Diversion of income by overriding title rejected where infrastructure receipts were only subject to post-receipt application control.

A development authority's receipts credited to an infrastructure fund were held not to be diverted by overriding title. The statutory framework showed that the authority collected fees and charges in its own right, maintained its own fund, and applied those receipts to its functions. The Government memorandum only required a separate account and regulated the spending of a fixed portion for infrastructure purposes; it did not divest ownership in the receipts at source. The obligation was therefore one of application of income after receipt, not diversion before receipt, and the receipts remained taxable in the authority's hands.

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Issues: Whether the amounts credited to the infrastructure fund under the Government memorandum constituted diversion of income by overriding title and were therefore outside the assessee's taxable income.

Analysis: The statutory scheme under the Uttar Pradesh Urban Planning and Development Act, 1973 showed that the development authority was a body corporate with power to collect fees and charges, maintain its own fund, and apply those receipts towards its functions. The Government memorandum did not divest the assessee of ownership in the receipts at source; it merely required a separate account and regulated the manner in which a fixed portion of the receipts was to be spent for infrastructure purposes. The receipts were collected by the assessee in its own right, formed part of its own funds and balance sheet, and the committee's role was only supervisory and regulatory. The obligation was thus one of application of income after receipt, not diversion before receipt.

Conclusion: There was no diversion of income by overriding title. The infrastructure receipts were taxable in the hands of the assessee, and the addition was upheld.

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