TaxTMI 
TaxTMI 
2025 (4) TMI 664
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....grounds of appeal in the various appeals are as under:- ITA No.532/LKW/2014 "1.1) The Ld. CIT (A) has erred in law and on facts of the case in directing the A.O. to compute the income in the manner specified in Section 11 taking into account information given in the audit report in form 10B. 1.2.) For doing so the Ld. CIT(A) erred in not appreciating the fact that the case was selected under scrutiny as per Board's Guidelines to examine the charitable activities. The institution may be registered u/s 12AA still they may not be eligible for exemption u/s 11 of the I.T. Act if the activities of the assessee are not found in accordance with the aim and objects of the assessee during the comprehensive scrutiny for the year under consideration. 2.) The Ld. CIT (A) has erred in deleting the addition made on account of VAMBAY Scheme Fund of Rs. 62,54,220/-. 3.) The Ld. CIT (A) has erred in deleting the addition made on account of advances of contracts of Rs. 14,26,40,652/-. 4.) Appellant craves leave to add or amend the ground of appeal, as stated above as and when need of doing so arises with the prior permission of the Hon'ble Benc....
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.... 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 account which had been subjected to twin audits and no defect or discrepancy having been found and specified therein, the dis- allowance made / sustained by the authorities are wholly erroneous both on facts and in law. 5. BECAUSE without prejudice to the ground nos. 3 and 4 above, the dis allowances under the heads 'legal expenses', 'consultancy expenses' and 'rates & taxes' are much too high and highly excessive. 6. BECAUSE the authorities below have failed to appreciate that payments claimed under the head 'rates and taxes', are statutory payments made to various government authorities and therefore, the same being fully verifiable even from govt. record, deserve to be allowed. 7. BECAUSE the order appealed against is contrary to the facts, law and principles of natural justice to the extent stated in the foregoing grounds." ITA No.535/LKW/2014 1. BECAUSE notice of accumulation dated 07.02.2014 in prescribed Form No. 10 as had been filed before the Id. first ....
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....ch, Lucknow in appeal no. 532/Lkw/2014. 3) The order of Ld. CIT(A) be cancelled and the order of the A.O. be restored. 4) Appellant craves leave to modify/amend or add any one or more grounds of appeal." ITA No.22/LKW/2019 1) Ld. CIT(A) has erred in law by directing the AO to compute the income as per direction given by the CIT(A)-1, Lucknow in the manner specified in section 11 of the Act taking into account information given in audit report in form 10B, ignoring the fact that the activities of the assessee are of commercial nature, therefore the assessee is hit by the amended proviso to section 2(15) of the Act, 1961 and second appeal on identical issue is already pending before Hon'ble ITAT, on a similar order passed by previous ld. CIT(A) in this very case. 2) Ld. CIT(A) has erred in law and facts in accepting/deciding the same issue, during the pendency before the Hon'ble ITAT, Lucknow Bench, Lucknow in appeal no. 533/Lkw/2014. 3) The order of Ld. CIT(A) be cancelled and the order of the A.O. be restored. 4) Appellant craves leave to modify/amend or add any one or more grounds of appeal." 2. In ITA No.532/Lkw/....
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....n 11 was also disputed by the Revenue for the assessment years 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 and 2014-15. However, the Hon'ble ITAT, vide its orders dated 8.06.2022, upheld the exemption granted to the assessee vide the orders of the ld. CIT(A) and restored certain matter for re-examination back to the file of the ld. AO. 3.1 In the impugned assessment years (2007-08 and 2008-09), the ld. AO also assessed the income over expenditure as the income of the assessee and brought the same to tax. After making certain other additions, the income of the assessee was computed at Rs. 301,97,44,732/- for the assessment year 2007-08 and at Rs. 225,45,17,400/- in the assessment year 2008-09. The ld. AO analyzed the functions and powers of the Board as laid down in section 15 of the Uttar Pradesh Awas Evam Vikas Parishad Adhiniyam, 1965 (hereinafter known as UPAEVPA, 1965) and came to the conclusion that a plain reading of the same revealed that they outlined the features of a housing scheme and emanated out of a consideration of a expediency rather than a concern for charity. The ld. AO compared the housing projects developed by private builders / developers with the activities....
