2021 (4) TMI 1196

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....10,34,026/- claimed as depreciation by the assessee. 4. The order of Ld. CITA() be cancelled and the order of the AO be restored. 2. The Revenue has also preferred following additional ground of appeal: "The Ld. Commissioner of Income Tax (Appeal) has erred in law and on facts by allowing the benefit of section 11 to the assessee ignoring the facts that the assessee is engaged in activity in nature of trade, commerce or business." 3. Briefly stated facts of the case are that the assessee being a development authority, filed its return of income for the year under consideration on 29/09/2014, declaring nil income. In the return of income, profit (surplus) declared of Rs. 6,35,39,809/- was claimed as exempt under the provisions of sections 11 and 12 of the Income-tax Act, 1961 (in short 'the Act'). In the scrutiny assessment proceedings, the Assessing Officer examined, the activity of the assessee and concluded that its activities are in the nature of trade, commerce or business in view of the dominant activity of acquisition and sale of immovable properties. The Assessing Officer also observed that activity of the authority were being carried out with the mot....

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....Court in the case of CIT V/s Lucknow Development Authority (2014) 265 CTR (All) 0433. In the LDA case, the AO while passing the assessment order u/s 143(3) observed that the assessee was not eligible for the benefit of section 11 of the Act and assessed the entire income as business income. However, this finding was rejected by Hon'ble Allahabad High Court and the activities of the development authorities were held to be charitable in nature. This ruling of Hon'ble Allahabad High Court was followed by the same High Court in Income Tax Appeal No. 657 of 2007 in the case of Hapur Pilkhwa Development Authority and other authorities. Incidentally, the appellant was also one of the authorities for which the said order has been passed. Relying upon the aforesaid decision in the case of LDA, the Hon'ble court held that the activities of the developing authorities are of charitable nature and the authority is eligible to be registered u/s 12AA. As the Hon'ble Allahabad High Court upheld the Tribunal's decision of allowing registration u/s 12AA for the appellant authority, no question can be raised to doubt the charitable character of the activities which the authority has undertaken. Since....

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....ppeal of the Revenue are accordingly dismissed. 8. As far as ground No. 2 of the appeal is concerned, the Ld. CIT(A) has observed as under: "The AO has alleged that an amount of Rs. 23,36,84,304/- has been transferred directly to infrastructure development funds and has not been routed through the income and expenditure account. For this reason, separate addition of the same amount was made. In this regard, the appellant has submitted that as per government order, the appellant society has to transfer the major percentage of receipts under various heads to infrastructure development fund and it has no discretion to spend any part of the said fund on its own. The expenditure from the said fund is supervised by a committee nominated by the state government. It has been explained that this income falls under " diversion of income by overriding title" and is not includible in the total income. In my opinion, since the appellant is entitled for exemption u/s 11, the only relevant point is that 85% of the total income should be utilized towards charitable objects. Total income during the year including the income received towards infrastructure development fund is Rs. 33,37,9....

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....e amount on the same as per approval of the State Authorities. Thus, there may not be any profit element out of the same sources. It may also be noted here that whatever amount has been spent by assessee on the same issue, the AO has accepted that assessee spent the same amount as per the directions of the State Authorities. Then in that event it is difficult to believe that part amount is capital receipt and part would be Revenue in nature. Therefore, there was no justification for Ld. CIT(A) to hold that the impugned receipt is Revenue in nature. This issue also requires reconsideration in view of the fact that assessee is entitled for exemption u/s 11 of the Act. We, accordingly, set aside the orders of the authorities below on the issue of infrastructure fund as well and restore the issue to the file of AO with direction to redecide the issue as per law by giving reasonable opportunity of being heard to the assessee." 8.2 However, we find that the Ld. CIT(A) has followed the provisions of the Act and Rules, 1962 (in short 'the Rules'). According to the provisions of the Act, exemption under section 11 is allowed, if 85% of the funds received are applied for charitable purpos....