KANPUR DEVELOPMENT AUTHORITY,KANPUR V. JCIT, EXEMPTION RANGE, GHAZIABAD

ITA 920/DEL/2024

AI Insights

The case involves the Kanpur Development Authority (KDA), which appealed against the order of the National Faceless Appeal Centre (NFAC), challenging the assessment year 2013-14. The primary contention was whether the KDA, a statutory body under the Government of Uttar Pradesh, was entitled to exemptions under Sections 11, 12, and 12A of the Income Tax Act, 1961, despite being engaged in activities that could be seen as commercial. The NFAC had partly allowed the appeal, but the KDA sought further relief from the Tribunal. The Tribunal examined the nature of the KDA's activities, the control over the funds it received, and relevant judicial precedents, ultimately deciding in favor of the KDA.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 30537 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Other Referred Cases: ACIT (Exemption) v. Ahmedabad Urban Development Authority, ACIT vs. Ahmedabad Urban Development Authority (Exemptions) Vs. Ahmedabad Urban Development Authority and Ors., ACIT, Circle -2(2) (1) vs M/s Firozabad Shikohabad Development Authority, ITO vs. Saharanpur Development Authority, Commissioner of Income Tax -1 Lucknow v. Lucknow Development Authority, Gomti Nagar
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DAYAINDER SINGH SIDHU
• Assessee Lawyers: RAKESH GUPTA
• Keywords: Business income; Business expenditure; Principle of natural justice; Charitable institution; Benefit of exemption
• Section: 142(1); 11; 12AA; 12A; 12; 10

Judgement Text

"1 THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH C: DELHI BEFORESHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI SUDHIR KUMAR, JUDICIAL MEMBER ITA No.920/Del/2024 Assessment Year: 2013-14 Kanpur Development Authority 1st Floor, KDA Building Bennajhabar Road, Motijheel, Kanpur PAN No. AAALK0324M Vs. JCIT Exemption Range Ghaziabad PAN :AAALK0324M (Appellant) (Respondent) ORDER PERSUDHIR KUMAR, JUDICIAL MEMBER: The assesseepreferred the captioned appeal, challenging the order dated 28.12.2023 passed by the National Faceless Appeal Centre (in short “NFAC”) Delhi pertaining to Assessment year 2013-14 and Assesseeby Dr. Rakesh Gupta, Advocate Department by Sh. Dayainder Singh Sidhu, CIT DR Date of hearing 18.02.2025 Date of pronouncement 12.03.2025 2 arises out of the order dated 18.03.2016 passed under Section143(3) of the Income Tax Act, 1961 (“The Act for short”). 2. The assessee has raised the following ground of appeal: “1. 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 holding that the assessee authority is hit by the proviso to section 2(15) of the Act and the assessee authority is not entitled for the benefit of section 11, 12 and 12A and assessee is not charitable entity and has further erred in holding that the assessee is engaged in the commercial activity and that too by recording incorrect facts and findings and in violation of principles of natural justice. 2. 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 not granting the benefit of exemption u/s 11&12 as claimed by the assessee authority and further erred in observing that the assessee authority is carrying activity with the motive to earn profit and further erred in treating the assessee's income/surplus as taxable under the business income. 3 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 making addition of Rs.3,25,27,565/- on account of infrastructure funds and that too by recording incorrect facts and findings and in violation of principles of natural justice. 4. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of Rs.3,25,27,565/- on account of infrastructure funds, is illegal, bad in law and against the facts and circumstances of the case and the same is not sustainable on various legal and factual grounds. 5. 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 the Ld. AO in charging interest u/s. 234A, 234B, 234C of the Income Tax Act, 1961. 3. The brief facts of the case are that the assessee is an authority, notified under by the Government of Uttar Pradesh u/s. 4 of Uttar Pradesh Urban Planning (Development and Registration) Act 1973 meant to promote and secure the development of the development area according to plan and for that purpose the Authority shall have the power to acquire, hold manage and dispose of land and other property, 4 to carry out building, engineering mining and other operation, to execute works in connection with supply of water andelectricity, to dispose of sewage and to provide and maintain other services and amenities and generally to do anything necessary or expedient for purpose of such development and for purpose incidental thereto. The assessee enjoyed exemption u/s. 10 (20A) of the Act, upto the Assessment year 2002-03, since w.e.f. 01.04.2023, the aforesaid provision got omitted from the statute resulting in the taxability of its income from thereon. 