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....ges etc,. The assessee furnished some details, including the details of costing for houses constructed for Ashrayheen/ EWS, LIG, MIG, Vambay Scheme and others so as to prove that it did not have any profit motive and was essentially working for the welfare of the poor and lower income groups. It is also submitted that all the schemes were duly approved and sponsored by the Government of Uttar Pradesh. It was submitted that it was functioning entirely for the attainment of objectives as enshrined in the UPAEVPA, 1965 and that there had been no deviation in the activities conducted by the Parishad either in the past or present. However, the ld. AO recorded that the assessee did not furnish the complete details to the queries raised by him in either of the assessment years. The ld. AO conceded the fact that the assessee had been granted registration by the ld. CIT(A), on the directions of the ITAT, but held that the registration under section 12AA did not give a blanket exemption to the assessee under section 11 of the Act. He opined that the institution may be registered under section 12AA and still not be liable for exemption under section 11 of the Act, on account of enquiries made....
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....enses claimed on land, civil work, material cost, work charge cost, a 12% supervision charged was also charged for each unit built and interest was charged for the period of construction. Furthermore, 2% of the cost of the unit was also taken from the allottees on account of maintenance. Calling for the details of auctioned properties, with regard to reserve price and price fetched, the ld. AO observed that the land had been sold to private builders/real estate developers and therefore, this activity went to show that the sales were not for any charitable consideration, but rather the utility had been extended to those persons who could afford it. He also observed that the assessee was receiving money from community centers and guest houses, but despite calling for the retail of such receipts, ownership of guest houses etc., none were furnished before him. For the A.Y. 2007-08, the ld. AO also observed that the assessee had shown excess of income over expenditure of Rs. 270,94,55,118/- which was 47.29% of its total receipts. He observed that for claiming exemption under section 11, the assessee was obliged to file a Form 10 as per the provisions of section 11(2) of the Act along wi....
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....d for construction of roads, drainages, sewer, light, water and beautification etc,. However, he noted that it was nowhere directed that one third would be given to other authorities and in the circumstances, he held that these were the revenue receipts of the assessee, charged from persons with whom transactions for sale of land / houses /shops etc., were made. As they were the assessee's trading receipts and by all commercial tests, formed part of the income of the assessee, they ought to have been accounted for in the credit side of the income and expenditure account and not crediting of such receipts in the income and expenditure account amounted to suppression of current income for the year. In the assessment year 2008-09, the ld. AO also pointed out that the assessee had shown expenses to have been made out of this fund but no details or evidence had been submitted before him regarding the expenditure out of this fund. Therefore, in both years, he decided to add back the aggregate amount of receipts in the infrastructure funds (Rs.14,31,41,898/- in A.Y. 2007-08 and Rs. 28,62,63,922/- in A.Y. 2008-09) to the income of the assessee. 4. On going through Schedule 9B of the bal....
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....d that it was a U.P. Government Organization and such advances through contractors were given in the normal course of business. It requested more time to submit the details called for by the ld. AO, on the grounds that the advances were given by their various units located all across U.P. and it would take some time to collect the details thereof. However, the ld. AO noted that, despite a number of opportunities, nothing was furnished in this regard and therefore, he added back these amounts to the income of the assessee by disallowing the said expenditure. Furthermore, the ld. AO also observed payment of legal expenses and consultancy expenses, for which the assessee was required to submit the necessary details. However, as the assessee could not furnish the necessary details in the time frame provided by the ld. AO, the same were added back to the income of the assessee. The ld. AO also observed that a sum of Rs. 24,01,104/- had been paid under the head rent, rates and taxes for the assessment year 2007-08. It was submitted that the same had been paid on account of house tax, water tax and other payments made to Nagar Nigam/Nagar Palikas at HQ as well as Unit level. However, as t....
