2025 (4) TMI 664 - AT - Income Tax

Development authorities qualify for section 11 exemption as general public utility bodies but denied accumulation benefits

Income Tax Officer-2 (3), Dy. Commissioner of Income tax (Exemptions) Lucknow Versus U.P. Awas Evam Vikas Parishad, Lucknow and U.P. Housing & Development Board (Uttar Pradesh Awas Evam Vikas Parishad) Versus Income Tax Officer-2 (3), Range-2, Lucknow

ITAT Lucknow held that statutory development authorities like U.P. Awas Vikas Parishad qualify for exemption under section 11 as bodies serving 'general ... Eligibility of exemption u/s 11 - U.P. Awas Vikas Parishad - CIT(A) confirmed the additions on account of the infrastructure fund that was made by the ld. AO - whether development authorities and statutory corporations like the assessee, indulged in promoting housing and planned development can be regarded as a body indulged in objects of, “general public utility”? - HELD THAT:- The issue is no longer res integra after the decision of Ahmedabad Development Authority [2022 (10) TMI 948 - SUPREME COURT] wherein the Court held that bodies which carry out statutory functions and whose income was eligible to be considered for exemption u/s 10(20A) prior to 1.04.2003, but thereafter ceased to enjoy that benefit after deletion of that provision, are not ipso facto precluded from claiming benefit as a GPU category charity under section 11 r.w.s. 2(15) of the Act. Statutory corporations, Boards, authorities, commissions etc., by whatever named called in the fields of housing development, town planning, industrial development sector etc., were involved in the objects of, “general public utility” and therefore were entitled to be considered as charities in the GPU categories. Thus the issues raised by the ld. AO that the activities of the assessee Parishad carried on as per its objects laid down in section 15 of U.P. Awas Evam Vikas Parishad Adhiniyam, 1965 were not charitable activities do not hold any water after this decision of the Hon’ble Supreme Court which categorically states that statutory bodies engaged in housing development, town planning etc., are involved in objects of, “general public utility” and therefore are entitled to be considered as a charities in the GPU category. CIT(A) had held in his order that once the registration had been granted under section 12AA, the income of the assessee had to be computed as per section 11 and not under any other head of income. We do not find any infirmity in this line of reasoning. For this reason, we hold that the Ld CIT(A) was perfectly justified in directing the assessing officer to compute the income of the assessee parishad in the manner provided under section 11, with reference to the information contained in Form 10B and accordingly ground no.1.1 and 1.2 of the original grounds of appeal are dismissed. Whether CIT(A) overlooked the provisions of section 11(2), while directing the AO to compute the income in the manner provided under section 11? - CIT(A) was perfectly correct in directing the ld. AO to compute the income as per the provisions of section 11. That was not a direction to the ld. AO to grant exemption to the assessee under section 11, but rather a direction to compute the income in a particular manner and examine the application of income. As such, these directions would not have precluded the ld. AO from examining possible violations of section 11(2), 13(1)(d) or 13(3) while determining the eligibility for exemption under section 11. Therefore, we are of the opinion that the additional grounds of appeal that have been filed, are based upon an incorrect reading of the meaning and import of the order of the ld. CIT(A). CIT(A), even while directing the ld. AO to compute the income in the manner laid down under section 11, declined to allow the assessee the benefit of accumulation under section 11(2) in either assessment year because of (i) its failure to specify the purpose for accumulation in assessment year 2007-08 and (ii) its failure to file Form No.10 before the completion before the completion of assessment and also to specify purpose of accumulation in the said form in the assessment year 2008-09. Thus, the ld. CIT(A) has not overlooked the provisions of section 11(2), while directing the ld. AO to compute the income in the manner provided under section 11. Accordingly, additional ground number 2 does not seem to fit with the facts of the case and therefore it is also dismissed. CIT(A) has not considered whether the money of the parishad was being invested in the specified modes or not? - There were no fetters on the AO in examining this issue in the course of original assessment