TaxTMI 
TaxTMI 
2020 (9) TMI 277
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....on of Urban Areas Act, 1975, as amended by the Haryana Development & Regulation of Urban Areas Ordinances 2006, and had been set up by the Govt. of Haryana through a notification dated 23.11.2006. To this fund was credited Infrastructure Development Charges(in short referred to as IDC charges), paid by various colonizers while setting up Housing Project in the State of Haryana, and which contribution was for the purpose of carrying out development of capital expenditure on infrastructure projects such as National/State Highways etc. The assessee fund had been granted registration u/s 12AA by the Commissioner of Income Tax, ( CIT), Panchkula vide order dated 31.08.2010. 3. During assessment proceedings for A.Ys 2013-14 and 2014-15, the AO noted that the IDC charges received were not being shown/reflected in the profit and loss account nor the capital expenditure incurred from the same but were taken directly to the Balance Sheet. He further noted that the IDC charges received had been parked in Fixed Deposits in bank. It was the interest earned from the same only which was being reflected in the profit and loss account. The AO further noted that though the assessee fund was registe....
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....laiming that the money received on account of IDC belonged to the State Government and that the assessee was only Nodal Agency of the Government with regard to the same, having no control over expending the same also and therefore, the same was not in the character of income of the assessee. The ld. CIT(A) after considering the submissions of the assessee at length, rejected all the grounds raised and upheld the order of the AO in all the years. On the issue of the fund/IDC receipts belonging to the state government, Ld.CIT(A) held that the background leading to the formation of the fund, the provisions of the HUDR Act, 1975 by which it was formed, coupled with the conduct of the assessee while seeking registration u/s 12A of the Act wherein it claimed itself to be a separate entity, belied assesses claim that it was not distinct and separate from the State. Aggrieved by the same the assessee has now come in appeal before us. The Ld. Counsel for the assessee contended that the primary and foremost issue raised for adjudication in all the appeals, is regarding the taxability of IDC receipts in the hands of the assessee fund.Ld.Counsel for the assessee stated that while the facts r....
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....llant ignoring that the money belongs to state government which is highly unjustified and uncalled for. 2. That the Ld. AO has erred in not correctly appreciating the facts and wrongly treating Rs. 146.61 Crores on account of interest income from FDR's income of the assessee which is highly unjustified and uncalled for." 6. Ld. Counsel for the assessee first took up the issue of addition made of IDC receipts raised in Ground No.2 of ITA No.644/Chd/18 for A.Y 2009- 10 and in Ground No.1 of the additional Grounds raised in ITA No.528/Chd/17 for A.Y 2013-14.The primary thrust of the argument made by the Ld.Counsel for the assessee against the said addition was that since the Fund belonged to the State, the IDC receipts were not taxable. Ld. Counsel, in this regard, referred to the background leading to the creation of the fund, the levy of IDC charges, and the constitution of a high powered committee for its administration, all effected by way of amendments to the Haryana Development & Regulation of Urban Areas Act, 1975(HDRUA Act). Referring to the same, the Ld. Counsel emphasized that all the above pointed to the fact that the fund belonged to the State. He contended that it was....
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....was submitted to the Government for its concurrence:- ( PB Page 28-30) Existing Provisions Proposed Provisions (6) The amount of service charges so deposited by the colonizer shall constitute a fund called the Haryana Urban Development Fund (hereinafter referred as the Fund) which shall vest in the State Government. The amount of service charges and Infrastructure Development Charges so deposited by the colonizers shall constitute a fund called the Haryana Infrastructure Development Fund (hereinafter referred to as the Fund) which shall vest in the State Government. * It was proposed to amend the Act through Ordinance. It was also proposed that the fund will continue to be administered through the Department of Town and Country Planning, Haryana. For this reference be made PB Page 38. Kind attention is invited towards recommendations of the Committee which are placed at Paper Book Page 41. On perusal of the same it can be seen that the dedicated fund was to be created by the Government for carrying out major infrastructural developments. The important aspect to be noted is that the Fund to be created is to vest in the State Government. * The aforesaid proposal was approve....