4.The assessee has filed return of income on 30-09-2013 declaring total income Nil. During the year the assessee declared surplus of Rs 32,99,35,347/- on total income /gross receipt of Rs 192,51,30,801/- which was claimed exempt as per provision of section 11 and 12 of the Act. The case was selected for scrutiny and statutory notice u/s 143(2) of the Act was issued. Further notice u/s 142(1) of the Act with questionnaire was issued. In the compliance of the notice the Authorized representative attended the proceedings. The A.O has observed that the assessee is not a charitable entity and completed the assessment by making the following additions. 5 (i). Addition on account of infrastructure fund taken in balance sheet Rs 3,25,27,565/- (ii). Addition on account of payment made of Awas Bandhu as expenditure Rs 40,00,000/-. 5. Aggrieved the order of the ld. Assessing Officer the assessee has preferred the appeal before the Ld. NFAC who vide his order dated 28-12-2023 partly allowed the appeal, against which the assessee is in appeal before the Tribunal. 6. The learned counsel for assessee has submitted that the assessee has been setup for achieving essential public services and the objects of the assessee are essential for advancement of public purpose and therefore, the activities undertaken by the assessee are not hit by the proviso to Section 2(15) of the Act. Reliance has placed the case of ACIT (Exemption) v. Ahmedabad Urban Development Authority, 449 ITR1 (SC) in this case the Hon’ble Supreme Court held as under: ACIT vs. Ahmedabad Urban Development Authority (Exemptions) Vs. Ahmedabad Urban Development Authority and Ors. dated 19/10/2022 reported in 449 ITR 1 (SC) which has settled the issue by dismissing the Revenue's appeal vide Para 254(ii) of the judgment as follows: 6 \"....254. In accordance with the foregoing discussion, and summary of conclusions the numerous appeals are disposed of as follows: (i) The revenue's appeals against the Improvement Trust, Moga, the Hoshiarpur Improvement Trust, Bathinda Improvement Trust, Fazilka Improvement Trust Sangrur Improvement Trust Patiala Improvement Trust Jalandhar Improvement Trust Kapurthala Improvement Trust, Pathankot Improvement Trust Improvement Trust, Hansi, and the Special Leave Petitions filed against the Gujarat Maritime Board and Karnataka Water Supply and Drainage Board are rejected. (ii) The revenue's appeals against Ahmedabad Urban Development Authority, the Gujarat Housing Board, the Gandhinagar Urban Development Authority, Rajkot Urban Development Authority, Surat Urban Development Development Authority, Jamnagar Area Development Authority, and the Gujarat Industrial Development Corporation are rejected. Likewise, the revenue's appeals against Agra Development Trust, UP Awas Evam Vikas Parishad, Raebarel, Development Authority, Rajasthan Housing Board, Mangalore Urban Development Authority; Mathura Vrindavan Development Authority, Meerut Development Authority, Belgaum Development Authority\". Moradabad Urban Development Authority, Yamuna Expressway Industrial Development Authority, Greater Noida Industrial Development Authority, New Okhla Industrial Development Authority and Karnataka Industrial Areas Development Board are rejected.\" 7. The Ld DR has relied the order of the lower authorities. 8. The ground raised by the 2 &3 is squarely covered the above sited case and the assessee is eligible for exemption u/s 11 and 12 of 7 the Act. The grounds raised by the assessee are decided in the favour of the assessee. 9. Ground No 3 &4 Ld. Counsel for the assessee has submitted that Infrastructure funds are received by the assessee under the order of the Government of Uttar Pradesh and the assessee was required to use such funds as per the directions of the high-powered committee having constituted by State Government and the assessee has no control over the said funds and therefore said funds cannot be treated as taxable in the hands of the assessee. Reliance has placed on the following decisions: (i) ACIT, Circle -2(2) (1) vs M/s Firozabad Shikohabad Development Authority ITA no. 270/Agra/2016 dated 25- 01-2018 in this case the Co-ordinate bench held as under :- 10. The ld. DR has not disputed the facts of the case under consideration are similar to that of these 2006-07, decided by ITAT, Agra Beach, Agra in under 169/Agr/2015 in favour of ththe appeals which are duly considered in the order of the in ITA No theAs 