M/s. Mussorie Dehradun Development Authority, Dehradun V. ITO, New Delhi

ITA 2147/DEL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74379 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 11-03-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 12-04-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: S KRISHNA
• Keywords: Business income; Business expenditure; Opportunity of being heard; Diversion of income; Additional evidence; Revenue expenditure; Capital expenditure
• Section: 142(1); 12A; 37; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI) BEFORE SHRI U. B. S. BEDI, JUDICIAL MEMBER AND SHRI T. S. KAPOOR , ACCOUNTANT MEMBER I.T.A. NO. 2147 /DEL/2013 (ASSESSMENT YEAR 2009-10) M/S. MUSSOORIE DEHRADUN VS. ITO, WARD 2(1), DEVELOPMENT AUTHORITY, DEHRADUN TRANSPORT NAGAR, SAHARANPUR ROAD, NEAR ISBT, DEHRADUN PAN/GIR NO.: AAAAM4651Q (APPELLANTS) (RESPONDENTS) ASSESSEE BY : SHRI S. KRISHNA, ADV. DEPARTMENT BY: SHRI KEYUR PATEL, SR. DR ORDER PER U B S BEDI, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY LD. CIT(A) - I, DEHRADUN DATED 22.01.2013 RELEVANT TO A SSESSMENT YEAR 2009-10 RAISING THE FOLLOWING GROUNDS: THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE AUTHORITIES BELOW ERRED IN HOLDING THAT THE CLAIM O F THE APPELLANT THAT THERE WAS DIVERSION BY OVERRIDING TITLE IN RESPECT OF INFRASTRUCTURE FUND CONTRIBUTIONS WAS UNTENABLE. IT IS PRAYED THA T THE ABOVE ACTIONS BEING MISCONCEIVED, ARBITRARY AND UNLAWFUL MUST BE QUASHED. 2. AT THE VERY OUTSET, LD. COUNSEL FOR THE ASSESSEE SHRI S KRISHNA, ADVOCATE HAS FAIRLY SUBMITTED THAT THE ISSUE INVOLV ED IN THE APPEAL UNDER I.T.A. NO. 2147/DEL/2013 2 CONSIDERATION IS SQUARELY COVERED IN FAVOUR OF THE DEPARTMENT BY THE DECISION OF ITAT E BENCH DELHI IN I.T.A. NO. 830/ DEL/2010 AND 853/DEL/2011 FOR THE ASSESSMENT YEARS 2006-07 AND 2 007-08 RESPECTIVELY IN ASSESSEES OWN CASE DATED 02 ND DEC., 2011 AND WHILE FILING A COPY OF THE TRIBUNAL ORDER, IT WAS SUBMITTED THAT THIS BENCH MA Y FOLLOW THE EARLIER ORDER IN ASSESSEES OWN CASE. LD. COUNSEL FOR THE ASSESS EE HAS ALSO PLACED A LETTER DATED 13.03.2014 BY CONTENDING THAT HE IS ENCLOSING THEREWITH AN OPINION ON THE POINT OF ISSUE IN APPEAL RENDERED BY ONE S RAJA RATNAM DATED 20.08.,2011 WITH A REQUEST TO TAKE THE OPINION INTO CONSIDERATI ON WHILE DECIDING THE GROUNDS OF APPEAL. AT THIS POINT, WHEN LD. A.R. WA S ASKED THAT FIRSTLY THIS IS A FRESH DOCUMENT, SECONDLY, IT IS AN UNSIGNED PAPER AND NOT EVEN SIGNED BY THE COUNSEL AS TRUE COPY AND THIRDLY THERE IS ALSO NO APPLICATION SEEKING ADMISSION OF THE SAME AS ADDITIONAL EVIDENCE AS BEI NG FRESH DOCUMENTS BUT HE REQUESTED TO CONSIDER THIS DOCUMENT. 3. LD. D.R. SUBMITTED THAT SO FAR AS THE FIRST PLEA OF THE ASSESSEE IS CONCERNED, THE SAME IS LIABLE TO BE ACCEPTED AS THE ISSUE IS COVERED IN FAVOUR OF THE REVENUE AS SUCH, APPEAL OF THE ASSESSEE MAY BE DISMISSED. SINCE THE ASSESSEE FILED ADDITIONAL EVIDENCE IN THE ABSENCE O F ANY APPLICATION FOR ITS ADMISSION, THEREFORE REQUEST OF THE ASSESSEE IS OF NO CONSEQUENCE AND THE SAME SHOULD NOT EVEN BE CONSIDERED. 4. WE HAVE HEARD BOTH THE SIDES, CONSIDERED THE MAT ERIAL ON RECORD AND FIND THAT THE ASSESSEE IN THIS CASE HAS MADE AN ATT EMPT TO FILE ONE UNSIGNED PAPER RUNNING INTO 10 PAGES, STATING IT TO BE THE O PINION OF SOMEBODY WITHOUT AUTHENTICATING IT OR WITHOUT FOLLOWING LEGA L PROCEDURE LAID DOWN U/R 29 OF ITAT RULES FOR FILING THE ADDITIONAL DOCUMENT S BEFORE THE TRIBUNAL, THEREFORE, REQUEST OF THE ASSESSEE BEING OF NO CONS EQUENCE IS REJECTED AND THE I.T.A. NO. 2147/DEL/2013 3 UNSIGNED AND UNATTESTED PIECE OF PAPER WILL NOT FOR M PART OF THE APPEAL RECORD. 5. AFTER HAVING CONSIDERED ARGUMENTS OF BOTH THE SI DES 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 ASS ESSEES 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 O F 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 N IL INCOME. THIS RETURN WAS PROCESSED UNDER SEC. 143(1) ON 14.2.2007 . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND A NOTICE UNDER SEC. 143(2) OF THE ACT WAS ISSUED ON 26.3.2007 WHICH WAS SERVED UPON THE ASSESSEE ON 29.3.2007. IN RESPONSE TO THE NOTICE, S HRI SAURAV GUPTA, CA APPEARED. LEARNED ASSESSING OFFICER HAD ISSUED A QUESTIONNAIRE ON 16TH SEPTEMBER 2008 ALONG WITH NOTICE UNDER SEC. 142(1) AND 143(2) OF THE ACT. ON SCRUTINY OF THE ACCOUNTS, ASS ESSING OFFICER FOUND THAT ASSESSEE HAD CLAIMED TO BE MAINTAINING AN 'INF RASTRUCTURE FUND' TO WHICH A FIXED PORTION OF ITS RECEIPTS ARE CREDIT ED AND OUT OF WHICH INFRASTRUCTURE RELATED EXPENSES ARE INCURRED. THE A MOUNT CREDITED TO THIS ACCOUNT IN ASSESSMENT YEAR 2006-07 IS OF RS. 1 1,63,38,117. THE ASSESSEE HAD INCURRED EXPENSES TOWARDS DEVELOPMENT AT RS. 3,14,12,303. ASSESSING OFFICER HAS ALLOWED THIS AMO UNT. WITH REGARD TO THE BALANCE OF RS. 8,49,25,814, IT WAS SUBMITTED BY THE ASSESSEE THAT STATE GOVERNMENT HAS A OVERRIDING TITLE ON THE SE RECEIPTS AND, THEREFORE, THEY DO NOT FORM PART OF THE TOTAL INCOM E OF THE ASSESSEE. 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. ASSESSING OFFICER FURT HER FOUND THAT THERE IS DEFICIT OF RS. 1,18,12,436 IN THE INCOME AND EXP ENDITURE ACCOUNT. I.T.A. NO. 2147/DEL/2013 4 HE ALLOWED THIS DEFICIT WHILE COMPUTING THE TOTAL I NCOME OF THE ASSESSEE. HOWEVER, HE DID NOT ALLOW THE PRIOR PERIO D EXPENSES OF RS. 61,11,000. IN THIS WAY, INCOME OF THE ASSESSEE IN A SSESSMENT YEAR 2006-07 HAS BEEN DETERMINED AT RS. 7,92,24,378. 5. IN ASSESSMENT YEAR 2007-08, THE ASSESSEE HAS FILED ITS RETURN OF INCOME ON 31.10.2007 DECLARING NIL INCOME. IT WAS P ROCESSED UNDER SEC. 143(1) OF THE ACT. LATER ON, THE CASE OF THE A SSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND A NOTICE UNDER SEC. 143 (2) OF THE ACT DATED 22.9.2008 WAS ISSUED AND SERVED UPON THE ASSE SSEE. IN THIS ASSESSMENT YEAR, ASSESSEE HAD RECEIVED GROSS RECEIP TS IN THE ALLEGED INFRA-STRUCTURE FUND AT RS. 24,67,73,593. IT HAS IN CURRED A SUM OF RS. 4,39,71,667. THE BALANCE AMOUNTING TO RS. 20,28,01, 927 WAS NOT INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE BY THE ASSESSEE ON THE GROUND THAT AS PER THE OFFICE MEMORANDUM ISSUED BY THE UP GOVERNMENT ON 15.1.1998, STATE GOVERNMENT HAS A OVE RRIDING TITLE AND THUS THERE IS A DIVERSION OF THIS INCOME BECAUS E OF THIS G.O., IT VESTS IN THE STATE GOVERNMENT AND NOT IN THE ASSESS EE. THIS ARGUMENT OF THE ASSESSEE HAS BEEN REJECTED BY THE ASSESSING OFFICER IN THIS YEAR ALSO. HE MADE THE ADDITION OF RS. 20,28,01,927 IN A SSESSMENT YEAR 2007-08. 