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....osal was made requesting grant of concurrence from Finance Department for opening a separate account. The copy of said note is placed at Paper Book Page 61-62. * The said proposal for opening the bank account was approved by the Finance Department on 21.12.2006. The copy is placed at Paper Book Page 63. * Thereafter on 26.04.2007, the Finance Department advised to Administrative Department i.e. Town and Country Planning Department to create a statutory Board for administration of fund. The copy of the letter of Finance Deptt. is at placed at Paper Book Page 64. * The High Powered Committee was constituted vide notification dated 12.07.2007 in pursuance to sub section (7) of Section 3A( Paper Book Page No. 82. ) The above facts clearly show that the no separate Board/Authority was created but a separate fund was created which was to vest in State Government and was to be monitored by High Powered Committee. COMPARISON WITH PROVISIONS OF HARYANA RURAL DEVELOPMENT ACT * The provisions of Haryana Rural Development Act 1986 are placed at Paper Book Page No. 73-81). Please refer to Section 2(b), 2(d), 3(3), 3(4) & 6(1). * On perusal of the above it can be seen that as per S....
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....13 had amended Section 3AA of Haryana Development & Regulation of Urban Areas Act 1975 and by virtue of which the High Powered Committee was replaced by Haryana Infrastructure Development Board to monitor only the utilization of fund but has no control on the receipts of IDC. The copies of relevant amendment in the Act No. 8 of 1975 and its objects are enclosed at Paper Book Page 65-72 * From the amendment in Section 3A(7) made in 2013, it becomes clear that prior to the amendment, the said Fund vested with the State Govt. and was administered by a High Powered Committee constituted by the State Government for the purpose. * Even after the amendment in 2013, the collection of the amount is still with the Director Town & Country Planning and the fund has to be passed on for the purpose of utilization to the Board which has been created in 2013. The above fact clearly proves that the fund is nothing but a separate bank account of the State Govt. The above facts make it clear that the entire money received by IDC belongs to the Govt. and as such cannot be treated as income of "Infrastructure Development Fund". For this, reliance is being placed on the following judgments:- * C....
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....& Regulations of Urban Area Act, 1975 for development of major infrastructure projects for the benefit of the State of Haryana. * During the year Rs. 75.30 crores has been incurred on the directions & approval of the state government. The amount of Rs. 71 crores has been incurred for Delhi Metro & Rs. 2.5 crores for construction of bridge over Tanguri Nadi. * The expenditure has been incurred for the purpose for which the fund has been created. The genuineness of the expenditure is not in doubt and the same has been expressly accepted by the AO in the assessment order itself. * The expenditure incurred has not been allowed only because of the fact that the receipt from IDC have not been taken in income & expenditure account. Once the AO has held that the receipts are taxable, in that case the expenditure incurred should have been allowed. * In view of the above we submit that the AO has erred in not allowing the expenditure incurred during the year of Rs. 75.30 crores irrespective of the fact that whether the same has been incurred out of the accumulated funds/ funds received during the year or interest income earned during the year. * The expenditure incurred has to be a....
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....hence not liable to be assessed to income-tax. Secondly, that IDC is not income of the assessee and is held on behalf of the state govt and hence is shown as a capital receipt in the balance sheet and not in Income and expenditure account. The arguments of the Department are outlined as under: 1. Reliance is placed on the order of CIT(A) A.Y 2009-10 dt 28.2.2018 para 9 from pages 6 to 25 where the issue is discussed in detail. Following aspects are highlighted. a.) Background leading up to the creation of the fund (para 9.4.1 pg 12-14 of CIT(A) order), which shows that the fund was created under Haryana Development and Regulation of Urban Act 1957 for purpose of carrying out development and infrastructure projects in Haryana. It was especially created to be a distinct entity administered and controlled by High Powered Committee who by the assessee's own admission ( Form 10A of assessee application for 12A) were the founders/ authors of the Trust. Reliance is placed on the Notification dated 24.11.2006 for creation of Infrastructure Development Fund (IDF) (page 14-15 of DPB). Thus IDF was by no means just a bank account for receipt of IDC's but a specific and separate ....