or even when the matter was sent back for computing the income in the manner provided under section 11. We notice that even while the Assessing Officer was primarily focused on trying to demonstrate that the activities of the assessee parishad were not charitable, he still found time to go through the accounts to observe that the assessee had applied less than 85% of its receipts during the year and was therefore required to file an application for accumulation of income. Thus, we see no reason why he could not have examined this aspect also. Be that as it may, the Ld AR has very correctly pointed out that an examination of the final accounts itself reveals that the funds are invested in the specified modes. Moreover, we note that as per the provisions of section 58(2) the UPAEVA 1965, the Parishad is obliged by law to keep its funds in the State Bank of India or with the previous approval of the UP Government, in in the UP Cooperative Bank or in a Scheduled bank or in Securities prescribed in section 20 of the Indian Trusts Act 1882. All these, to our mind, constitute valid modes of investment under section 11(5) of the Income Tax Act and therefore in our opinion, there is no occasion to allow the Revenue a further opportunity in this regard. Therefore the third additional ground of appeal is also dismissed. Possible violation of section 13(3) of the Income Tax Act on account of discount given to employees of the parishad on the valuation of allotted properties and also on account of the reservation provided to them in the allotment of properties, on account of the U.P. Government order - We are in agreement with the ld. AR, that the said issue does not arise out of the orders of assessment or out of the orders of the ld. CIT(A) and we cannot agree with the Ld. Special Counsel that the Ld. AO had asked pointed queries in this regard which had not been answered by the assessee, as the same is not revealed by the assessment orders. Be that as it may, the ld. Special Counsel has pointed out that this is a pure legal issue and therefore, can be raised at the present stage of the proceedings. After considering the submissions made by the ld. Special Counsel and considering the decision of National Thermal Power Corporation Ltd [1996 (12) TMI 7 - SUPREME COURT] the ground is admitted for adjudication. However, it is observed that the issue has already been decided in favour of the assessee by the Hon’ble ITAT [2022 (6) TMI 659 - ITAT LUCKNOW] We have ourselves considered this issue in depth while deciding the case of Ayodhya-Faizabad Development Authority [2025 (1) TMI 1541 - ITAT LUCKNOW] held Government Order must be viewed as a social welfare measure for a broad category of citizens and not as an order to confer benefit on the employees of the authority in violation of the provisions of section 13(3) of the Act. Furthermore, the said Government Order, in fact, shows that the process of allotment and pricing of land to be based on social rather than commercial consideration, which would further buttress the argument that the objective of such sale is not the maximization of profit. Hence, we are not able to agree with the ld. CIT(A) or the ld. Assessing Officer that the exemption to the development authority should be denied on this account. Decided against revenue. Addition made on account of the Vambay Scheme Fund - CIT(A) deleted addition - HELD THAT:- We observed that in this case, the grants were received from the State Urban Development Authority (SUDA) for the construction of low-cost housing for the urban poor. The grants that were received, were credited in a separate account and utilized as per the guidelines issued by the SUDA. The ld. CIT(A) has held, by relying upon the decision in CIT vs. U.P. Upbhokta Sahkari Sangh Limited, [2006 (8) TMI 148 - ALLAHABAD HIGH COURT] and Bihar Agriculture Produce [2011 (9) TMI 535 - PATNA HIGH COURT] that grants that have been received for a particular purpose cannot be taxed as there is no element of profit in such grant. We are in agreement with the views of the ld. CIT(A). As it is observed that in the case of Karnataka Urban Infrastructure Development Corporation [2009 (1) TMI 243 - KARNATAKA HIGH COURT] the interest received on the bank deposits of grants received for specific purposes which are credited back to the same fund cannot be regarded as the income of the assessee authority. Therefore, we uphold the decision of the ld. CIT(A) to delete the additions made by the ld. AO on account of the Vambay Fund and consequently this ground of department’s appeal is dismissed. Addition of account of advances of contracts - CIT(A) deleted addition - We observe