6. DISSATISFIED WITH THE ACTION OF THE ASSESSING OFFI CER, 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 LEARN ED CIT(APPEALS) TOOK INTO CONSIDERATION THE OFFICE MEMORANDUM ISSUE D BY THE UP GOVERNMENT AS WELL AS THE PROVISIONS OF UP URBAN, P LANNING AND DEV. ACT, 1973 WHICH BROUGHT THE ASSESSEE INTO EXIS TENCE. AFTER A DETAILED ANALYSIS, LEARNED FIRST APPELLATE AUTHORIT Y HAS OBSERVED THAT THERE IS NO OVERRIDING TITLE OVER THE ALLEGED INFRA -STRUCTURE FUND ACCOUNT BY THE STATE GOVERNMENT AND THIS AMOUNT DES ERVES 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 T AXATION. ACCORDINGLY, THE APPEALS OF THE ASSESSEE HAVE BEEN REJECTED IN BOTH THE ASSESSMENT YEARS. 7. BEFORE US, LEARNED COUNSEL FOR THE ASSESSEE REITER ATED HIS CONTENTIONS AS WERE RAISED BEFORE THE REVENUE AUTHO RITIES BELOW. HE EMPHASIZED THAT ASSESSEE COLLECTED THE FUNDS AS PER THE OFFICE MEMORANDUM OF THE STATE GOVERNMENT. IT HAS NO CONTR OL OVER THAT I.T.A. NO. 2147/DEL/2013 5 FUND AND THE AMOUNT HAS TO BE INCURRED IN ACCORDANC E WITH THE DIRECTIONS OF THE STATE GOVERNMENT. THE OFFICE MEMO RANDUM SPECIFICALLY PROVIDES THAT 80% OF THE AMOUNT FROM T HIS ACCOUNT WOULD BE SPENT ON CAPITAL EXPENDITURE AND 20% CAN BE SPEN T ON REVENUE ACCOUNT. ON THE STRENGTH OF HON'BLE KARNATAKA HIGH COURT'S DECISION IN THE CASE OF CIT V. KARNATAKA URBAN INFRASTRUCTUR E DEVELOPMENT & FINANCE CORPN. [2006] 284 ITR 582 /155 TAXMAN 228, HE POINTED OUT THAT THE ASSESSEE IS A MERE NODAL AGENCY. IT COLLEC TED THE FUNDS AS PER THE AUTHORIZATION OF THE STATE GOVERNMENT AND INCUR RED THOSE FUNDS AS PER THE MANDATE OF THE STATE GOVERNMENT. THUS, THE FUNDS DO NOT VEST IN THE ASSESSEE AND THEY CANNOT FORM PART OF THE TO TAL INCOME OF THE ASSESSEE. IN ORDER TO APPRAISE US THE CONCEPT OF DI VERSION OF INCOME BY OVERRIDING TITLE, HE RELIED UPON THE FOLLOWING D ECISIONS: 1. CIT V. KARNATAKA URBAN INFRASTRUCTURE DEVELOPMEN T & FINANCE CORPN. [2009] 315 ITR 301 (KAR.); 2. MOTI LAL CHHADAMI LAL JAIN V. CIT [1991] 190 ITR 1 /56 TAXMAN 4A (SC). 8. LEARNED DR ON THE OTHER HAND TOOK US THROUGH THE P ROVISIONS OF UP PLANNING AND URBAN DEV. ACT, 1973 BY VIRTUE OF WHIC H ASSESSEE CAME INTO EXISTENCE. HE REFERRED SECTION 20 WHICH PROVID ES THE MANAGEMENT OF FINANCE AND ACCOUNTS OF THE ASSESSEE DEVELOPMENT AUTHORITY. HE ALSO REFERRED SECTION 41 WHICH CONTEMPLATES THE CON TROL OF THE STATE GOVERNMENT. HE POINTED OUT THAT THE OBJECTS OF THE AUTHORITY IS TO PROMOTE AND SECURE THE DEVELOPMENT OF THE DEVELOPED AREA ACCORDING TO PLAN AND FOR THAT PURPOSES AUTHORITY SHALL HAVE THE POWERS TO ACQUIRE, HOLD, MANAGE AND DISPOSE OF LAND AND OTHER PROPERTIES. THE ALLEGED GOVERNMENT ORDER OF THE GOVERNMENT OF UP DO ES NOT INFUSE ANY SPECIAL CONTROL OF THE GOVERNMENT OF UP, IT ONL Y PROVIDES THE COLLECTION OF FEES AND HOW IT IS TO BE UTILIZED FOR THE FULFILMENT OF THE ASSESSEE OBJECTS. THE ASSESSEE HAS BEEN COLLECTING FEES ON A LARGE NUMBER OF COUNTS, NAMELY, DEVELOPMENT FEES, CONVERS ION OF CHARGES ON ACCOUNT OF LAND USER, MAP SANCTIONED FEE, COMPOUNDI NG FEE, SUPERVISION FEE, INCOME ON HOUSING SCHEME, CAR PARK ING INCOME AND SAMPLE FEES ETC. 90% OF THE AMOUNTS COLLECTED ON TH REE COUNTS, NAMELY, DEVELOPMENT FEES, FEES COLLECTED FOR GIVING CERTIFICATES OF CHANGE OF LAND USER AND STAMP DUTY IS BEING TRANSMI TTED TO ALLEGED INFRA-STRUCTURE FUNDS. THE ASSESSEE IS UNABLE TO PO INT OUT DISTINCTION BETWEEN OTHER CHARGES COLLECTED BY IT, VIS--VIS TH IS AMOUNT AS FAR AS ITS RIGHT TO COLLECT THEM. THE AMOUNTS WERE COLLECT ED IN ITS I.T.A. NO. 2147/DEL/2013 6 INDEPENDENT RIGHTS. THEY WERE PART OF THE ASSESSEE' S FUNDS AND THERE IS NO OVERRIDING TITLE OF THE STATE GOVERNMENT OVER SU CH COLLECTION. HE TOOK US THROUGH THE ORDER OF THE LEARNED CIT(APPEAL S) IN ASSESSMENT YEAR 2007-08 AND RELIED UPON THE ORDERS OF THE REVE NUE AUTHORITIES BELOW. HE ALSO RELIED UPON THE FOLLOWING DECISIONS FOR APPRISING US THE MEANING OF CONCEPT, DIVERSION OF INCOME BY OVER RIDING 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 & RETA IL STORES LTD. V. CIT [1998] 229 ITR 209 / 97 TAXMAN 1 (BOM); 3. CIT V JODHPUR CO-OPERATIVE MARKETING SOCIETY [20 05] 275 ITR 372 /[2004] 140 TAXMAN 541 (RAJ.); 4. ASSOCIATED POWER CO. LTD. V. CIT [1996] 218 ITR 195 / 84 TAXMAN 355 (SC); & 5. CIT V SUNIL J. KINARIWALA [2003] 259 ITR 10 / 126 TAXMAN 161 (SC). 9. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AND GONE THROUGH THE RECORD CAREFULLY. BEFORE WE EMBARK UPON AN INQU IRY ON THE INTERPRETATION OF ALLEGED OFFICE MEMORANDUM DATED 1 5.1.1998 ISSUED BY THE UP GOVERNMENT AND ITS IMPACT ON THE TAXABILI TY OF THE ASSESSEE, WE WOULD LIKE TO TAKE COGNIZANCE OF FEW CLAUSES OF THE UP URBAN, PLANNING AND DEV. ACT, 1973, WHICH HAS A DIRECT BEA RING ON THE CONTROVERSY, AND WHICH WILL HELP US TO UNDERSTAND T HE ESTABLISHMENTS OF THE ASSESSEE. THUS, SECTION 4 WHICH PROVIDES THE ESTABLISHMENT OF A DEVELOPMENT AUTHORITY, SECTION 7 WHICH PROVIDES OBJ ECTS OF THE AUTHORITY, SECTION 20 WHICH PROVIDES FUNDS OF AUTHO RITY AND SECTION 41 WHICH PROVIDES CONTROL OF THE STATE GOVERNMENT ARE RELEVANT SECTIONS, THEY READ AS UNDER: 4 THE DEVELOPMENT AUTHORITY- (1) THE STATE GOVERNMENT MAY, BY NOTIFICATION IN TH E GAZETTE, CONSTITUTE FOR THE PURPOSES OF THIS ACT, AN AUTHORI TY TO BE CALLED THE DEVELOPMENT AUTHORITY FOR ANY DEVELOPMENT AREA. (2) THE AUTHORITY SHALL BE A BODY CORPORATE, BY THE NAME GIVEN TO IT IN THE SAID NOTIFICATION, HAVING PERPETUAL SUCCESSION AND A COMMON SEAL WITH POWER TO ACQUIRE, HOLD AND DISPOSE OF PROPERTY , BOTH MOVABLE AND IMMOVABLE AND TO CONTRACT AND SHALL BY THE SAID NAME SUE AND BE SUED. I.T.A. NO. 2147/DEL/2013 7 (3) THE AUTHORITY IN RESPECT OF A DEVELOPMENT AREA WHICH INCLUDES WHOLE OR ANY PART OF A CITY AS DEFINED IN THE (UTTA R PRADESH