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.... sites had not only to pay the price determined and demanded by the assessee, but they also had to pay the expenses of stamp duty for transfer and registration of property in their names and since they also had to pay premium towards price appreciation of the property, betterment charges for value addition to the property, interest on differed or delayed payments, thus what was emerging was that the activity of the assessee was purely that of a commercial organization. Therefore, the ld. AO held that the surplus of the assessee was not incidental to its activities but was the desired outcome of its activities. He further commented that the exemption enjoyed under section 10(20) was a benefit conferred by the statute rather than a recognition of an element of charity in its activities. However, the consequent amendment in the provisions and disentitlement of the assessee from the benefit of exemption could not present the need for a new yardstick to re-valuate the fundamental nature of the assessee's activities in order to invent the element of charity in them. Therefore, the ld. AO held that the statutory changes implied a legislative intent which could not be thwarted by giving as....
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.... CIT(A) had relied upon the decision of the Hon'ble Supreme Court in the case of ACIT vs. Surat City Gymkhana (2008) 300 ITR 214 (SC) for this proposition. Thus, the ld. CIT(A) had held 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 any other head of income. He, therefore, held that the order of the ld. AO to do otherwise was against judicial propriety and therefore it could not be sustained. It was therefore held by the ld. CIT, that the ld. AO would have to restrict himself to the computation of income as provided under the scheme of section 11 and should thereafter only examine the application of income. Furthermore, once it had been held by the ITAT, that the objects were for, "general public utility" then the ld. AO was bound by the grant of subsequent registration. The ld. CIT(A) also recorded the arguments of the ld. AR that the controversy with regard to eligibility of the assessee for registration under section 12AA had been settled by the Hon'ble High Court, Lucknow Bench, Lucknow in its favour, vide judgment dated 16.09.2013 and 27.09.2013 in Income Tax Appeal Nos.114/2010 and 16/200....
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....e completion of assessment, the ld. AO was required to take it into consideration while working the income of the trust in the manner provided under section 11 of the Act. With regard to the view that the Form No.10 stated that the income amounting to Rs. 168.13 Crores would be accumulated and set apart for utilization in the next five years to attain the objects of the Parishad as enshrined in the UPAEVPA, 1965, the ld. CIT(A) held that it was necessary that the assessee must specify in the notice, the concrete nature of the purpose for which the accumulation was being made. He observed that the generality of the objects could not take the place of specificity of the need for accumulation and therefore in his view, simply writing the objects, which were 21 in number, would not satisfy the requirement of specification for the purposes as required by section 11(2). Placing reliance on the following decisions: a. Cotton Textile Export Promotion Council vs. 1st ITO 4 ITD 642. b. Karnal Improvement Trust vs. ACIT, 16 taxman.com 63 (ITAT-Del). c. CIT vs. M.CT Muthaiah Family Trust, 245 ITR 400 (Madras). d. Sir Sobha Singh Public Charitable Trust vs. A....
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....(A) thereafter, proceeded to decide the issue of the infrastructure fund. Perusing the G.O. dated 15.12.1998, to which the infrastructure fund owed its origin, he observed that as per the said G.O., part of the income of the assessee from a few sources was taken to the infrastructure fund and not to general pool and perusal of Schedule 28 and 29 of the annual accounts showed that 90% of the charges such as conversion charges, map charges, free hold charges, water charges, malva charges, compounding charges, supervision charges, misc. receipts have been transferred to the infrastructure fund. He observed that as per the Government Order, the account was to be in the name of the assessee, however the expenditure would be made as authorized by a committee for the purpose and on construction of roads, drainage, sewer, street light, water supply, beautification etc,. He noted that the assessee was allowed to collect the fees and charges directly and part of the fees or charges was credited to the infrastructure account. Thus, he held that the infrastructure fund was not a separate fund independent of the assessee. The Government Order only talked of a designated bank account in which a ....
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....rted through overriding title in favour of SUDA only and was meant for being utilized as per its policy. The ld. CIT held that in the Vambay Fund, the grants were given by the State Urban Development Agency (SUDA) for poverty eradication for the urban poor. Since, the grants received were credited in a separate account and utilized as per the guidelines issued by the State Urban Development Agency (SUDA), he agreed with the contention put forth by the ld. AR that the grant had been received for a particular purpose and could not be taxed as there was no element of profit in such grant. Placing his reliance on the following decisions: a. CIT vs. U.P. Upbhokta Sahkari Sangh Limited 288 ITR 106 (All) b. Bihar Agricultural Produce vs. CIT, 205 taxman 378 (Patna) c. Karnataka Urban Infrastructure Development Corporation 315 ITR 301 The ld. CIT(A) held that the grant and interest which have been taxed by the ld. AO were meant for specific projects and had been spent for meeting the expenses of these projects and hence these amounts were not taxable. He further held that since the expenses incurred by the assessee during the years under consideration under th....