that the advances did not represented expenditure that have been routed through the income and expenditure account and therefore, were never claimed as application of income. In these circumstances, the question of their disallowance an addition back to the surplus of the assessee does not arise. The action of the ld. CIT(A) in deleting such additions is therefore, upheld. Denial of benefit of accumulation under section 11(2) on account of the fact that Form No.10 was not filed before the due date of the filing of the return, even though the same had been filed before the completion of assessment - In view of the specific provisions contained in section 11(3A) which point out that, if the assessee who has accumulated the income for a particular purpose cannot spend it for that purpose, he can spend it on any other purpose within its objects, with the permission of the ld. AO, and then such other purpose would be treated as the purpose given in Form No.10 submitted under Rule 17 and section 11 (2)(a) as the purpose of accumulation, makes it clear that the said provision could not be operable, if the arguments of the assessee were accepted that the notice of accumulation for the general objectives of trust were compliant with the requirement of section 11(2). In the circumstances, after considering the provisions of section 11(2)(a) and section and section 11(3A), we are inclined to agree with the ld. CIT(A), that the assessee cannot be allowed the benefit of accumulation on the basis of such a loosely worded notice under section 11(2), that does not enable the ld. AO to subsequently examine whether the purposes for which the amount was accumulated, was actually utilized for such purposes. Therefore, the decision of the Ld CIT (appeals) on this account for the assessment year 2007-08 is accordingly upheld and ground no 1 of the assessee’s appeal is accordingly dismissed. In assessment year 2008-09 the assessee has not filed the Form No. 10 in the course of assessment proceedings but filed the same in the course of the appeal proceedings - No infirmity in the orders of the ld. CIT(A) in refusing to entertain the Form No.10 sought to be filed before him as additional evidence and consequently, in refusing to allow the accumulation of income under section 11(2) is held to be justified. Sums credited in the, “infrastructure fund” be included in the receipts of the assessee - Ongoing through the Uttar Pradesh Awas Evam Vikas Parishad Adhiniyam, 1965, we find that section 58(1), section 92(2) and section 93 of the U.P. Awas Evam Vikas Parishad Adhiniyam are, effectively & in substance, para materia to sections 20, 41 and 58 of the U.P.U.P.D.A. 1973 therefore, our findings with regard to the nature of and title to the infrastructure fund created by the Government O.M. dated 15.01.1998, in the case of Ayodhya Faizabad Development Authority, would hold good for the Uttar Pradesh Awas Evam Vikas Parishad also. In the circumstances, we deem it appropriate to restore this matter back to the file of the ld. AO to analyze the nature of the receipts with reference to the O.M. dated 15.01.1998 and therefore take an appropriate decision on the quantum that is required to be routed through the income and expenditure account. Furthermore, in respect of amounts that are required to be routed through the income and expenditure account, we direct that the ld. AO may allow credit for corresponding expenses. Disallowance of certain expenditures claimed by the assessee under the head legal expenses, consultancy expenses and rates and taxes - assessee had not submitted the requisite details before either the ld. AO or the ld. CIT(A) - assessee has submitted that the amount of expenses claimed under the above-mentioned heads were fully supported by proper bills and vouchers and the same were duly accounted for in the books of accounts, which had been subjected to twin audits and no defects or discrepancies had been found or specified therein - HELD THAT:- As submitted by the ld. AR, that because the expenditure was incurred by various units of the assessee parishad, which were located in different parts of U.P., it was difficult to collate and present the details as desired by the ld. AO, within the limited time frame allowed to it. After considering these arguments, we deem it appropriate to restore the matter back to the file of the ld. AO, with a direction to the assessee to present the necessary evidences in support of these expenditures to the ld. AO, so that the ld. AO may consider the same afresh and take a fresh decision in the matter. Thus Ground number 3 in both assessment years is allowed for statistical purposes. Disallowance