MUNICIPAL CORPORATION ACT, 1959), SHALL CONSIST OF THE FOLLOW ING MEMBERS NAMELY- A CHAIRMAN TO BE APPOINTED BY THE STATE GOVERNMENT: A VICE-CHAIRMAN TO BE APPOINTED BY THE STATE GOVERN MENT: THE SECRETARY TO THE STATE GOVERNMENT, IN CHARGE OF THE DEPARTMENT IN WHICH, FOR THE TIME BEING, THE BUSINESS RELATING, T O THE DEVELOPMENT AUTHORITIES IS TRANSFERRED, EX-OFFICIO:) THE SECRETARY TO THE STATE GOVERNMENT IN CHARGE OF THE DEPARTMENT OF FINANCE, EX-OFFICIO. THE CHIEF TOWN AND COUNTRY PLANNER, UTTAR PRADESH E X-OFFICIO: THE MANAGING DIRECTOR OF THE JAL NIGAM ESTABLISHED UNDER THE UTTAR PRADESH WATER SUPPLY AND SEWERAGE ACT, 1975. EX-OFF ICIO) THE MUKHYA NAGAR ADHIKARI, EX-OFFICIO: THE DISTRICT MAGISTRATE OF EVERY DISTRICT ANY PART OF W INCLUDED IN THE DEVELOPMENT AREA EX-OFFTCIO: FOUR MEMBERS TO BE ELECTED BY SABHASADS OF THE NAG MAHAPALIKA FOR THE SAID CITY FROM AMONGST THEMSELVES, PROVIDED THAT ANY SUCH MEMBER SHALL CEASE TO HOLD O FFICE AS SUCH AS SOON AS HE CEASES TO BE SABHASAD OF THE (MUNICIPAL CORPORATION): (J) SUCH OTHER MEMBERS NOT EXCEEDING THREE AS MAY B E 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 GO VERNED BY SUCH CONDITIONS OF SERVICE AS MAY BE DETERMINED BY GENER AL OR SPECIAL ORDER OF THE STATE GOVERNMENT IN THIS BEHALF. (6) A MEMBER REFERRED TO IN CLAUSE (C) CLAUSE (D) C LAUSE (E) OR CLAUSE (F) OF SUB-SECTION (3) MAY INSTEAD OF ATTEND ING A MEETING OF THE AUTHORITY HIMSELF DEPUTE AN OFFICER, NOT BELOW THE RANK OF DEPUTY SECRETARY IN THE DEPARTMENT, IN THE CASE OF A MEMBE R 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 REF ERRED TO IN CLAUSE (F) TO ATTEND THE MEETING. THE OFFICER SO DEPUTED S HALL HAVE THE RIGHT TO I.T.A. NO. 2147/DEL/2013 8 TAKE PART IN THE PROCEEDINGS OF THE MEETING AND SHA LL ALSO HAVE THE RIGHT TO VOTE. (7) THE AUTHORITY IN RESPECT OF A DEVELOPMENT AREA OTHER THAN THAT MENTIONED IN SUB-SECTION (3) SHALL CONSIST OF A CHA IRMAN, A VICE CHAIRMAN AND NOT LESS THAN FIVE AND NOT MORE THAN E LEVEN SUCH OTHER MEMBERS, INCLUDING AT LEAST ONE MEMBER FROM MUNICIP AL BOARDS AND NOTIFIED AREA COMMITTEES HAVING EACH JURISDICTION I N THE DEVELOPMENT AREA, WHO SHALL HOLD OFFICE FOR SUCH PERIOD AND ON SUCH TERMS AND CONDITIONS AS MAY BE DETERMINED BY GENERAL OR SPECI AL ORDER OF THE STATE GOVERNMENT I THIS BEHALF. PROVIDED THAT THE VICE-CHAIRMAN OR A MEMBER OTHER T HAN AN EX- OFFICIO MEMBER OF THE AUTHORITY MAY AT ANY TIME BY WRITING UNDER HIS HAND ADDRESSED TO THE STATE GOVERNMENT RESIGN HIS O FFICE AND ON SUCH RESIGNATION BEING ACCEPTED SHALL BE DEEMED TO HAVE VACATED HIS OFFICE. (8) NO ACT OR PROCEEDINGS OF THE AUTHORITY SHALL BE INVALID BY REASON OF THE EXISTENCE OF ANY VACANCY IN, OR DEFECT IN TH E CONSTITUTION OF, THE AUTHORITY. 7. OBJECTS OF THE AUTHORITY. THE OBJECTS OF THE AUTHORITY SHALL BE PROMOTE AND S ECURE THE DEVELOPMENT OF THE DEVELOPMENT AREA ACCORDING TO PL AN AND FOR THAT PURPOSE THE AUTHORITY SHALL HAVE THE POWER TO ACQUI RE, HOLD, MANAGE AND DISPOSE OF LAND AND OTHER PROPERTY, TO CARRY OU T BUILDING, ENGINEERING, MINING AND OTHER OPERATIONS, TO EXECUT E WORKS IN CONNECTION WITH THE SUPPLY OF WATER AND ELECTRICITY TO DISPOSE OF SEWAGE AND TO PROVIDE AND MAINTAIN OTHER SERVICES A ND AMENITIES AND GENERALLY TO DO ANYTHING NECESSARY OR EXPEDIENT FOR PURPOSES OF SUCH DEVELOPMENT AND FOR PURPOSES INCIDENTAL THERETO: PROVIDED THAT SAVE AS PROVIDED IN THIS ACT NOTHING CONTAINED IN THIS ACT SHALL BE CONSTRUED AS AUTHORISING THE DISREGARD BY THE AUTHORITY OF ANY LAW FOR THE TIME BEING IN FORCE. 20. FUND OF THE AUTHORITY.- (1) THE AUTHORITY SHALL HAVE AN MAINTAIN ITS OWN FU ND TO WHICH SHALL BE CREDITED- ALL MONEYS RECEIVED BY THE AUTHORITY FROM THE STATE GOVERNMENT BY WAY OF GRANTS, LOANS, ADVANCES OR OTHERWISE: (B) ALL MONEYS BORROWED B THE AUTHORITY FROM SOURCE Y THE STATE GOVERNMENT BY WAY OF LOANS OR DEBENTURES; I.T.A. NO. 2147/DEL/2013 9 ALL [FEES, TOLLS AND CHARGES] RECEIVED BY THE AUTHO RITY UNDER THIS ACT: ALL MONEYS RECEIVED BY THE AUTHORITY FROM THE DISPO SAL OF LANDS, BUILDINGS AND OTHER PROPERTIES, MOVABLE AND IMMOVAB LE AND ALL MONEYS RECEIVED BY THE AUTHORITY BY WAY OF RENT S AND PROFITS OR IN ANY OTHER MANNER OR FROM ANY OTHER SOURCE, (2) THE FUND SHALL BE APPLIED TOWARDS MEETING THE E XPENSES INCURRED BY AUTHORITY IN THE ADMINISTRATION OF THIS ACT AND FOR NO OTHER PURPOSE; (3) SUBJECT TO ANY DIRECTIONS OF THE STATE GOVERNME NT, THE AUTHORITY MAY KEEP IN CURRENT ACCOUNT OF ANY SCHEDULED BANK S UCH SUM OF MONEY OUT OF ITS FUND AS IT MAY THINK NECESSARY FOR MEETING ITS EXPECTED CURRENTS REQUIREMENT AND INVEST ANY SURPLU S MONEY IN SUCH MANNER AS IT THINKS FIT. (4) THE STATE GOVERNMENT MAY, AFTER DUE APPROPRIATI ON 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 TE RMS 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 STAT E 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 BE SUFFICIENT FOR REPAYMENT WITHIN THE PERIOD FIXED OF ALL MONEYS SO BORROWED. THE SINKING FUND OR ANY PART THEREOF SHALL BE APPLI ED IN OR TOWARDS, THE DISCHARGE OF THE LOAN FOR WHICH SUCH FUND WAS C REATED, AND UNTIL SUCH LOAN IS WHOLLY DISCHARGED IT SHALL NOT BE APPL IED FOR ANY OTHER PURPOSE. BUDGET OF THE AUTHORITY:- 1) THE AUTHORITY SHALL PR EPARE IN SUCH AND AT SUCH TIME EVERY YEAR AS THE STATE GOVERNMENT MAY SPECIFY A BUDGET IN RESPECT OF THE FINANCIAL YEAR NEXT ENSUING, SHOW ING THE ESTIMATED RECEIPTS AND EXPENDITURE OF THE AUTHORITY. (22. ACCOUNTS AND AUDIT:- 1).