delay of 596 days in filing the petition and a misleading statement about pendency of a similar civil appeal. Under the circumstances, we dismiss the petition with costs of Rs. 10 lacs to be paid to the Supreme Court Legal Services Committee within four weeks from today. The amount be utilized for juvenile justice issues. List the matter for compliance after four weeks. 7. In view of the facts and circumstances and legal position as noted above, we find that no substantial question of law is involved in the impugned order of the Tribunal. The controversy is concluded by findings of fact and the judgments of this Court as affirmed by the Hon ble Supreme Court. 8. The Co-ordinate Bench of the Tribunal for the AYs 2009-10 and 2012-13 2013-14 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds is not the income of the appellant. 7. This observation has been given consistently by the ITAT in favour of the assessee for the Assessment years 2004-05 to 2007-08. Further, the Hon ble Allahabad High Court in the case of Lucknow Development Authority has held that the money transferred to the Infra structure fund account is to be utilized for the purpose of the projects as specified by the Committee having constituted by the State Government and cannot be treated as belonging to the authority or receipt is taxable nature in its hand. 8.1 Identical issue was also considered by the Co-ordinate Bench in the case of Khurja Development Authority vs. ACIT in ITA No.5103/Del/2016 vide order dated 03.04.2019. The relevant observations of the Co-ordinate Bench are reproduced herein under: 12. As regards, the addition made on account of infrastructure fund, Ld. Counsel for assessee relied upon the judgment of Allahabad High Court in the case of CIT vs. Lucknow Development Authority 265 CTR 433 in which it was held as under: Where the trust is carrying out its activities on non-commercial lines with no motive to earn profits, or fulfillment of its aims and ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.2 In the light of the orders of the Co-ordinate Bench as reproduced in the preceding paragraphs in the case of Saharanpur Development Authority (supra) and Khurja Development Authority (supra), we are of the view that source of funds transferred to Infrastructure Development Fund, control over the same and obligation of its utilization is required to be examined to ascertain the real nature of Infrastructure Development Fund. Accordingly, we direct the Assessing Officer to adjudicate the issue afresh keeping in mind the ratio laid down by the Co- ordinate Benches of this Tribunal in Saharanpur Development Authority (supra) and Khurja Development Authority (supra). Accordingly, ground Nos.7 8 are also allowed for statistical purposes. 12. By respectfully following the orders of the Hon ble High Court, the Tribunal in Assessee s own case (supra) we remand the matter to the file of the AO to decide the issue afresh keeping the ratio laid down by the Co-ordinate Bench of the Tribunal in Saharanpur Development Authorities in ITA No.4113/Del/2017 vide order dated 24/03/2021 and Khurja Development Authorities vs. ACIT in ITA No.5103/Del/2016 vide order dated 03/04/2019 and decid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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