in respect of the revolving fund - There ought to be no occasion of bringing this amount to tax in the hands of the assessee. This is because the fee generated for advertising account would presumably be included in the income of the assessee parishad, while the expenditure being booked by the units, would presumably be consolidated into the expenditure account of the assessee parishad. CIT(A) has confirmed this addition because the assessee could not demonstrate as to where this fund came from and how expenditure from it was recorded in the accounts of the assessee. We therefore, restore this matter to the file of the assessing officer so that the assessee may explain how the fund was generated and how expenditures were recorded so that there is no apprehension of double claim of application. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:Whether the activities of the assessee, U.P. Awas Vikas Parishad, qualify as charitable under Section 2(15) of the Income Tax Act, 1961, and whether it is entitled to exemption under Section 11.Whether the assessee's income should be computed under Section 11 or as business income under Sections 28 to 44.Whether the assessee's accumulation of income under Section 11(2) is valid, given the specifics of Form No. 10 and the timing of its submission.Whether the funds credited to the Infrastructure Fund and Vambay Scheme Fund should be included in the assessee's income.Whether the disallowance of certain expenditures under legal, consultancy, and rates and taxes was justified.Whether the revolving fund should be considered part of the assessee's income.Whether the assessee violated provisions of Section 13(3) by providing benefits to employees, potentially impacting its exemption status.2. ISSUE-WISE DETAILED ANALYSISCharitable Status and Exemption under Section 11The relevant legal framework includes Section 2(15) and Section 11 of the Income Tax Act, 1961. The court's interpretation follows the Supreme Court's decision in ACIT (Exemption) vs. Ahmedabad Urban Development Authority, which held that statutory bodies engaged in housing development are involved in objects of 'general public utility' and thus qualify as charitable entities.The court concluded that the activities of U.P. Awas Vikas Parishad are charitable, as previously held by the Allahabad High Court, and directed the income to be computed under Section 11.Accumulation of Income under Section 11(2)The legal framework requires specific purposes for accumulation to be stated in Form No. 10, as per Section 11(2) and relevant case law.The court found that the assessee's Form No. 10 did not specify concrete purposes, failing to meet the requirements of Section 11(2). The court upheld the CIT(A)'s decision to deny the benefit of accumulation for the assessment years in question.Infrastructure Fund and Vambay Scheme FundThe court examined whether these funds were diverted by overriding title to the state government and thus not part of the assessee's income.The court concluded that the Infrastructure Fund is part of the assessee's income, as per the provisions of the U.P. Awas Evam Vikas Parishad Adhiniyam, 1965, and directed the AO to analyze the nature of the receipts.The Vambay Scheme Fund was held not to be taxable, as it was a grant for a specific purpose with no profit element.Disallowance of ExpendituresThe court considered the disallowance of legal, consultancy, and rates and taxes expenses due to lack of documentation.The court restored the matter to the AO, allowing the assessee to present necessary evidence to support these expenditures.Revolving FundThe court examined whether the revolving fund should be taxed as part of the assessee's income.The matter was restored to the AO to verify the fund's generation and expenditure recording, ensuring no double claim of application.Violation of Section 13(3)The court considered whether benefits to employees constituted a violation of Section 13(3), impacting the exemption status.The court found no violation, as employees are not listed under Section 13(3), and the benefits were part of a government policy.3. SIGNIFICANT HOLDINGSThe court upheld the charitable status of U.P. Awas Vikas Parishad, directing income computation under Section 11.The court denied accumulation benefits under Section 11(2) due to lack of specificity in Form No. 10.The Infrastructure Fund is part of the assessee's income, while the Vambay Scheme Fund is not taxable.Disallowance of expenditures was remanded to the AO for further evidence.The revolving fund issue was remanded to the AO for verification.No violation of Section 13(3) was found regarding benefits to employees.