-THE AUTHORITY SHALL M AINTAIN PROPER ACCOUNTS AND OTHER RELEVANT RECORDS AND PREPARE AN ANNUAL STATEMENT I.T.A. NO. 2147/DEL/2013 10 OF ACCOUNTS INCLUDING THE BALANCE SHEET IN SUCH FOR M AS THE STATE GOVERNMENT MAY SPECIFY. (2) THE ACCOUNTS OF THE AUTHORITY SHALL BE SUBJECT TO AUDIT ANNUALLY BY THE EXAMINER, LOCAL FUND ACCOUNTS: PROVIDED THAT IN PLACE OF OR IN ADDITION TO THE EXA MINER, LOCAL FUND ACCOUNTS, THE STATE GOVERNMENT MAY ENTRUST AND AUDI T TO THE ACCOUNTANT GENERAL, UTTAR PRADESH OR COMPTROLLER AN D AUDITOR GENERAL OF INDIA OR TO ANY OTHER AUDITOR ON SUCH TE RMS AND CONDITIONS, IN SUCH MANNER, FOR SUCH PERIOD AND AT SUCH TIMES AS MAY BE AGREED UPON BETWEEN HIM AND THE STATE GOVERNMENT . THE RIGHTS, AUTHORITY AND PRIVILEGES OF ANY PERSON CONDUCTING AUDIT UNDER SUB-SECTION (2) SHALL - (I) IN THE CASE OF EXAMINER, LOCAL FUND ACCOUNTS, B E THE SAME AS HE HAS IN CONNECTION WITH THE AUDIT OF THE ACCOUNTS OF LOCAL AUTHORITY; (II) IN THE CASE OF THE ACCOUNTANT GENERAL, UTTAR P RADESH OR AS THE CASE MAY BE, THE COMPTROLLER AND AUDITOR GENERAL OF INDIA, BE THE SAME AS HE HAS IN CONNECTION WITH THE AUDIT OF GOVE RNMENT ACCOUNTS, AND (III) IN THE CASE OF ANY OTHER AUDITOR, BE AS PRESC RIBED;AND, IN PARTICULAR, HE SHALL HAVE THE RIGHT TO DEMAND PRODU CTION OF BOOKS, ACCOUNTS, CONNECTED VOUCHERS, PAPERS AND OTHER DOCU MENTS AND TO INSPECT THE OFFICE OF THE AUTHORITY. THE ACCOUNTS OF THE AUTHORITY, AS CERTIFIED BY THE AUDITOR OR ANY PERSON APPOINTED BY HIM IN THAT BEHALF, TOGETHER WI TH AUDIT REPORT THEREON SHALL BE FORWARDED TO THE STATE GOVERNMENT ANNUALLY OR AT SUCH TIMES AS MAY BE DIRECTED BY IT. THE STATE GOVE RNMENT MAY ISSUE SUCH DIRECTIONS TO THE AUTHORITY AS IT MAY DEEM FIT AND THE AUTHORITY SHALL BE BOUND TO COMPLY WITH SUCH DIRECTIONS. (5) ANY EXPENDITURE, INCURRED BY THE AUDITOR IN CON NECTION WITH THE AUDIT SHALL BE PAYABLE BY THE AUTHORITY TO THE AUDI TOR). 41. CONTROL BY STATE GOVERNMENT.- (1) THE [AUTHORITY),THE CHAIRMAN OR THE (VICE-CHAIR MAN] SHALL CARRY OUT SUCH DIRECTIONS AS MAY BE ISSUED TO IT FROM TIM E TO TIME BY THE STATE GOVERNMENT FOR THE EFFICIENT ADMINISTRATION O F THIS ACT. (2) IF IN, OR IN CONNECTION WITH, THE EXERCISE OF I TS POWERS AND DISCHARGE OF ITS FUNCTIONS BY THE [AUTHORITY, THE C HAIRMAN OR THE VICE- CHAIRMAN) UNDER THIS ACT ANY DISPUTE ARISES BETWEEN THE AUTHORITY, I.T.A. NO. 2147/DEL/2013 11 THE CHAIRMAN OR THE VICE-CHAIRMAN) AND THE STATE GO VERNMENT THE DECISION OF THE STATE GOVERNMENT ON SUCH DISPUTE SH ALL BE FINAL. (3) THE STATE GOVERNMENT MAY, AT ANY TIME, EITHER O N ITS OWN MOTION OR ON APPLICATION MADE TO IT IN THIS BEHALF, CALL F OR 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 LEGA LITY 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 A N ORDER PREJUDICIAL TO ANY PERSON WITHOUT AFFORDING SUCH PE RSON A REASONABLE OPPORTUNITY OF BEING HEARD. (4) EVERY ORDER OF THE STATE GOVERNMENT MADE IN EXE RCISE OF THE POWERS CONFERRED BY THIS ACT SHALL BE FINAL AND SHA LL NOT BE CALLED IN QUESTION IN ANY COURT.] 10. ON PERUSAL OF THIS ACT AND THE PREFATORY NOTE, IT WOULD REVEAL THAT STATE GOVERNMENT OF UTTAR PRADESH HAD FELT THE INAD EQUACY OF EXISTING LOCAL BODY AND OTHER AUTHORITIES TO TACKLE THE REQU IREMENT OF PROBLEMS OF TOWN PLANNING AND URBAN DEVELOPMENT NEEDS. ACCOR DING TO THE GOVERNMENT, THE EXISTING LOCAL BODY AND OTHER AUTHO RITIES INSPITE OF THEIR BEST EFFORTS HAVE NOT BEEN ABLE TO COPE WITH THESE PROBLEMS TO THE DESIRED EXTENT, THEREFORE, THE NECESSITY WAS FELT T O CREATE INSTITUTIONS LIKE THE ASSESSEE WHICH ARE AT PAR WITH DELHI DEVEL OPMENT AUTHORITY. IN THIS BACKGROUND, ASSESSEE AUTHORITY HAS CAME INT O EXISTENCE. FROM PERUSAL OF SUB-SECTION (2) OF SECTION 4 EXTRACTED A BOVE, IT WOULD REVEAL THAT ASSESSEE AUTHORITY IS A BODY CORPORATE HAVING PERPETUAL SUCCESSION AND A COMMON SEAL WITH POWER TO ACQUIRE, HOLD AND DISPOSED OFF PROPERTY, BOTH MOVEABLE AND IMMOVEABLE AND TO CONTRACT AND SELL BY THE SAID NAME SUE AND SUED. UNDER THE U P URBAN DEVELOPMENT ACT, 1973, THE GOVERNMENT HAD MADE THE PROVISIONS FOR ITS SOURCE OF INCOME AND, THEREFORE, THE ASSESSEE H AD BEEN GIVEN POWERS TO COLLECT CERTAIN FEES AND CHARGES IN THE P ROCESS OF ITS FUNCTIONING, AS DISCERNIBLE FROM PERUSAL OF SECTION 20 OF THE ACT, THE STATE GOVERNMENT HAS EXERCISED SOME CONTROL OVER TH E ASSESSEE UNDER SEC. 41 OF THE ACT. 11. FROM PERUSAL OF THE RECORD, IT REVEALS THAT ASSESS EE HAS SOURCE OF INCOME FROM MORE THAN 18 COUNTS, OUT OF THAT CERTAI N INCOMES ARE OF MISCELLANEOUS INCOME, RENTAL INCOME, INTEREST INCOM E ON FDRS. APART FROM THESE GENERAL INCOMES, IT HAS BEEN AUTHORIZED TO COLLECT FEES AND CHARGES. LEARNED CIT(APPEALS) IN ASSESSMENT YEAR 20 07-08, NOTICED I.T.A. NO. 2147/DEL/2013 12 ALL THESE DETAILS IN A TABULAR FORM ON PAGE 3 OF TH E IMPUGNED ORDER. FROM PERUSAL OF THIS TABLE, IT REVEALED THAT ALL TH E INCOMES ARE RETAINED BY THE ASSESSEE IN ITS MAIN ACCOUNT EXCEPT THE CHARGES/FEES COLLECTED ON FOUR COUNTS. THESE ARE DEVELOPMENT FEE S, CONVERSION CHARGES OF LAND USER, STAMPED DUTY AND FEES ON REGU LARIZATION OF COLONIES. THE 90% OF THE AMOUNTS COLLECTED UNDER TH ESE HEADS WERE RETAINED IN THE ALLEGED INFRA-STRUCTURE FUND ACCOUN T. ACCORDING TO THE ASSESSEE, THE GOVERNMENT HAD ISSUED A MEMORANDUM ON 15.1.1998 AND BY VIRTUE OF THIS OFFICE MEMORANDUM, THERE IS D IVERSION OF INCOME AT SOURCE WHICH RELATES TO THIS INFRA-STRUCTURAL FU ND 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 LIK E TO REFER THE DECISIONS RELIED UPON BY THE PARTIES, IN ORDER TO U NDERSTAND THE CONCEPT OF DIVERSION OF INCOME ON ACCOUNT OF OVERRI DING TITLE.. 12. THE FIRST DECISION REFERRED BY THE LEARNED DR IS O F HON'BLE GUJARAT HIGH COURT IN THE CASE OF MEHSANA DISTT. CO -OP. MILK PRODUCERS UNION LTD. (SUPRA). THE FACTS IN THIS DEC ISION 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, 1 962. 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 RESE RVE FUND EVERY YEAR. ACCORDING TO THE ASSESSEE, THE RESERVE FUND IS NOT A FREE FUND AND HENCE BEFORE THE PROFITS ARE TRANSFERRED TO THE RES ERVE FUND AT THE APPROPRIATE RATE, THERE IS A DIVERSION AT SOURCE BY VIRTUE OF SECTION 67(2) OF THE CO-OPERATIVE SOCIETIES ACT, WHICH OPER ATE AS A OVERRIDING TITLE. ALTERNATIVELY, IT WAS CLAIMED THAT TRANSFER OF THESE AMOUNTS TO THE RESERVE FUND BE ALLOWED AS A BUSINESS EXPENDITURE. HON'BLE GUJARAT HIGH COURT HAS GONE THROUGH SECTION 67(2) OF THE CO -OPERATIVE SOCIETIES ACT AND OBSERVED THAT THIS SECTION PROVID ES THAT RESERVE FUND MAY BE USED IN THE BUSINESS OF THE SOCIETY. IF IT I S NOT USED FOR THE PURPOSE OF THE BUSINESS THEN THE QUESTION ABOUT INV ESTING RESERVE FUND IN THE SPECIFIED CATEGORY OF INVESTMENT AND THEREAF TER UTILIZING THE SAME FOR THE OBJECT OF SPECIFIED FUND BY THE STATE GOVERNMENT WOULD AROSE. HON'BLE COURT HAS HELD THAT SUB-SECTION (2) OF SEC. 67 AUTHORIZES THE ASSESSEE TO USE THE FUND FOR ITS BUS INESS PURPOSES AND ONLY IN THE EVENTS OF ITS NON-USER BY THE ASSESSEE FOR THE BUSINESS, THE QUESTION OF INVESTMENT IN SOME SPECIFIED RESERVE FU ND OR ITS USER FOR SOME OTHER PURPOSE AT THE INSTANCE OF THE GOVERNMEN T WOULD ARISE. THUS, THERE CANNOT BE A CASE WHERE THE INCOME WOULD NOT BE RECEIVED I.T.A. NO. 2147/DEL/2013 13 BY THE ASSESSEE. HON'BLE COURT HAS HELD THAT THERE IS NO DIVERSION OF INCOME BY OVERRIDING TITLE. 