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....erved that the assessee had not furnished details before him also during the course of appeals and therefore, he declined to entertain the claim and accordingly he confirmed the addition made by the ld. AO. On the issue of deduction under section 80IB(10), since the ground was not pressed by the ld. AR, the ld. CIT(A) dismissed the same as not pressed. On the claim of TDS, the ld. CIT(A) directed the ld. AO to verify the TDS and grant the benefit to the assessee as per law. On the issue of charging of interest under section 234A, 234B and 234C, holding that the charging of interest was mandatory, he rejected the plea of the assessee but directed the ld. AO to allow the consequential relief that would arise as a result of the decisions made in the appeal. In this manner, both the appeals of the assessee were partly allowed. 10. Aggrieved by these orders of the ld. CIT(A), both the Department and the assessee have come in appeal before us vide their respective Appeal Nos. 532 and 533 in the case of the Department and Appeal Nos. 534 and 535 in the case of the assessee. Even while the Department moved an appeal against the orders of the ld. CIT(A) on issues that we shall discuss la....
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....nd has accordingly come in appeal before us, submitting that the directions issued by the ld. CIT(A) were incorrect as they ignored the fact that the activities of the assessee were of commercial nature and therefore, the assessee is hit by the amended proviso to section 2(15) of the Act, 1961 and a second appeal was pending before the ITAT on a similar order passed by the previous ld. CIT(A) in this very case. The Revenue prayed that the orders of the ld. CIT(A) may cancelled. This is how six appeals came to be pending before us on the same set of assessment orders pertaining to the assessment years 2007-08. 11. Shri. G.C. Shrivastava, ld. Special Counsel appearing on behalf of the Revenue in ITA Nos. 532 & 533/Lkw/2014 and ITA Nos.21 & 22/Lkw/2019 drew our attention to drew our attention to the additional grounds of appeal filed on 5.02.2020 and pointed out that Ground No.1 of these additional grounds namely non consideration of the provisions contained in section 13(8) was not being pressed in view of the fact that the proviso to section 2(15) had been issued with effect from 1.04.2009 and therefore were not relevant for this assessment year .Thereafter, drawing our attention....
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....he year may, at the option of the person in receipt of the income, which was to be exercised in writing before the expiry of time allowed under sub section (1) of section 139 for furnishing the return of income, be deemed to the income applied to such purposes during the previous year in which the income was derived and the income so deemed to have been applied, shall not be taken into account in calculating the amount of applied to such purposes. He further went on to point out that from reading of section 11(2), that where 85% of the income referred to in Clause (a) or (b) of sub section (1) read with the explanation to that sub section was not applied, or was not deemed to have been applied to charitable or religious purposes in India during the previous year, but was accumulated or set apart for future application, such income so accumulated would not be included in the total income of the previous year, only if such person specified notice in writing to the ld. AO in the prescribed manner, the purpose for which the income was being accumulated or set apart and the period for which the income was being accumulated or set apart and also the manner in which the money that had bee....
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.... of the assessee. The ld. Special Counsel further submitted that perusal of the copy of Form No.10 filed for assessment year 2007-08, showed that the purpose for the accumulation of income was very vague and general in nature, whereas the law required that the purpose of accumulation ought to be specific, or else the whole purpose of enacting a provision gets defeated. Ld. Special Counsel further argued, that the accumulation of surplus had been swelling over the years, which further indicated that the amounts accumulated earlier and due for application this year, had not been spent and thus they would be deemed to be income chargeable to tax under section 11(2) of the Act. The provisions of section 11(3) also provided that the amount accumulated under section 11(2) had to be invested and remain invested in specified mode till it was spent. There was nothing to suggest that the amount that was set apart earlier and due for application in this year were withdrawn out of the investment in prescribed modes. The ld. Special Counsel invited our attention to the decision of the Hon'ble Allahabad High Court in CIT-1, Lucknow vs. Lucknow Development Authority (2014) 265 CTR 433 (Allahabad)....
