MUZAFFAR NAGAR DEVELOPMENT AUTHORITY,NEW DELHI V. DCIT EXEMPTION CIRCLE, GHAZIABAD

ITA 215/DEL/2024

AI Insights

The case involves the Muzaffar Nagar Development Authority appealing against the orders of the CIT(A)/NFAC, which denied them tax exemptions under section 12A of the Income Tax Act, 1961. The primary contention was whether the authority, engaged in commercial activities, qualifies for tax exemption as a charitable entity. The Tribunal considered the precedents set by the Supreme Court in similar cases, particularly the Ahmedabad Urban Development Authority case, which influenced the decision to allow the appeals for statistical purposes, directing a re-evaluation of the extent of tax exemption applicable.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 38173 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2021-2022
• Other Referred Cases: Ahmedabad Urban Development Authority
• Laws Referred To: UP Urban Planning and Development Act, 1973, Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMIT KATOCH
• Assessee Lawyers: C. S. ANAND
• Keywords: Business income; Charitable institution; Maximum Marginal Rate
• Section: 142(1); 143(2); 250; 12A; 2; 15; 20

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E”, NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER, AND SHRI VIMAL KUMAR, JUDICIAL MEMBER ITA NOS. 213, 214 & 215/Del/2024 A.YRS. : 2017-18, 2018-19 & 2021-22 MUZAFFAR NAGAR DEVELOPMENT AUTHORITY, C/O C.S. ANAND, ADVOCATE, 104, PANKAJ TOWER, 10 LSC, SAVITA VIHAR, NEW DELHI-92 (PAN: AAALM0437D) VS. DCIT EXEMPTION CIRCLE, GHAZIABAD (APPELLANT) (RESPONDENT) Appellant by : Sh. C.S. Anand, Adv. & Ms. Vaishnavi yadav, Adv. Respondent by : Shri Amit Katoch, Sr. D.R. Date of hearing : 12.02.2025 Date of pronouncement : 12.02.2025 ORDER PER SHAMIM YAHYA, AM : These 03 appeals by the assessee are against the separate orders of the Ld. CIT(A)/NFAC, New Delhi, all dated 27.09.2023 pertaining to assessment years 2017-18, 2018-19 & 2021-22 respectively. Since common grounds have been raised in all these 03 appeals, hence, we are dealing only with the facts of 2 | P a g e ITA No. 213/Del/2024 (AY 2017-18) as a lead case, wherein the following grounds have been raised:- 1. The appeal order dated 27.9.2023 u/s. 250 passed by the Ld. CIT(A) /NFAC is bad in law. 2. On the peculiar facts of the case, the Ld. CIT/NFAC ought to have disapproved the finding of the Ld. DCIT, Exemption Circle, Ghaziabad “since in this year the assessee has dominantly engaged in the commercial activities it cannot be allowed exemption.” 3. On the peculiar facts of the case, the ld. CIT(A)/NFAC ought to have made the computation of income (as per Revised ITR filed by the Assessee), the basis of assessment. 4. On the peculiar facts of the case, the ld. CIT(A)/NFAC ought to have clearly held that the entire income of the assessee was exempt from income tax. 5. On the peculiar facts of the case, the Ld. CIT(A)/NFAC ought to have clearly held that no income was assessable in the hands of the assessee. 2. The brief facts of the case are that assessee filed its return of income on 28.10.2017 declaring income of Rs. NIL. The assessee has revised its return on 11.11.2018. During the year the assessee has declared total income / gross receipts of Rs. 24,30,28,868/-. The case was selected for scrutiny through CASS and statutory notice u/s. 143(2) dated 22.9.2019 was served upon the assessee as per law. Further notice u/s. 142(1) dated 8.11.2019 alongwith detailed questionnaire was issued to the assessee. In compliance to these notices, the assessee furnished details / explanations through ITBA system. Assessee also produced books of accounts and the same have been checked on test basis. Thereafter, the AO noted that assessee is an authority constituted under the UP Urban Planning and Development Act, 1973 and the activity of the assessee authority is hit by sub-section 15 of section 2 of the Act. Therefore, the same is 3 | P a g e not entitled to benefits in terms of section 12A of the Act and is not at all a charitable entity. AO further noted that the assessee-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 assessee-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. AO further noted that the activities of the