13. THE NEXT JUDGMENT REFERRED BY THE LEARNED DR IS IF HON'BLE MUMBAI HIGH COURT IN THE CASE OF COLABA CENTRAL CO- OP. CONSUMERS WHOLESALE & RETAIL STORES LTD. (SUPRA). IN THIS CAS E, THE ASSESSEE IS A COOPERATIVE SOCIETY REGISTERED UNDER THE MAHARASHTR A SOCIETIES ACT, 1960. UNDER THE SCHEME OF FINANCIAL ASSISTANCE TO T HE CONSUMER CO- OPERATIVE UNDER THE CENTRALLY SPONSORED SCHEME, THE STATE GOVERNMENT CONTRIBUTED TO THE SHARE CAPITAL OF THE ASSESSEE CO- OPERATIVE SOCIETY A SUM OF RS. 21 LACS. AN AGREEMEN T WAS ENTERED INTO BETWEEN THE STATE GOVERNMENT AND THE ASSESSEE SOCIE TY FOR THAT PURPOSE. ACCORDING TO THE AGREEMENT, THE SHARE CAPI TAL CONTRIBUTION OF THE STATE WAS TO CONTINUE FOR A PERIOD OF 10 YEA RS UNLESS EXTENDED BY THE REGISTRAR. FOR THE PURPOSE OF ENABLING THE C O-OPERATIVE SOCIETIES, TO REPAY THE GOVERNMENT SHARES CAPITAL C ONTRIBUTION WITHIN THE SPECIFIED PERIOD, THE CO-OPERATIVE SOCIETIES WE RE REQUIRED TO SET ASIDE NECESSARY AMOUNT FOR A FUND KNOWN AS THE 'GOV ERNMENT SHARE CAPITAL REDEMPTION FUND' BEFORE ARRIVING AT THEIR P ROFITS FOR THE PURPOSES OF APPROPRIATION UNDER SEC. 65(2) OF THE M AHARASHTRA CO-OP SOCIETIES ACT. THE AMOUNT STANDING TO THE CREDIT OF THE GOVERNMENT SHARES CAPITAL REDEMPTION FUND HAD TO BE DEPOSITED BY THE ASSESSEE AS FIXED DEPOSITS WITH THE CENTRAL FINANCE AGENCY O R INVESTED IN GOVERNMENT LOAN AND SECURITIES IN CONSULTATION WITH REGISTERING AUTHORITIES AS CONTEMPLATED UNDER SEC. 70 OF THE MA HARASHTRA CO-OP SOCIETIES ACT, 1960. THE ASSESSEE SOCIETY WAS NOT E NTITLED TO USE THE FUND STANDING TO THE CREDIT OF THE ABOVE ACCOUNT IN ITS BUSINESS OF WHOLESALE STORES. THE ASSESSEE SOCIETY IN THE PREVI OUS YEAR RELEVANT TO ASSESSMENT YEAR 1975-76, SET APART A RS.2,10,000 FO R REPAYMENT OF THE GOVERNMENT SHARES CAPITAL CONTRIBUTION AND TRANSFER RED THE AMOUNT TO THE GOVERNMENT SHARES CAPITAL REDEMPTION FUND ACCOU NT. THE ASSESSEE CLAIMED THE DEDUCTION OF THE ABOVE AMOUNT IN COMPUT ING ITS BUSINESS INCOME. IT CLAIMED THAT THIS INCOME CANNOT FORM PAR T OF TOTAL INCOME OF THE ASSESSEE BECAUSE OF DIVERSION OF INCOME AT S OURCE. 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 ASSOCIA TED POWER CO. LTD. (SUPRA) AND HELD THAT THE AMOUNT APPROPRIATED TO THE GOVERNMENT SHARES CAPITAL REDEMPTION FUND BELONGED TO THE ASSE SSEE. IT NEVER GOT DIVERTED TO ANYBODY. ACCORDING TO THE HON'BLE HIGH COURT, THE MANDATE OF SECTION 70 OF THE MAHARASHTRA CO-OP SOCI ETIES ACT I.T.A. NO. 2147/DEL/2013 14 DIRECTING THE ASSESSEE TO SET ASIDE A PART OF ITS P ROFIT PROVIDED UNDER THE ACT AND CREDITING IT TO THE GOVERNMENT SHARES C APITAL REDEMPTION FUND AND RESTRICTING ITS USER IN THE BUSINESS OF TH E WHOLESALE STORES OF THE ASSESSEE WOULD NOT MAKE ANY DIFFERENCE BECAUSE THE AMOUNT WAS MERELY KEPT APART FOR BEING USED BY THE ASSESSEE FO R REDEEMING ITS SHARES CAPITAL I.E. BUYING BACK ITS OWN SHARES. THU S, THE AMOUNT STANDING TO THE CREDIT OF THE FUND WAS ALWAYS REMAI NED WITH THE ASSESSEE AND THERE IS NO DIVERSION OF INCOME BY OVE RRIDING TITLE. HON'BLE HIGH COURT HAS ALSO CONSIDERED THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. SITALDAS TIRATH DAS [1961] 41 ITR 367 . 14. THE NEXT JUDGMENT RELIED UPON BY THE LEARNED DR IS OF HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF JODHPUR CO-OPER ATIVE MARKETING SOCIETY (SUPRA). IN THIS JUDGMENT ALSO, THE QUESTIO N FALLEN FOR CONSIDERATION OF THE HON'BLE HIGH COURT WAS WHETHER THE AMOUNT OF NET PROFIT TRANSFERRED TO RESERVE FUND OF THE SOCIE TY UNDER RULE 68 OF THE RAJASTHAN CO-OP SOCIETIES RULE 1966 CAN BE TERM ED AS EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND IS ALLOWABLE DEDUCTION. THE HON'BLE COURT HAS FOUND TH AT AS PER RAJASTHAN CO-OP SOCIETIES ACT, 1965, ASSESSEE WAS T O CREATE A RESERVE FUND WHEREBY 25% OF ITS NET PROFIT IS TO BE CREDITE D TO THE SAID RESERVE FUND. THE ASSESSEE CLAIMED THAT THE SAID AMOUNT DOE S NOT REMAIN UNDER THE CONTROL OF THE ASSESSEE AND IT GOES UNDER THE CONTROL OF REGISTRAR, RAJASTHAN CO-OP SOCIETIES, THEREFORE, IT DOES NOT FORM PART OF THE ASSESSEE'S REAL INCOME AND FOR THAT RESERVE IT WAS SOUGHT TO BE EXCLUDED FROM THE COMPUTATION OF THE TOTAL INCOME. ALTERNATIVELY, IT CLAIMED DEDUCTION UNDER SEC. 37 OF THE IT ACT ON AC COUNT OF BUSINESS EXPENDITURE. HON'BLE COURT HAS EXAMINED THE PROVISI ONS OF RAJASTHAN CO-OP SOCIETIES ACT, NAMELY, SECTIONS 62, 63 AND RU LE 68 AND THEREAFTER HELD THAT THE RESERVE FUND DID NOT GO TO ANY OTHER PARTY THEN THE ASSESSEE ITSELF. THE CONCEPT OF DIVERSION OF IN COME BY OVERRIDING TITLE IS THAT INCOME REACHES TO THE PARTY OTHER THA N THE ASSESSEE BY REASONS OF A PRE-EXISTING TITLE TO IT. AS A MATTER OF FACT ON INTERPRETATION OF REJASTHAN CO-OP SOCIETIES ACT, 19 65, HON'BLE COURT HAD ARRIVED AT A CONCLUSION THAT THERE IS NO PRE-EX ISTING TITLE TO THE ALLEGED FUND BY ANY OTHER PERSON THEN 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. L TD. (SUPRA). THE FACTS OF THIS CASE ARE THAT ASSESSEE IS A COMPANY E NGAGED IN THE I.T.A. NO. 2147/DEL/2013 15 BUSINESS OF GENERATION OF ELECTRICITY AND DISTRIBUT ION 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 MA INTAIN A RESERVE ACCOUNT WHERE IT CREDITED A SUM OF RS. 46,460 OUT O F ITS REVENUE'S TO SUCH CONTINGENCY RESERVE ACCOUNT. IT CLAIMED THE DE DUCTION 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 CO URT RENDERED IN THE CASE OF COCHIN STATE POWER & LIGHT CORPN. LTD. V. CIT [1974] 93 ITR 582. THE ITAT FOUND A DIVERSION OF OPINION AMON GST VARIOUS HON'BLE HIGH COURTS, THEREFORE, MADE A DIRECT REFER ENCE TO THE HON'BLE SUPREME COURT UNDER SEC 257 OF THE INCOME-T AX ACT, 1961. HON'BLE SUPREME COURT WHILE