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....as also a person referred to in section 13(3) and any benefit given to such persons would disentitle the institution to the benefit of exemption. The ld. Special Counsel pointed out that when the additional grounds filed by the Revenue came for consideration an opportunity was allowed to the respondent by the Hon'ble Bench to provide relevant details whether any benefit had passed on to the employees, particularly to the Managers or their relatives. As per the information available on record, it was seen that by way of a general circular, the respondent had given 5% concession on the total price of land/flats allotted to all its employees including senior employees. Thus, a benefit was being given to the employees and more particularly, the Manager and their relatives. Ld. Special Counsel pointed out that though the Adhiniyam, 1965 under which the respondent was created, did not give any such benefit to all the employees including those occupying managerial positions, registration amount in respect of these employees was being reduced. The ld. AO had called for specific information but the same had not been furnished. Disclosure regarding the same had not been made in the accounts ....
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....ing to the reference to the amended proviso to clause 2(15), but continued to press that the CIT could not have given the directions that he did because the activities of the assessee were of a commercial nature . 13. In response to the said arguments, Smt. Shweta Mittal, C.A. (hereinafter referred to as the ld. AR) appeared on behalf of the assessee submitted that section 13(3) did not arise in the case of the assessee, as it did not emanate out of the orders of the ld. AO or the ld. CIT(A). Furthermore, she submitted that the issue was covered by the order of the Hon'ble ITAT in their order dated in ITA Nos.630 & 631/Lkw/2016, ITA Nos. 23 & 24/Lkw/2017, ITA Nos.164 & 165/Lkw/2017 and ITA Nos.210 & 211/Lkw/2017 for the assessment years 2009-10, 2010-11, 2011- 12, 2012-13, 2013-14 and 2014-15. It was submitted that the Hon'ble ITAT while dealing with the matter had distinguished the case of the assessee from the cases cited by the ld. Special Counsel by relying upon the case of CIT vs Tata Steel Charitable Trust 73 taxman 98 (Pat).On the issue of section 11(2) that had been raised by the ld. Special Counsel, the ld. AR submitted that accumulation of income under section 11(2) wa....
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....o a party . She submitted that the case of Mussoorie Dehradun Development Authority would not apply to the facts of the assessee's case, because unlike the U.P. Awas Evam Vikas Parishad, the MDDA did not have exemption. When queried as to how that could affect the question of overriding title, she submitted that it was because in a case of an exempted institution, the amounts received for specific purposes could be carried to the corpus. Furthermore, she submitted that the Revenue had not raised any specific ground on the issue of infrastructure fund and in subsequent years, i.e. in assessment year 2022-23, no addition had been made on the issue of infrastructure fund and the returned income of the assessee had been accepted at Nil. Subsequently the Learned AR also placed reliance on two more judgments i.e. that of the ITAT Amritsar Bench in the case of Jalandhar Development Authority vs. DCIT in ITA Nos. 377 to 379/Asr/2023 where the external development charges collected by that assessee on the directions of the State Government collected and spent as per the provisions of the Punjab Apartment and Property Regulation Act, 1995 had been held to be only in the custody of the Urban ....
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....s. The matter was open to verification if desired and there was no basis for making any addition on account of such advances because they were a regular business practice and there was no requirement for them to be routed through the income and expenditure account. Finally regarding appeal numbers 21 and 22 of 2019, the Ld AR submitted that the appeal against the orders of the learned CIT(A) was not maintainable, because the CIT(A)4 Lucknow had only asked the AO to give the appeal effect in the manner directed by the Ld CIT(A) 1 Lucknow in his earlier order, which the AO was bound to do in any case and had done later . Hence appeal could not lie against this direction. 15. Exercising his right of reply the ld. Special Counsel pointed out that there was a difference between the accounts of a Commercial Organization and the accounts of a charitable trust. In the case of a charitable trust, it was not income and expenditure which had to be considered but, receipts and expenditure. All the receipts had to necessarily be accounted for in the return of income. With regard to the disallowance on account of the infrastructure fund, the Vambay Scheme and the Revolving fund, the ld. AO ha....