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.... to para 9.4.8 page 25 of his order for A.Y 2009- 10 and has finally held at para 9.4.9 pg 25 that the IDC are the income of the assessee. The CIT(A) has also countered the claim of the assessee that it is only in receipt of 1% of the IDC and not the balance, at para 9.4.5 page 17 of his order. e) In addition to the discussion in order of CIT(A), a compilation of cases laws relied upon by the department has also been submitted on 24/4/2019 which support the department's stand on this issue. Judgements at Sr No 1, 2, 3, 4, 13, and 14 of the compilation discuss the Doctrine of Diversion of Income at source and are clearly applicable to the facts of the present case. The relevant portions of the judgements have been highlighted and flagged for ready reference. Issue 3: Non allowance of expenditure incurred on the Infrastructure Development projects((Ground 3 of AY 2009-10) Reliance is place on the discussion and findings at para 10 pages 25 to 27 of CIT(A) order for AY 2009-10. Issue 4: Interest income from FDR's made out of the IDC receipts treated as income by A.O and upheld by CIT(A) (Ground 4 of AY 2009-10 and Ground 2 of A.Y 2014-15) This is consequential to t....
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....for adjudicating whether the assessee fund belonged to the state or not. 10. We have gone through the relevant statutory provisions creating the Fund and facts relating to its functioning and what emerges is that the Fund merely represents money, belonging to the State, pooled for specific user purposes of infrastructure development in the state. The Fund belongs entirely to the State and has no distinct or separate identity of its own. The relevant provision creating the Fund is section 3A of the Haryana Development and Regulation of Urban Areas Act, 1975, which reads as under: 3A. Establishment of Fund- (1) Any colonizer to whom a license has been given under this Act shall deposit as {infrastructure development charges}a sum, {at such rate as may be prescribed by the Government from time to time, per square metres of the gross area and of the covered area of all the floors in case of flats proposed to be developed by him into a colony} in two equal installments. The first installment shall be deposited within 60 days from the date of grant of the license and the second installment to be deposited within six months from the date of grant of license. (2) The Haryana Urban De....
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....he notification relating to which is reproduced hereunder : HARYANA GOVERNMENT TOWN AND COUNTRY PLANNING DEPARTMENT Notification The 12th July 2007 No. DS.2007/17807 - In pursuance of the provisions of Sub-section (7) of Section 3A of the Haryana Development and Regulation of Urban Areas Act, 1975 (8 of 1975), the Governor of Haryana hereby constitutes High Powered Committee consisting of following members for the administration of Fund for the development of major infrastructure projects in the State of Haryana namely :- 1. Chief Minister, Haryana Chairman 2. Chief Secretary, Haryana Vice Chairman 3. Financial Commissioner and Principle Secretary to Government Haryana, Finance Department Member 4. Financial Commissioner and Principal Secretary to Government Haryana, Irrigation Department Member 5. Financial Commissioner and Principal Secretary to Government Haryana, Power Department Member 6. Financial Commissioner and Principal Secretary to Government Haryana, Public works, Building Roads Department Member 7. Financial Commissioner and Principal Secretary to Government of Haryana, Transport Department Member 8. Commissioner and Secretary t....
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....tory of IDC charges collected by the state for the said purpose, to be utilized as determined by the State. What emerges from the from the above therefore is that the assessee fund merely represented money set apart/pooled by the government so as to facilitate its user for a specific purpose of infrastructure development in the state, all control over its collection and user remaining with the state .We therefore hold that the fund entirely vested in the State and no separate entity, distinct from the state had been created by virtue of the creation of the fund. 12. The argument of the Revenue that the formation of a high powered committee for administration of the Fund sufficiently established that an entity distinct from the State has been created, in our view holds no ground. The constituents who make up the committee coupled with the fact of exercise of power by the committee whether in its own right and distinct from the State would be essential factors determining whether an entity distinct and separate from the State had been created on the formation of the committee. In the facts of the present case as stated above, the committee comprised of the Chief Minister of the st....