TAKING NOTE OF CLAUSES (III)(IV) AND (V) OF 6TH SCHEDULE TO THE ELECTRICITY ACT OBSERVED THAT A SSESSEE WAS REQUIRED TO MAINTAIN A CONTINGENCY RESERVE, THE CON TINGENCY RESERVE SHALL NOT BE DRAWN UPON DURING THE CURRENCY OF LICE NSE EXCEPT TO MEET SUCH CHARGES AS THE STATE GOVERNMENT MAY APPROVE AS BEING: (A) EXPENSES OR LOSS OF PROFITS ARISING OUT OF ACCI DENTS, STRIKES OR CIRCUMSTANCES WHICH THE MANAGEMENT COULD NOT HAVE P REVENTED; (B) EXPENSES ON REPLACEMENT OR REMOVAL OF PLANT OR WORKS OTHER THAN EXPENSES REQUISITE FOR NORMAL MAINTENANCE OR RENEWA L; (C) COMPENSATION PAYABLE UNDER ANY LAW FOR THE TIME BEING IN FORCE AND FOR WHICH NO OTHER PROVISION IS MADE; (2) ON THE PURCHASE OF THE UNDERTAKING, THE CONTING ENCIES RESERVE, AFTER THE DEDUCTION OF THE AMOUNTS DRAWN UNDER SUB- PARAGRAPH (1) SHALL BE HANDED OVER TO THE PURCHASER AND MAINTAINE D AS SUCH CONTINGENCIES RESERVE: 'PROVIDED THAT WHERE THE UNDERTAKING IS PURCHASED B Y THE BOARD OR STATE GOVERNMENT, THE AMOUNT OF THE RESERVE COMPUTE D AS ABOVE SHALL, AFTER FURTHER DEDUCTION OF THE AMOUNT OF COM PENSATION, IF ANY, PAYABLE TO THE EMPLOYEES OF THE OUTGOING LICENSEE U NDER ANY LAW FOR THE TIME BEING IN FORCE, BE HANDED OVER TO THE BOAR D OR THE STATE GOVERNMENT, AS THE CASE MAY BE.' 16. THE HON'BLE COURT WHILE EXPLAINING THE CLAUSE (V) OF 6TH SCHEDULE EXTRACTED SUPRA, HAD OBSERVED THAT THESE ARE TO MEE T EXPENSES OR RECOUP LOSS OF PROFIT ARISING OUT OF ACCIDENTS, STR IKE OR OTHER CIRCUMSTANCES WHICH THE ELECTRICITY COMPANY COULD N OT HAVE I.T.A. NO. 2147/DEL/2013 16 PREVENTED; TO MEET EXPENSES ON REPLACEMENT OR RENEW AL OF PLANT OR WORKS; AND FOR PAYMENT OF COMPENSATION REQUIRED BY LAW FOR WHICH NO OTHER PROVISIONS HAD BEEN MADE. THESE ARE ALL EXPEN SES WHICH THE ELECTRICITY COMPANY HAD TO INCUR. THE RESERVATION I S MADE SO THAT THE MONEY IS ALWAYS AVAILABLE FOR MEETING THESE EXPENSE S AND SUPPLY OF ELECTRICITY IS NOT INTERRUPTED. FOR THE SAME REASON S, PAYMENT OUT OF THE CONTINGENCY RESERVE CAN BE MADE ONLY WITH THE STATE GOVERNMENT'S APPROVAL. ACCORDING TO THE HON'BLE COURT, MONEY IN THE CONTINGENCY RESERVE BELONGS TO THE ELECTRICITY COMPANY ONLY. TH E DOCTRINE OF DIVERSION OF INCOME BY DIVERSION OF AN OVERRIDING T ITLE IS QUITE IN- OPPOSITE. THE DOCTRINE APPLIES WHEN BY REASON OF AN OVERRIDING TITLE OR OBLIGATION, INCOME IS DIVERTED AND NEVER REACHES THE PERSON IN WHOSE HANDS IT IS SOUGHT TO BE ASSESSED. THE CONTIN GENCY RESERVE IN THAT CASE HAS TO BE CREDITED FROM THE EXISTING RESE RVE OR FROM THE REVENUES OF THE UNDERTAKING, THE MONEY PUT INTO THE CONTINGENCY RESERVE REACHES ELECTRICITY COMPANY AND ARE NOT DIV ERTED AWAY FROM IT. THE HON'BLE COURT HAS REJECTED THE CONTENTION O F THE ASSESSEE FOR EXCLUDING THE AMOUNT CREDITED IN THE CONTINGENCY RE SERVE FROM THE TOTAL INCOME. 17. THE NEXT JUDGMENT REFERRED BY THE LEARNED DR IS AG AIN OF THE HON'BLE SUPREME COURT IN THE CASE OF SUNIL J. KINAR IWALA (SUPRA). IN THIS CASE, THE ASSESSEE IS A PARTNER IN THE PARTNER SHIP FIRM KNOWN AS 'KINARIWALA R.J. K. INDUSTRIES, AHMEDABAD. HE WAS H AVING A 10% SHARES THEREIN. ON DECEMBER 27, 1973, HE CREATED A TRUST NAMELY 'SUNIL JEEVAN LAL KINARIWALA TRUST'. BY A DEED OF S ETTLEMENT ASSIGNING 50% OUT OF HIS 10% RIGHT TITLE AND INTERE ST (EXCLUDING CAPITAL AS A PARTNER IN THE FIRM AND A SUM OF RS. 5 ,000 OUT OF HIS CAPITAL IN THE FIRM IN FAVOUR OF THE SAID TRUST. TH ERE ARE THREE BENEFICIARIES OF THE TRUST, NAMELY, ASSESSEE'S BROT HER'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 H IS SHARES FROM THE FIRM STOOD TRANSFERRED TO THE TRUST RESULTING IN DI VERSION OF INCOME AT SOURCE, THE SAME COULD NOT BE INCLUDED IN HIS TOTAL INCOME FOR THE PURPOSE OF HIS ASSESSMENT. THE ITO REJECTED THE CLA IM ON THE GROUND THAT IT WAS A CASE OF APPLICATION OF INCOME AND NOT DIVERSION OF INCOME AT SOURCE; HE ALSO FOUND THAT SECTION 60 OF THE ACT WAS ATTRACTED AS ONLY INCOME WITHOUT A TRANSFER OF ASSE TS WAS SETTLED. THE REVENUE TOOK THE MATTER IN APPEAL BEFORE THE LEARNE D FIRST APPELLATE AUTHORITY WHO ALLOWED THE APPEAL OF THE ASSESSEE AN D THE ITAT REVERSED THE ORDER OF THE AAC. HON'BLE HIGH COURT R ELYING ON THE I.T.A. NO. 2147/DEL/2013 17 JUDGEMENT OF HON'BLE SUPREME COURT IN THE CASE OF C IT V. BAGYALAKSHMI & CO. [1965] 55 ITR 660 AND MURLIDHAR HIMATSINGKA V. CIT [1966] 62 ITR 323 (SC) HELD THAT ON ASSIGNMENT OF 50% SHARES OF THE ASSESSEE IN THE FIRM, IT BECAME THE INCOME O F THE TRUST BY OVERRIDING TITLE AND IT COULD NOT BE ADDED IN THE T OTAL INCOME OF THE ASSESSEE. HON'BLE SUPREME COURT REVERSED THE ORDER OF THE HON'BLE HIGH COURT AND RESTORED THAT OF THE ASSESSING OFFIC ER. HON'BLE COURT HAS OBSERVED THAT THERE IS A CLEAR DISTINCTION BETW EEN A CASE WHERE A PARTNER OF A FIRM ASSIGNS HIS SHARES IN FAVOUR OF A THIRD PERSON AND A CASE WHERE A PARTNER CONSTITUTES A SUB-PARTNERSHIP WITH HIS SHARES IN THE MAIN PARTNERSHIP. THE OBSERVATION OF THE HON'BL E SUPREME COURT ON PAGES 17 & 18 ARE WORTH TO NOTE IN THIS CONNECTI ON: IT IS APT TO NOTICE THAT THERE IS A CLEAR DISTINCTI ON BETWEEN A CASE WHERE A PARTNER OF A FIRM ASSIGNS HIS SHARE IN FAVO UR OF A THIRD PERSON AND A CASE WHERE A PARTNER CONSTITUTES A SUB-PARTNE RSHIP WITH HIS SHARE IN THE MAIN PARTNERSHIP. WHEREAS IN THE FORMER CASE, IN VIEW OF SECTION 29(1 ) OF THE INDIAN PARTNERSHIP ACT, THE ASSIGNEE GETS NO RIGHT OR INTE REST IN THE MAIN PARTNERSHIP EXCEPT, OF COURSE, TO RECEIVE THAT PART OF THE PROFITS OF THE FIRM REFERABLE TO THE ASSIGNMENT AND TO THE ASSETS IN THE EVENT OF DISSOLUTION OF THE FIRM, BUT IN THE LATTER CASE, TH E SUB-PARTNERSHIP ACQUIRES A SPECIAL INTEREST IN THE MAIN PARTNERSHIP . THE CASE ON HAND CANNOT BE TREATED AS ONE OF A SUB-PARTNERSHIP, THOU GH IN VIEW OF SECTION 29(1) OF THE INDIAN PARTNERSHIP ACT, THE TR UST, AS AN ASSIGNEE, BECOMES ENTITLED TO RECEIVE THE ASSIGNED SHARE IN T HE PROFITS FROM THE FIRM NOT AS A SUB-PARTNER BECAUSE NO SUB-PARTNERSHI P CAME INTO EXISTENCE BUT AS AN ASSIGNEE OF THE SHARE OF INCOME OF THE ASSIGNER- PARTNER. IN THIS VIEW OF THE MATTER, IT IS UNNECESSARY TO CO NSIDER 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, ACCORDI NGLY, SET