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....d done was to make a disallowance and add back the funds. He conceded that disallowance was not the proper way to proceed in the matter, but argued that the fund was to be utilized in the manner given and should be routed through the income and expenditure account. 16. In response to these submissions, the ld. AR reiterated that the funds did not belong to the authority, they were being kept by the Parishad in fiduciary capacity and therefore, they were being kept separately. 17. Sh. Mazhar Akram, ld. CIT DR, representing department in ITA Nos.534 & 535/Lkw/2014, pointed out that the judgment of the Amritsar Bench in the case of Jalandhar Development Authority that had been cited by the ld AR, was based on the judgment of the Punjab and Haryana in the case of Pr. CIT vs. Punjab Police Housing Corporation Limited as reported in 195 DTR 150 P & H wherein it had been held that interest on grants received by the State Government could not be treated as income of the assessee. However, the ld. CIT DR argued that it had been pointed out by the Hon'ble Patna High Court in the case of Bihar Police Building Construction Corporation Private Limited vs. Pr. CIT (2023) (09) PAT CK 0020 t....
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....ent did not preclude the authorities from scrutinizing the accounts of the assessee's from year to year to determine whether the assessee's were indulging in activities that amounted to, 'Trade Commerce or Business and if so whether the threshold limit as laid down in proviso to section 2(15) had been breached. Thus, the said judgment did not preclude the ld. AO in the present case from examining the same, which he had done. Responding to the Learned AR's Submission that the Form 10 filed by the assessee met the requirements of the law, Ld CIT(DR) pointed to the judgment of the Hon Supreme Court in the case of Commissioner of Customs (Import) vs Dilip Kumar and Company (2018) 95 taxmann.com327 (SC) to point out that an exemption provision had to be strictly interpreted and benefit of any ambiguity had to be given to the Revenue. He pointed out that the language of Section 11(2) clearly stated that the purpose for accumulation had to be specified and mere reference to the objects of the society did not fulfil the requirements of a valid intimation in Form 10. He therefore prayed that the CIT(Appeals) order be upheld on the issues of denial of accumulation and routing of Infrastructu....
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....it and not charitable purposes as such profit was not incidental for by-product of the activity of the appellant, but was its main predominant purpose and there was no application of income for any charitable purpose under the terms of the object. It has also been argued that the levy of betterment charges, upon occupants of a development project and the auctioning of properties by the Development Authority constitute activities in the nature of trade, commerce and business and because the sum total of the earnings from these activities exceeds the maximum amount permissible under section 2(15) of the Act, 1961, the assessee is not entitled for deduction. Many of these issues have been addressed by the Hon'ble Supreme Court in the case of ACIT (Exemption) vs. Ahmedabad Urban Development Authority (supra). In paragraph 140 of its order, the Hon'ble Supreme Court quoted from its earlier order in the case of New Delhi Municipal Corporation vs. State of Punjab (1979) 7 SCC 339, wherein the Hon'ble Court had held that unless an activity in the nature of trade and business is carried out with a profit motive, it would not be a trade or business contemplated by Clause ii of Article 289. B....
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....ess, the quantitative limit of 20% imposed by the second proviso to section 2(15) would be attracted thereby negating the essential general public utility object and thus driving up the costs to be borne by the ultimate user or consumer which is the general public. In paragraph 190 while laying out the determinative tests to consider when whether such statutory bodies are GPU category charities, the Hon'ble Supreme Court had also pointed out that rendition of service or providing any article or goods by such Boards, authority, corporation etc., on cost or nominal markup basis would not ipso facto be activities in the nature of business, trade or commerce or service in relation to such business, trade or commerce. It further held that where the controlling instrument, particularly a statute, imposes certain responsibilities or duties upon the concerned body, such as fixation of rates on predetermined statutory basis, or based on a formula regulated by law, or rules having the force of law. Per se, the recovery of such charges, fees, interest etc., cannot be characterized as fee, cess or other consideration for engaging in activities in the nature of trade, commerce or business or fo....
