TaxTMI 
TaxTMI 
2011 (12) TMI 375
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....in holding that the claim of the appellant that there was diversion by overriding title in respect of infrastructure contribution is untenable." 4. The brief facts in asst. yr. 2006-07 are that assessee has filed its return of income on 23rd Jan., 2007 declaring nil income. This return was processed under s. 143(1) on 14th Feb., 2007. The case of the assessee was selected for scrutiny assessment and a notice under s. 143(2) of the Act was issued on 26th March, 2007 which was served upon the assessee on 29th March, 2007. In response to the notice, Shri Saurav Gupta, chartered accountant appeared. Learned AO had issued a questionnaire on 16th Sept., 2008 along with notice under ss. 142(1) and 143(2) of the Act. On scrutiny of the accounts, AO found that assessee had claimed to be maintaining an "infrastructure fund" to which a fixed portion of its receipts is credited and out of which infrastructure related expenses are incurred. The amount credited to this account in asst. yr. 2006-07 is of Rs. 11,63,38,117. The assessee had incurred expenses towards development at Rs. 3,14,12,303. AO has allowed this amount. With regard to the balance of Rs. 8,49,25,814, it was submitted ....
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..... It does not enjoy the status of a State Government which is exempt from taxation. Accordingly, the appeals of the assessee have been rejected in both the assessment years. 7. Before us, learned counsel for the assessee reiterated his contentions as were raised before the Revenue authorities below. He emphasized that assessee collected the funds as per the office memorandum of the State Government. It has no control over that fund and the amount has to be incurred in accordance with the directions of the State Government. The office memorandum specifically provides that 80 per cent of the amount from this account would be spent on capital expenditure and 20 per cent can be spent on revenue account. On the strength of Hon'ble Karnataka High Court's decision in the case of CIT vs. Karnataka Urban Infrastructure Development and Finance Corporation (2006) 203 CTR (Kar) 422 : (2006) 284 ITR 582 (Kar), he pointed out that the assessee is a mere nodal agency. It collected the funds as per the authorization of the State Government and incurred 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 tota....
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....Milk Producers' Union Ltd. (2008) 4 DTR (Guj) 222 : (2008) 307 ITR 83 (Guj); 2. Colaba Central Co-operative Consumers' Wholesale and Retail Stores Ltd. vs. CIT (1997) 142 CTR (Bom) 394 : (1998) 229 ITR 209 (Bom); 3. CIT vs. Jodhpur Co-operative Marketing Society (2004) 189 CTR (Raj) 516 : (2005) 275 ITR 372 (Raj); 4. Associated Power Co. Ltd. vs. CIT (1996) 130 CTR (SC) 393 : (1996) 218 ITR 195 (SC); and 5. CIT vs. Sunil J. Kinariwala (2003) 179 CTR (SC) 15 : (2003) 259 ITR 10 (SC). 9. We have duly considered the rival contentions and gone through the record carefully. Before we embark upon an inquiry on the interpretation of alleged office memorandum dt. 15th Jan., 1998 issued by the UP Government and its impact on the taxability of the assessee, we would like to take cognizance of few clauses of the UP Urban Planning and Development Act, 1973, which have a direct bearing on the controversy, and which will help us to understand the establishments of the assessee. Thus, s. 4 which provides the establishment of a development authority, s. 7 which provides objects of the authority, s. 20 which provides funds of authority and s. 41 whi....
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....d of attending a meeting of the authority himself depute an officer, not below the rank of Dy. Secretary in the Department, in the case of a member referred to in cl. (c) or cl. (d) and below the rank of town planner in the case of a member referred to in cl. (e) and not below the rank of superintending engineer in the case of a member referred to in cl. (f) to attend the meeting. The officer so deputed shall have the right to take part in the proceedings of the meeting and shall also have the right to vote. (7) The authority in respect of a development area other than that mentioned in sub-s. (3) shall consist of a Chairman, a Vice Chairman and not less than five and not more than eleven such other members, including at least one member from municipal boards and notified area committees having each jurisdiction in the development area, who shall hold office for such period and on such terms and conditions as may be determined by general or special order of the State Government in this behalf:- Provided that the Vice Chairman or a member other than an ex officio member of the authority may at any time by writing under his hand addressed to the State Government r....
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....alf, 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 terms 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 State Government. (6) The authority shall maintain a sinking fund for the repayment of moneys borrowed under sub-s. (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 applied in or towards, the discharge of the loan for which such fund was created, and until such loan is wholly discharged it shall not be applied for any other purpose. 21. Budget of the authority:- (1) The authority shall prepare in such and at such time every year as the State Government may specify a Budget in respect of the financial year next ensuing, showing the estimated r....
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....rman under this Act any dispute arises between the authority, the Chairman or the Vice Chairman and the State Government, the decision of the State Government on such dispute shall be final. (3) The State Government may, at any time, either on its own motion or on application made to it in this behalf, call for 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 legality 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 an order prejudicial to any person without affording such person a reasonable opportunity of being heard. (4) Every order of the State Government made in exercise of the powers conferred by this Act shall be final and shall 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 inadequacy of existing local body and other authorities to tackle the requirement of problems of town planning and urban develop....
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..... The first decision referred by the learned Departmental Representative is of Hon'ble Gujarat High Court in the case of CIT vs. Mehsana Disk Co-operative Milk Producers' (supra). The facts in this decision are that assessee is a co-operative society. According to it, as per sub-s. (2) of s. 67 of the Co-operative Societies Act, 1962, it was required to maintain a reserve fund by which at least 1/4th of the net profit of the society is required to be carried to such reserve fund every year. According to the assessee, the reserve fund is not a free fund and hence before the profits are transferred to the reserve fund at the appropriate rate, there is a diversion at source by virtue of s. 67(2) of the Co-operative Societies Act, which operates as an 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 s. 67(2) of the Co-operative Societies Act and observed that this section provides that reserve fund may be used in the business of the society. If it is not used for the purpose of the business then the question about investing reserve fund in the specified ca....