ASIDE. CONSEQUENTLY, THE SHARE OF THE INCOME OF THE ASSESS EE 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 HI GH COURT IN THE CASE OF KARNATAKA URBAN, INFRASTRUCTURE DEVELOPMENT & FINANCE I.T.A. NO. 2147/DEL/2013 18 CORPN. (SUPRA) WHICH HAS BEEN FOLLOWED BY THE HON'B LE KARNATAKA HIGH COURT IN SUBSEQUENT ASSESSMENT YEAR OF THIS VE RY ASSESSEE KARNATAKA URBAN, INFRASTRUCTURE DEVELOPMENT & FINAN CE CORPN. (SUPRA ) .THE FACTS OF THIS CASE ARE THAT RESPONDEN T KARNATAKA URBAN, INFRA-STRUCTURE DEVELOPMENT CORPORATION IS A FULLY KARNATAKA STATE GOVERNMENT OWNED COMPANY. IT WAS APPOINTED AS A NOD AL AGENCY FOR THE IMPLEMENTATION OF THE MEGA CITY SCHEME WORKED O UT BY THE PLANNING COMMISSION OF THE MINISTRY OF URBAN & EMPL OYMENT FOR DEVELOPMENT OF URBAN INFRA-STRUCTURES TO BANGALORE CITY. THE CENTRAL GOVERNMENT HAS PROVIDED THE MONEY TO THE AS SESSEE FOR IMPLEMENTING THE SAID SCHEME. THE MONEY RECEIVED FR OM THE GOVERNMENT OF INDIA WAS PARKED BY THE ASSESSEE IN V ARIOUS BANK DEPOSITS DURING THE UNUTILIZED PERIOD. THE INTEREST EARNED DURING THE YEAR ON THESE DEPOSITS WAS TRANSFERRED TO THE MEGA CITY SCHEME ACCOUNT DIRECTLY WITH AN APPROPRIATE DISCLOSURE IN THE NOTE TO THE ACCOUNTS. THE ASSESSEE HAS BEEN INVOLVED IN OTHER P ROJECTS OF DEVELOPED OF INFRA-STRUCTURE APART FROM THE ACTIVIT Y AS A NODAL AGENCY FOR THE IMPLEMENTATION OF THE MEGA CITY SCHEME UNDE RTAKEN BY THE GOVERNMENT OF INDIA. THE INTEREST EARNED AND RECEIV ED FROM THE CENTRAL AND STATE GOVERNMENTS AND DEPOSITED IN VARI OUS BANKS WAS TREATED AS AN INCOME OF THE ASSESSEE. THE ISSUE BEF ORE THE HON'BLE COURT WAS ABOUT THE TAXABILITY OF SUCH INTEREST INC OME IN THE HANDS OF THE ASSESSEE. HON'BLE COURT HAS OBSERVED THAT INTER EST INCOME WAS NOT TAXABLE IN THE HANDS OF THE ASSESSEE. THE LEARNED C OUNSEL FOR THE ASSESSEE POINTED OUT AT THE TIME OF HEARING THAT TH IS CASE IS FULLY APPLICABLE ON THE FACTS OF THE PRESENT CASE. 19. ON AN ANALYSIS OF THE JUDGMENTS, WE FIND THAT THE HON'BLE SUPREME COURT IN THE CASE OF SUNIL J. KINARIWALA ( SUPRA) H AS QUOTED A PARAGRAPH FROM THE EARLIER JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF SITALDAS TIRATHDAS (SUPRA) WHEREIN HON' BLE SUPREME COURT HAS PROPOUNDED THAT TRUE TESTS OF DIVERSION O F INCOME ON ACCOUNT OF OVERRIDING TITLE IS WHETHER THE AMOUNT S OUGHT TO BE DEDUCTED, IN FACT, NEVER REACHED TO THE ASSESSEE AS HIS INCOME. NO DOUBT, THERE ARE OBLIGATIONS IN EVERY CASE BUT THE NATURE OF OBLIGATION WOULD BE A DECISIVE FACTS. ACCORDING TO THE HON'BLE COURT, THERE IS A DIFFERENCE BETWEEN AMOUNT WHICH A PERSON IS OBLIGED TO APPLY OUT OF HIS INCOME AND AN AMOUNT WHICH BY THE NATURE OF THE OBLIGATION CANNOT BE SAID TO BE PART OF THE INCOME OF THE ASSE SSEE. IF THE OBLIGATION INCOME IS DIVERTED BEFORE IT REACHES THE ASSESSEE, IT CANNOT BE CLAIMED AS DEDUCTION BUT WHERE THE INCOME IS APP LIED TO DISCHARGE I.T.A. NO. 2147/DEL/2013 19 AN OBLIGATION AFTER SUCH INCOME REACHES TO THE ASSE SSEE THEN IT CAN BE CLAIMED AS A DEDUCTION. IN OTHER WORDS, THE MERE FA CT THAT THE ASSESSEE HAS AN OBLIGATION TO APPLY A CERTAIN AMOUNTS OUT OF ITS INCOME FOR A PARTICULAR PURPOSE CANNOT MAKE IT A CASE OF DIVERSI ON OF INCOME BY OVERRIDING TITLE. 20. LET US CONSIDER THE OFFICE MEMORANDUM DATED 15.1.1 998 AND HOW IT PROVIDES A DIVERSION OF INCOME ON ACCOUNT OF OVE RRIDING 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 INFR ASTRUCTURE IN THE CITIES AND FOR THE DEVELOPMENT OF THE INCOME AND IT S SOURCES AND THEIR PARTLY DISPOSAL AS ACCORDING IT HAS BEEN DECIDED AN D AS PER THE ORDER OF THE GOVERNOR THESE DIRECTIONS HAVE BEEN GIVEN. 1. THAT THE INCOME OF THE DEVELOPMENT AUTHORITIES D ESCRIBED IN CLAUSE 5 WILL NOT BE DEPOSITED IN ORDINARY POOL BUT IT WILL BE DEPOSITED IN SEPARATE ACCOUNT WHICH WILL BE EXCLUSIVELY FOR R ESIDENTIAL 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 DIRECTI ONS. THIS COMMITTEE WILL HAVE MEMBERS OR THEIR REPRESENTATIVE S OF DISTRICT MAGISTRATE, VICE CHAIRMAN, DEVELOPMENT AUTHORITIES, CHIEF CITY OFFICE, MUNICIPAL CORPORATION, EXECUTIVE OFFICER, M UNICIPAL PARISHAD AND WATER CORPORATION. 3. THAT THE EXPENDITURE ON THE SAID ACCOUNT WILL BE UNDER THE DIRECTIONS AND AS PER THE GOVERNMENT ORDERS WHICH I S PASSED BY TIME TO TIME. 4. THAT MINIMUM 80% OF THE AMOUNT SPENT FROM THIS A CCOUNT SHALL BE ON ACCOUNT OF CAPITAL EXPENDITURE AND MAXIMUM 20% S HALL BE ON ACCOUNT OF REVENUE EXPENDITURE. 5. THE FOLLOWING AMOUNTS WILL BE DEPOSITED IN THE S AID ACCOUNT. I.T.A. NO. 2147/DEL/2013 20 (A) THE CHANGE OF LOW STANDARD LAND USE TO THE HIGH STANDARD LAND USE, THE 90 % OF CONVERSION CHARGES AND REST 10 % W ILL BE OF DEVELOPMENT AUTHORITY. (B) FOR THE PLANNING AND DEVELOPMENT OF THE LAND OU TSIDE THE CITY AREA AND FOR THE APPROVAL OF THE SANCTIONED MAP THE 90% OF DEVELOPMENT CHARGES AND STRENGTHENING CHARGES AND REST 10 % WIL L BE OF DEVELOPMENT AUTHORITIES. (C) THAT UNAUTHORIZED COLONIES OF THE CITY WHICH IS UNDER THE RESIDENTIAL AREA AS PER MASTER PLAN, THE DEVELOPMEN T CHARGES FOR THE SANCTIONED MAP AND THE AMOUNT TAKEN UNDER THE SAID SCHEME IF MINIMUM 80% OF THE LAND DEPOSIT THE DEVELOPMENT CHA RGES THEN ONLY THAT PARTICULAR AREA WILL BE DEVELOPED AND THAT THE EVERY WORK DONE UNDER THE SAID DEVELOPMENT AREA AND THE INCOME ACCR UED FROM THE DEVELOPMENT CHARGES, THE 90% AND THE REST 10% PART FOR THE DEVELOPMENT AUTHORITY. (D) THE AMOUNT RECEIVED FROM THE COMPOUNDING FEES F ROM THE UNAUTHORIZED CONSTRUCTION THE 50 % AND REST 50 % PA RT FOR THE DEVELOPMENT AUTHORITY. (E) THE INCOME FROM THE PROPERTIES WHICH HAVE BEEN FREEHOLD FROM THE DEVELOPMENT AUTHORITIES 90 % AND REST 10 % PART FOR THE DEVELOPMENT AUTHORITY. (F) THAT THE LAND PLOTS SOLD BY DEVELOPMENT AUTHORI TIES AND THERE WILL BE 10% OF SURCHARGE ON THE VALUE OF THE SAID PLOT T HE 100% OF THE SAID INCOME. (G) THAT THE INCOME RECEIVED FROM THE REGISTRATION OF THE SALE DEEDS THE 90% AND REST 10% PART OF DEVELOPMENT AUTHORITIE S. BY ORDER (ATUL KUMAR GUPTA) SECRETARY 21. ON A CONJOINT READING OF THIS MEMORANDUM VIS--VIS THE PROVISIONS OF UP URBAN, PLANNING & DEVELOPMENT ACT, 1973, IT WOULD REVEAL THAT AN AUTHORITY WAS GIVEN TO THE ASSESSEE FOR COLLECTING CERTAIN FEES AND CHARGES IN THE PROCESS OF ITS FUNC TIONING. IF THE STATE GOVERNMENT HAD COLLECTED THE FEES AND CHARGES AND T HEN GIVEN THE SAME TO THE ASSESSEE FOR DOING ITS WORK, IT WOULD B E THE ASSESSEE'S INCOME. THUS, IT DOES NOT MAKE ANY MATERIAL DIFFERE NCE TO THE SITUATION IF THE GOVERNMENT HAS ALLOWED THE ASSESSEE TO COLLE CT 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 I.T.A. NO. 2147/DEL/2013 21 COLLECTED BY IT UNDER THIS ACT. THUS, ITS POWERS TO COLLECT THE FUNDS ARE ALREADY IN EXISTENCE UNDER SEC. 20 OF THE ACT. IT H AS TO CREDIT THE FEES AND CHARGES COLLECTED BY IT TO ITS OWN FUNDS AND WH ICH IS TO BE APPLIED TOWARDS FULFILLMENT OF ASSESSEE'S OBJECT. 