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....for specific purpose.The presence of the Revenue Secretary in the high powered committee takes care of the requirement of obtaining approval of the Finance Department for utilization of funds. In view of the above we hold that Upto A.Y 2013-14, the Fund belonged to the State and was not liable to tax.The addition made of the IDC receipts and interest on FDRs in A.Y 2009-10 and A.Y 2013-14 are therefore directed to be deleted. Ground No 2 & 4 raised in ITA No. 644/chd/18 & the additional grounds No.1 & 2 in ITA No.528/Chd/17, are accordingly allowed. Taking up the remaining grounds in ITA No. 644/chd/18, for A.Y 2009-10, Ground No .1, challenging the validity of the assessment framed u/s 147 of the Act, has not been pressed before us and the same is therefore treated as dismissed. Ground No.3 relating to allowance of expenditure against the IDC receipts is rendered infructuous in view of our findings treating the Fund as belonging to the State and the IDC receipts therefore not being taxable. In effect therefore the appeal of the assessee for A.Y 2009-10 in ITA No. 644/chd/18 is partly allowed. Taking up now the remaining grounds of ITA No. 528/chd/17, pertaining to A.Y 2013-14,....
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.... to contract and sue or be sued in its own name.Even the constitution of the Board, provided for in the said section, reflected that it was distinct from the State, by clearly showing that not all members were to be representative of the State and some members could be nominated by the State Government . The relevant provisions of the HDRUA Act stating so are reproduced hereunder for clarity: Section 3A (7) The Fund shall be collected and managed by the Director and passed on for the purpose of its further utilisation to the Board to be constituted by the Government for this purpose. . . . 3AA. Establishment and constitution of Board.-(1) The State Government shall, by notification in the Official Gazette, establish a Board consisting of the following members, namely:- (i) The Chief Minister of Haryana. Chairman (ii) The Chief Secretary to Government of Haryana Vice-Chairman (iii) The Principal Secretary to Government of Haryana, Member Finance Department (iv) The Principal Secretary to Government of Haryana, Member Irrigation Department (v) The Principal Secretary to Government of Haryana, Member Power Department (vi) The Principal Secretary to Government o....
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....plinary Project Management Team and one or more Advisory Committee or Committees or Sectoral Sub-Committee or Project Implementation Sub-Committee, or engage suitable service providers or advisors or consultants to advise the Board for the efficient discharge of its functions; (vi) enter into and perform all such contracts as it may think necessary or expedient for performing any of its functions; and (vii) do such other things and perform such other acts as it may think necessary or expedient for the proper conduct of its functions and for carrying into effect the purposes of creation of the Board, as contained in this Act. What conclusively emerges from the above is that the Board was a distinct and separate entity from the State and its income and property could not be regarded as that of the State Government. 14. Having said so, the question now arises whether the Board was merely a nodal agency of the State, in which circumstance the receipts in the Fund of IDC charges would not be Revenue receipts of the Fund/Board.A nodal agency of the government, as is common knowledge, is that which is deputed merely for execution/implementation or supervision or combination of all a....
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.... to the end-users; (c) identify and promote technology initiatives in urban development and infrastructure development sector for improving efficiency in the system; (d) identify bottlenecks in the infrastructure sectors and recommend to the Government policy initiatives to rectify the same; (e) select, prioritise and determine sequencing of infrastructure projects; (f) formulate clear and transparent policies related to the infrastructure sectors so as to ensure that project risks are clearly identified and allocated between the stakeholders; and (g) identify the sectoral concessions to be offered to concessionaires to attract private participation and secure availability of viable infrastructure facilities to the consumers; Provided that where participation is sought by any person by participating in disinvestment process, the provisions of this Act shall not apply: Provided further that any authority or body, constituted to implement such disinvestment, may seek assistance from the Board; (ii) prepare internally or through external consultants or service providers engaged for the purpose, all necessary documents including the bid or tender documents, draft contract....