assessee- authority, either wholly or partially are carried on with a motive for profit and in terms of the provisions of section 2(15) of the Act, the nature of use or application of such profits is not relevant for the determination, whether or not the assessee is engaged in a an activity having a “charitable purpose”. Accordingly, the AO considered the income of the assessee-authority as taxable, by observing that as this year the assessee has earned surplus of Rs. 7,11,06,953/- and the same is brought to tax at Maximum Marginal rate. 3. Upon assessee’s appeal Ld. CIT(A) by referring the decision of the Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority gave the following directions:- “I have considered the submission of the appellant and gone through the AO’s observation and decision and find that this issue had arisen also in AY 2014-15, AY 2018-19 & AY 2021-22. In Ahmedabad Urban Development Authority, it was held by the Supreme Court that in clause (b) of Section 10(46) of the I.T. Act, “Commercial” has the same meaning as “trade, commerce, business” in Section 2(15) of the I.T. Act. Therefore, sums charged by such notified body, authority, board, trust or commission (by whatever name called) will require similar consideration – i.e. whether it is at cost with a nominal markup or 4 | P a g e significantly higher, to determine such notified bodies, there is no quantified limit in Section 10(46). Therefore, the Central Government would have to decide on a case-by-case basis whether and to what extent, exemption can be awarded to bodies that are notified under Section 10(46). It is pertinent to mention that -5.2 With a view to limiting the scope of the phrase \"advancement of any other object of general public utility\", sub-section (15) of section 2 has been amended to provide 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, or any activity of rendering any service in relation to any 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.\" Respectfully following the above order of Hon’ble Apex Court the AO is directed to recompute to what extent exemption can be awarded so long as a GPU's charity's object involves activities which also generates profits (incidental), it can be granted exemption provided quantitative limit (of not exceeding 20 per cent) under second proviso to section 2(15) for receipts from such profits] to bodies that are notified under section 10(46) as per guidelines given in the said order and the balance extent is taxable under second proviso to section 2(15) of the I.T Act. In view of above discussion the ground relating to business income u/s 2(15) stand allowed for statistical purpose.” 4. Against the above directions of the Ld. CIT(A), assessee is in appeal before us. 5. We have heard both the parties and perused the records. We find that Ld. CIT(A) has followed the Apex Court decision in the case of Ahmedabad Urban Development Authority (Supra) and accordingly, given the directions as reproduced above. Therefore, we do not find any infirmity in the order of the ld. CIT(A). Accordingly, we direct the AO to follow the aforesaid directions of the Ld. CIT(A), on the anvil of the decision of the Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority (Supra), as referred by 5 | P a g e the ld. CIT(A) in his above-stated directions. In the result, the ITA No. 213/Del/2024 (AY 2017-18) is allowed for statistical purposes in the aforesaid manner. 6. As regards assessment years 2018-19 and 2021-22 are concerned, since the facts of these assessment years are similar and identical to assessment year 2017-18 as aforesaid, hence, our aforesaid decision given for the assessment year 2017-18 shall apply mutatis mutandis to the assessment years 2018-19 & 2021-22 as well. We hold and direct accordingly. As a result, both the assessee’s appeals for AYs 2018-19 & 2021-22 also stand allowed for statistical purposes on the aforesaid same directions. 7. In the result, all the 03 appeals of the Assessee are allowed for statistical purposes in the aforesaid manner. Order pronounced on 12/02/2025 in the Open Court. Sd/- (VIMAL KUMAR) Sd/- (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER SRBHATNAGAR Copy forwarded to:- 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT Assistant Registrar "