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....ernment share capital contribution and transferred the amount to the Government Share Capital Redemption Fund Account. The assessee claimed the deduction of the above amount in computing its business income. It claimed that this income cannot form part of total income of the assessee because of diversion of income at source. The claim of the assessee was rejected by the AO and upheld upto the Tribunal. Hon'ble Bombay High Court has considered the judgment of the Hon'ble Supreme Court in the case of Associated Power Co. Ltd. vs. CIT (supra) and held that the amount appropriated to the Government Share Capital Redemption Fund belonged to the assessee. It never got diverted to anybody. According to the Hon'ble High Court, the mandate of s. 70 of the Maharashtra Co-operative Societies Act directing the assessee to set aside a part of its profit provided under the Act and crediting it to the Government Share Capital Redemption Fund and restricting its user in the business of the wholesale stores of the assessee would not make any difference because the amount was merely kept apart for being used by the assessee for redeeming its share capital i.e. buying back its own shares. Thus, the a....
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....icity Supply Act and the Schedules thereunder, the assessee company was required to maintain a reserve account where it credited a sum of Rs. 46,460 out of its revenues to such contingency reserve account. It claimed the deduction of this amount which was rejected by the AO. The learned AAC allowed the claim of assessee relying upon the decision of Hon'ble Kerala High Court rendered in the case of Cochin State Power and Light Corporation Ltd. vs. CIT (1974) 93 ITR 582 (Ker). The Tribunal found a diversion of opinion amongst various Hon'ble High Courts, therefore, made a direct reference to the Hon'ble Supreme Court under s. 257 of the IT Act, 1961. Hon'ble Supreme Court while taking note of cls. (III), (IV) and (V) of Sixth Schedule to the Electricity Act observed that assessee was required to maintain a contingency reserve, the contingency reserve shall not be drawn upon during the currency of license except to meet such charges as the State Government may approve as being:- "(a) expenses or loss of profits arising out of accidents, strikes or circumstances which the management could not have prevented; (b) expenses on replacement or removal of plant or works o....
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....case of CIT vs. Sunil J. Kinariwala (supra). In this case, the assessee is a partner in the partnership firm known as "Kinariwala R.J.K. Industries, Ahmedabad". He was having 10 per cent shares therein. On 27th Dec., 1973, he created a trust namely "Sunil Jeevan Lal Kinariwala Trust". By a deed of settlement assigning 50 per cent out of his 10 per cent right title and interest (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. There are three beneficiaries of the trust, namely, assessee's brother's wife, assessee's niece and the assessee's mother. In asst. yr. 1974-75, he claimed that as 50 per cent of the income attributable to his share from the firm stood transferred to the trust resulting in diversion of income at source, the same could not be included in hts total income for the purpose of his assessment. The ITO rejected the claim on the ground that it was a case of application of income and not diversion of income at source; he also found that s. 60 of the Act wa$ attracted as only income without a transfer of assets was settled. The Revenue (sic-assessee) took the matter in appeal before the learne....
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....ly, answered in favour of the Revenue and against the assessee." 18. The learned counsel for the assessee on the other hand mainly relied upon the decision of Hon'ble Karnataka High Court in the case of CIT vs. Karnataka Urban Infrastructure Development and Finance Corporation (supra) which has been followed by the Hon'ble Karnataka High Court in subsequent assessment year of this very assessee reported in (2009) 315 ITR 301 (Kar) (supra). The facts of this case are that respondent Karnataka Urban Infrastructure Development Corporation is a fully Karnataka State Government owned company. It was appointed as a nodal agency for the implementation of the Mega City Scheme worked out by the Planning Commission of the Ministry of Urban and Employment for development of urban infrastructures to Bangalore city. The Central Government has provided the money to the assessee for implementing the said scheme. The money received from the Government of India was parked by the assessee in various 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 ....
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....ture in the cities and for the development of the income and its sources and their partly disposal as according it has been decided and as per the order of the Governor these directions have been given:- 1. That the income of the development authorities described in cl. 5 will not be deposited in ordinary pool but it will be deposited in separate account which will be exclusively for residential 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 chairmanship of CIT and their directions. This committee will have members or their representatives of District Magistrate, Vice Chairman, development authorities, chief city office, municipal corporation, executive officer, municipal parishad and water corporation. 3. That the expenditure on the said account will be under the directions and as per the Government order which is passed by time to time. 4. That minimum 80 per cent of the amount spent from this account shall be on account of capital expenditure and maximum 20 per cent shall be on account of revenue expenditure. 5. The fol....
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....ed by it under this Act. Thus, its powers to collect the funds are already in existence under s. 20 of the Act. It has to credit the fees and charges collected by it to its own funds and which are to be applied towards fulfilment of assessee's object. 22. The nature and scope of the so-called 'infrastructure fund' have to be understood in the light of statutory contexts available in s. 20 of the UP Urban Planning and Development Act, 1973. As observed earlier, s. 20 contemplates that all the fees, tolls and charges have to be credited by the assessee to its own funds and to be applied towards meeting the expenses incurred by the authority in the administration of the Act land no other purposes. If we go through the office memorandum then it would reveal that para 1 contemplates that the income of the development charges described in cl. 5 of the memorandum will not be deposited in ordinary pool but it will be deposited in a separate account which will be exclusively for residential infrastructure. This clause shows that firstly the fees and charges collected by the assessee in cl, 5 of the memorandum would be income of the development authority but it will not be deposite....