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....rojects for implementation in PublicPrivate-Partnership mode, viz., Build-Operate-Transfer, Build- Own-Operate-Transfer, Joint Venture Agreement, concessionaire agreement, equity participation by State, subsidy support, incentivisation in form of tax exemptions, Viability Gap funding, Grant of Government guarantee, etc. The Section 3AA is accordingly proposed to be introduced for the constitution of Board. The sub-section 7 of section 3A is also proposed for amendment to enable transfer of amount collected under the Fund by the Director to the Board. The Preamble of the Act is also proposed for appropriate amendment to reflect the said intent and purpose. The Board is likely to evolve as a 'multi-disciplinary Techno-Legal-Financial Institution for Promotion of Infrastructure Development in the State' under the Haryana Development and Regulation of Urban Areas Act, 1975, with professionals drawn from Administration, Engineering, Town Planning, Legal and Finance cadres. Enabling provision for appointment of officers and employees for the Board has accordingly been made in Section 3AB. The Powers and Functions of the Board has been detailed under Section 3AC. Provision enabling the fo....
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....o 1 & 2, agitating addition made on account of the same respectively, are therefore dismissed. 19. Ground No 3 is against the non allowance of benefit of accumulation of income as per section 11(2) of the Act. Briefly put, the AO, after holding the IDC and IAC ( Infrastructure Augmentation Charges) receipts taxable as Revenue receipts of the assessee, as opposed to capital receipts shown by the assessee, and after allowing Revenue and capital application of the same, found that there was shortfall in application of 85% of the income of the assessee, as stipulated by law for the purpose of claiming exemption of income from taxation u/s 11 of the Act. The shortfall was found to be Rs. 3, 82, 08, 83, 403/-.He further found the assessee ineligible for the benefit of excluding from the total income, the income accumulated for future utilization, as provided by section 11(2) of the Act, on finding that it had failed to fufil the conditions provided in the section and the relevant Rule 17 of the Income Tax Rules, 1962, for availing the benefit, of filing notice of accumulation in prescribed Form No.10 electronically by the due date of filing return of income u/s 139(1) of the Act.Accordi....
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....TIONAL DIRECTOR OF INCOME TAX (EXEMPTION) vs. MANAV (2008) 20 SOT 0517 (Del) o MOTI RAM GOPI CHAND CHARITABLE TRUST vs. ADDITIONAL COMMISSIONER OF INCOME TAX (2013) 59 SOT 0197 (Delhi) o JOINT COMMISSIONER OF INCOME TAX vs. SEWA EDUCATION TRUST 27 ITR (Trib) 0292 (Agra) o V. RAMAKRISHNA CHARITABLE TRUST vs. DEPUTY DIRECTOR OF INCOME TAX (EXEMPTIONS)-II (2015) 155 ITD 0727 (Chennai) In view of the aforesaid judgments, it is clear that where the assessee has furnished Form 10 before the completion of the assessment, the same has to be considered. The assessee has furnished the Form 10 manually as well as electronically before the completion of the assessment. Therefore we request that the same be considered. 22. The Revenue on the other hand has relied heavily on the findings of the Ld.CIT(A) pointing out therefrom that the Rules relating to filing of Form No.10, i.e Rule 17 of the Income Tax Rules, 1962, provided for the filing of the form before the due date of filing of return of income. That this limitation was introduced in the statute in section 11(2) w.e.f 01-04-2016. Therefore the contention of the assessee that for the impugned year there was no limitation for filin....
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....herefore, A.O has rightly disallowed the benefits claimed u/s 11(2) of the Act. Assessing Officer has given detailed findings in the assessment order, the same are upheld. Grounds of appeal no 3 is therefore dismissed. Brief submissions in writing were also filed before us which are reproduced hereunder: Issue 5: (a) Denial of benefits of exemption u/s 11 by disallowing the claim of accumulation of income u/s 11(2) of the Act. (Ground 3 of AY 2014-15 and Ground 1 of AY 13-14) (b) Non acceptance of form No 10 submitted during asst. proceedings (Ground 2 of AY 2013-14) Reliance is place on the CIT(A) order for A.Y 2014-15 at para 10 pages 26 to 36 and para 5 pages 3 to 7 of CIT(A) order for A.Y 2013-14 where the various discrepancies in the documents submitted by the assessee and the issue of non filing of Form 10 has been discussed in detail along with reliance on various judicial pronouncements. In addition, reliance is also placed on the judgments at Sr No 6, 7, 8, 9 of the case law compilation which are applicable to the facts of the present case and in favour of the Revenue. 23. We have heard both the parties. One of the reason for denying benefit of accumulation of inco....