2010-11 and 2011-12, the appeal) before us. We find that the issue is squat the 8 CITA)'s for thorder of the ITAT, Agra Bench, (Supra) by observing Para 6 as follows: \"6. I have noticed that the CIT(A) has given too much of emphasis on how the monies are invested - in a current account with District Cooperative Bank or in fixed deposits elsewhere. That is not material in the present context. What is material is that income from interest on these funds does not accrue to the assessee and even interest receipts are at the disposal only in accordance with Government directions on disposal of the funds relating to infrastructure development. The assessee does not get any unfettered direction to use such interest earnings, but these earnings only add up to the corpus which can be used in terms of Government directives and for the purpose of infrastructure development. That aspect of the matter being undisputed before me, I am of the considered view that interest in question cannot be treated as income of the assessee. I, therefore, direct the Assessing Officer to delete 9 the impugned addition of Rs.7,26,878/-. The assessee gets the relief accordingly.\" (ii) In the case of ITO vs. Saharanpur Development Authority ITA No. 4113/Del/2017 dated 24-03-2021 the Co-ordinate bench held as under: 5. With regard to the \"Infrastructure Development Fund\" in the instant case, the AO held that the amount should have been first credited in the income and expenditure account and the amount spends out of the same should have been debited to this account. It is an undisputable fact that the fund is not under the exclusive control of the assessee and the expenditure to be incurred out of the infrastructure funds are approved on the recommendation of high powered committee. 6. It is noted from the material on record that in the case, similar issue has been decided in the case of the assessee for the assessment years 2004-05 to 2007-08 by the Co- ordinate Bench of ITAT \"G\" Bench, Delhi where in it was held that, \"the appellant has received infra structure funds 10 under the orders of Govt. of U.P. and it was required to use such funds as per the direction of the High Powered Committee and has no control over the said funds. Therefore, the interest income from such funds 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. (iii) Commissioner of Income Tax -1 Lucknow v. Lucknow Development Authority, Gomti Nagar [2013] 38 taxmann.com.246 (Allahabad) in this case the Hon’ble Allahabad High court held as under :- 11 19. The contention that the assessee are earning profit has no merit as per the ratio laid down in the case of Shri Sarafa Association v. CIT [2007] 294 ITR 262/163 Taxman 228 (MP), where it was observed that “ the promotion of commercial trade is a charitable purpose under section 2(15) of the Act”. In the case of Director of Income -Tax (Exemption) v. Govindu Naicker Estate [2009] 315 ITR 237 (Mad), it was observed that the construction of commercial complex by charitable trust eligible. 20. If the objects of the “Authority” is charitable as public utility then the benefit being a charitable trust is eligible as per the ratio laid down in the case of CIT Vs. Gujarat Maritime Board [2007] 295 ITR 561 / [2008] 166 Taxman 58 (SC), where it was observed that:- ‘……….in Section 2(15), namely, \"any other object of general public utility\". From the said decisions it emerges that the said expression is of the widest connotation. The word \"general\" in the said expression means pertaining to 12 a whole class. Therefore, advancement of any object of benefit to the public or a section of the public as distinguished from benefit to an individual or a group of individuals would be a charitable purpose [CIT v. Ahmedabad Rana Caste Association [1983] 140 ITR (SC). The said expression would prima facie include all objects which promote the welfare of the general public. 11 cannot be said that a purpose would cease to be charitable even if public welfare is intended to be served. If the primary purpose and the predominant object are to promote the welfare of the general public the purpose would be charitable purpose. When an object is to promote or protect the interest of a particular trade or industry that object becomes an object of public utility, but not so, if it seeks to promote the interest of those who conduct the said trade or industry (CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC)]. If the primary or predominant object of an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the dominant purpose, would not prevent the 13 institution from being a valid charity [Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1/[1979] 2 Taxman 501 (SC)]. 