22. THE NATURE AND SCOPE OF THE SO CALLED 'INFRA-STRUC TURE FUND' HAS TO BE UNDERSTOOD IN THE LIGHT OF STATUTORY CONTEXTS AV AILABLE 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 FUND S AND TO BE APPLIED TOWARDS MEETING THE EXPENSES INCURRED BY THE AUTHOR ITY IN THE ADMINISTRATION OF THE ACT AND NOT OTHER PURPOSES. I F WE GO THROUGH THE OFFICE MEMORANDUM THEN IT WOULD REVEAL THAT PARAGRA PH 1, CONTEMPLATES THAT THE INCOME OF THE DEVELOPMENT CHA RGES DESCRIBED IN CLAUSE 5 OF THE MEMORANDUM WILL NOT BE DEPOSITED IN ORDINARY POOL BUT IT WILL BE DEPOSITED IN A SEPARATE ACCOUNT WHIC H WILL BE EXCLUSIVELY FOR RESIDENTIAL INFRA-STRUCTURE. THIS CLAUSE SHOWS THAT FIRSTLY THE FEES AND CHARGES COLLECTED BY THE ASSESSEE IN CLAUSE 5 O F THE MEMORANDUM WOULD BE INCOME OF THE DEVELOPMENT AUTHORITY BUT IT WILL NOT BE DEPOSITED IN ORDINARY POOL RATHER IT WILL BE EARMAR KED TO ENSURE THE DEVELOPMENT OF RESIDENTIAL INFRA-STRUCTURE. THE OBJ ECT OF INCURRENCE IS THE APPLICATION OF INCOME AND NOT DIVERSION OF INCO ME AT THE SOURCE. NO DISTINCTION IS PROVIDED IN THE RECEIPTS COLLECTE D BY THE ASSESSEE IN THE SHAPE OF FEES AND CHARGES ON 18 COUNTS NOTICED BY THE LEARNED CIT(APPEALS) ON PAGE 3 OF THE ORDER PASSED IN ASSES SMENT YEAR 2007- 08. THE MEMORANDUM ONLY PROVIDES A REGULATORY MECHA NISM FOR INCURRING THE EXPENSES AND CARVING OUT A PREFERENTI AL AREA OF THE ASSESSEE'S OBJECTS. THUS, LEARNED FIRST APPELLATE A UTHORITY IN ASSESSMENT YEAR 2007-08 HAS RIGHTLY OBSERVED THAT A RGUMENTS OF THE ASSESSEE DEMONSTRATING THE 'INFRA-STRUCTURE FUNDS' AS A SEPARATE ENTITY, INDEPENDENT OF ASSESSEE IS A FICTION. THERE IS NOTH ING IN THE MEMORANDUM TO THIS EFFECT. IT ONLY TALKS OF A DESIG NATED BANK ACCOUNT IN WHICH A FIXED PORTION OF ASSESSEE'S RECEIPTS WOU LD BE DEPOSITED AND OUT OF WHICH EXPENSES WOULD BE INCURRED WITH THE AP PROVAL OF AN EMPOWERED COMMITTEE. ALL THESE RECEIPTS ALSO FORM P ART OF THE NORMAL RECEIPTS OF THE ASSESSEE. WE FURTHER FIND TH AT EXPENSES INCURRED BY THE ASSESSEE OUT OF THIS FUND HAS ALREA DY BEEN ALLOWED BY THE ASSESSING OFFICER. LEARNED CIT(APPEALS) FURTHER TOOK COGNIZANCE OF THE EMPOWERED COMMITTEE REFERRED IN THE MEMORAND UM AS WELL AS IN THE ACT AND OBSERVED THAT SUCH COMMITTEE IS NOT ALIEN TO THE ASSESSEE. THE ROLE OF THE COMMITTEE IS OF REGULATOR Y IN NATURE WHICH I.T.A. NO. 2147/DEL/2013 22 ONLY ACTS IN FURTHERANCE OF FULFILLMENT OF ASSESSEE 'S OBJECTS. LEARNED FIRST APPELLATE AUTHORITY ALSO OBSERVED THAT AT THE TIME OF HEARING A QUERY WAS RAISED TO THE ASSESSEE REGARDING DEMONSTR ATION OF MATERIAL EXHIBITING THE ESTABLISHMENT OF INDEPENDENT IDENTIT Y OF SO CALLED INFRA- STRUCTURE FUNDS AT ITS OWN. THE INQUIRY ON THIS ANG LE REVEALED THE THERE WAS NO SUCH ENTITY CALLED THE INFRA-STRUCTURE FUNDS . IT IS JUST A NAME GIVEN TO THE EARMARKED BANK ACCOUNT. THERE ARE NO S EPARATE ACCOUNT OR AUDIT. THE EMPOWERED COMMITTEE IS CONCERNED WITH ONLY GIVING APPROVAL FOR SPECIFIC ITEMS OF WORK TO BE DONE BY T HE ASSESSEE AND NOT ADMINISTRATION OF THE FUNDS. THE FUNDS FORM PART OF THE ASSESSEE'S BALANCE SHEET AND WAS AUDITED IN THE COURSE OF AUDI T OF ITS OWN ACCOUNT. THIS ALSO INDICATES THAT THERE IS NOTHING CALLED 'INFRA- STRUCTURE FUNDS'. IT IS JUST A BANK ACCOUNT WHICH I S DESIGNATED FOR CREDITING THE SPECIFIC PART OF THE ASSESSEE'S RECEI PT. 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 KARNATA KA HIGH COURT HAS SPECIFICALLY OBSERVED THAT ASSESSEE WAS APPOINT ED AS A NODAL AGENCY FOR IMPLEMENTING CERTAIN CENTRAL AND STATE G OVERNMENTS OBJECTS. HON'BLE COURT FURTHER OBSERVED THAT IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE WAS CARRYING ON ANY BUSIN ESS OR ACTIVITIES OF ITS OWN WHILE IMPLEMENTING THE SCHEME IN QUESTION. THUS, THE DECISION OF HON'BLE KARNATAKA HIGH COURT CANNOT HELP THE ASS ESSEE. THE ASSESSEE IS NOT TO BE REGARDED AS A STATE. IT IS NO T REGISTERED UNDER SEC. 12A OF THE ACT AND CLAIMED THE BENEFIT OF EXEM PTION UNDER SECTIONS 11 AND 12 OF THE ACT. THERE IS NO DISTINCT ION BETWEEN THE OTHER RECEIPTS COLLECTED BY THE ASSESSEE AND TAKEN TO THE MAIN ACCOUNT WHICH IF REMAINED UNUTILIZED WOULD BE AMENABLE TO T AX. THE ALLEGED MEMORANDUM DOES NOT CREATE ANY OVERRIDING TITLE OF THE STATE GOVERNMENT AT THE SOURCE OF COLLECTION OF THE ALLEG ED FEES/CHARGES. IT ONLY REGULATES HOW THE FUNDS SO COLLECTED BY THE AS SESSEE IS TO BE INCURRED FOR THE FULFILMENT OF ITS OBJECTS AND WHIC H SECTOR HAS TO BE GIVEN PREFERENCE. THUS, IT ONLY SUGGESTS APPLICATIO N OF INCOME. CONSIDERING ALL THESE FACTORS AND THE DETAILED REAS ONING GIVEN BY THE LEARNED FIRST APPELLATE AUTHORITY PARTICULARLY IN A SSESSMENT YEAR 2007-08, WE DO NOT FIND ANY MERIT IN THESE APPEALS, THEY ARE REJECTED. 24. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE AR E REJECTED. I.T.A. NO. 2147/DEL/2013 23 6. SINCE, THERE IS NO CHANGE OF FACTS AND THE ISSUE IN HAND AND AS DECIDED BY E BENCH IN THE CASE OF THE ASSESSEE FOR THE EA RLIER TWO YEARS IS THE SAME, THEREFORE, FOLLOWING THE SAID DECISION, WE UPHOLD T HE ORDER OF LD. CIT(A) AND DISMISS THE APPEAL OF THE ASSESSEE. 7. AS A RESULT, APPEAL OF THE ASSESSEE GETS DISMISS ED. 8. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST MARCH, 2014. SD./- SD./- (T. S. KAPOOR) (U.B.S.BEDI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 21 ST MARCH, 2014. SP. COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A)-XXV, NEW DELHI AR, ITAT, 5. CIT(ITAT), NEW DELHI NEW DELHI