21. Applying the ratio laid down in the case of CIT v. Andhra Pradesh State Road Transport Corpn. [1986] 159 ITR L (SC), where of in the present case, the \"Autonomous Authority\" was established for the purpose of predominant of development the area and provide to shelter to the homeless people within the State of U.P. The management and control of the Authority is essentially with the State Government and there is no profit motive as the income earned by the Authority is deployed for the development of the State. 22. 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 14 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 Section 12AA denotes that the conditions laid down in Section 12A stand fulfilled. 23. The effect of such a certificate of registration under Section 12AAA, therefore, cannot be ignored or wished away by the Assessing Officer by adopting a stand that the trust or institution is not fulfilling the conditions for applicability of Sections 11 & 12. In the case of Gestetner Duplicators P. Ltd. v. CIT [1979] 117 ITR 1/1 Taxman 1 (SC), the Apex Court was called upon to determine as to whether the contribution made by the employer should be treated as a business expenditure, the requirement being contribution should be made to a recognized provident fund. 15 24. Needless to mention that this Hon'ble Court in the case of CIT v. U.P. Forest Corpn. Ltd., Tax Appeal No. 70 of 2009 observed that the Forest Corporation being an statutory entity is entitled for the registration under Section 12A of the Act. The said observations was upheld by the Hon'ble Apex Court vide its order dated 12.05.2011 in Special Leave Petition No. (Civil) No. 2590/2011. 25. We may also like to refer a C.B.D.T. Circular No. 11/2008 dated 19.12.2008, wherein the applicability of the commercial activities in respect of charitable purpose has been clarified. The said circular is reproduced as below:- \"2.2. 'Relief of the poor encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, 16 however, to the conditions stipulated under Section 11(4A) or the seventh proviso to Section 10(23C), which are that- (1) the business should be incidental to the attainment of the objectives of the entity, and (ii) separate books of account should be maintained in respect of such business.\" 26. For the applicability of proviso to Section 2(15), the activities of the trust should be carried out on commercial lines with intention to make profit. Where the trust is carrying out its activities on non-commercial lines with no motive to earn profits, for fulfilment 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. 27. 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 17 relevant to decide the issue of applicability of proviso to Section 2(15). 28. 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. 29. From the record, it also appears that the \"Authority\" had been maintaining infrastructure, development and reserve fund IDRF as per the notification dated 15.01.1998, 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 belonging to the \"Authority\" or the receipt is 18 taxable nature in its hands. For this reason also, it appears that the funds are utilized for general utility, 30. Moreover, in the instant case, the Assessing Officer has not given any defective in computation of income as per Section 11 as submitted in Form-XB, but observed that the activities of the assessee are not charitable. The activities of the assessees are genuine. So, then it is so, then we find no reason to interfere with impugned orders passed by the Tribunal. The same are hereby sustained along with reasons mentioned therein. 31. The answer to the substantial questions of law are in favour of the assessee and against the department. 10. In the instant case the Infrastructure Funds are received by the assessee under the order of Government of Uttar Pradesh which was required to use as per the directions of the high-powered committee.The case of the assessee is squarely covered from the above sited case andthe infrastructure funds are not taxable in the hands of the assessee. We decided the grounds no 3 &4 in the favour of the assessee. 11. Rest grounds are consequential and general in nature. 19 12. From the above discussion we allowed the appeal of the assessee and matter restored to the Assessing Offices to verified the exemption u/s 11 &12 of the Act. 13. In the result the appeal of the assessee is allowed for statistical purpose. Order pronounced in the open court on 12/03/2025. Sd/- Sd/- (SHAMIM YAHYA) (SUDHIR KUMAR) ACCOUNTANT MEMBER JUDICIALMEMBER Dated:12 March, 2025. “Neha, Sr. PS” Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, Delhi "