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.... section 11(2), section 13(1)(d) and section 13(3). He has pointed out that once the ld. CIT(A) had held that the income of the assessee should be computed in the manner specified in section 11, taking into account information given in the audit report in Form No.10B, he should also have directed the ld. AO to look into the conditions that were required to be fulfilled for grant of exemption under section 11 i.e. the ld. AO ought to have been empowered to examine any possible violations of section 11(2), 13(1)(d) and 13(3), before being compelled to grant the exemption under section 11. In consideration of these arguments, we find that the issue before the ld. CIT(A) was whether, once registration had been granted under section 12AA, could the ld. AO hold that the assessee was a business entity and its income was to be computed as business profit under sections 28 to 44. It was in this context that the ld. CIT(A) held that once an, "institution" or "trust" had been granted registration under section 12AA, its income had to be assessed in the manner laid in section 11and there was no other head of income under which it could be assessed. Thus, he concluded that the computation made ....
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.... 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 A....
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....f 1997. In consideration of their orders, we find that the Hon'ble Lucknow Bench of the ITAT has dealt with this issue in its order of Lucknow Development Authority, dated 10.03.2022 in ITA Nos. 185, 186, 163, 164, 439/Lkw/2019, wherein after going through the provisions of sub section (3) of section 13, it has found that the list of persons mentioned in sub section (3) does not contain employees as a category. The ld. AO and the ld. CIT(A) have held that the employees are, 'managers' as per Clause (d) of sub section (3) of section 13 however, the Lucknow Bench has referred to the decision of the Hon'ble Patna High Court in the case of CIT vs. Tata Steel Charitable Trust 78 taxman 98 (Pat) dated 7.01.1993 in which the Hon'ble High Court had held that the employees of the author of the trust do not fall in the specified category of persons referred to in section 13(3) of the Act. In the said judgment, the Hon'ble Patna High Court had held that "as regards, the second condition, it seems that even if a trust has been created wholly for charitable purposes, when subsequently it is found that its income either ensures or is used or applied directly or indirectly for the benefit of any ....
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.... facts of the case being entirely different, the case of Noida Entrepreneurs Association vs. Noida & Others (supra) cannot be relied upon to withdraw the exemption from the assessee authority. Similarly, it is observed that in the case of Buddha Vikas Samiti vs. CIT (supra), the appellant had utilized the form and organization of the trust to confer benefits on members of the family who were the trustees in violation of the parameters of the Act and the objectives of the trust whereas the instant case, the concessions have been allowed to the employees as a part of Government policy. Hence, there cannot be any comparison between the two situations. Moreover, looking in detail through the said Government Order which has been scanned and reproduced by the ld. Assessing Officer in the assessment order for the said assessment year, it is observed that the reservation of plots is not confined to the employee of the development authorities but is provided to them among many other categories such as Scheduled Castes, Scheduled Tribes, Other Backward Classes, MPs, MLAs, Freedom Fighter, Government Employees, Defense Services Employees above 50 years of age, handicapped persons, ex-servicem....
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....velopment Grant UP', in the assessment year 2012-13, is a matter that is somewhat similar to that of the Infrastructure Development and Reserve Fund. Here too, the assessee carried this amount directly to the balance sheet on the grounds that the funds belonged to the State Government and had been given to it to implement tourism projects in the city of Ayodhya. It had also submitted that the addition was unfair, because it had spent more than the amount received and finally it had contended that if they were held to be the receipts of the assessee authority, then they were capital receipts which were not income within the meaning of section 2(24). In view of our detailed reasoning given on the issue of Infrastructure Development and Reserve fund, where we have observed that since the authority is an independent entity having its own funds and further that, as per the provisions of section 20 of the U.P.U.P.D.A. 1973, all Grants received by the authority also constitute its funds and, the power to divert the funds to the state Govt only arises upon dissolution of the authority under Section 58 of U.P.U.P.D.A. 1973, we hold that the funds received by way of tourism grant are the....
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.... its original grounds, we uphold the deletion of the addition of account of advances of contracts. 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. Thus all the original grounds in both these appeals also stand dismissed and consequently the Departmental appeals in ITA no 532 & 533 /Lkw/2014 stand dismissed. 22. We shall now, take up the assessee's appeal n ITA Nos. 534 & 535/Lkw/2014. The first ground of appeal that has been preferred by the assessee is against the 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 assessment year 2007-08) and as per the decision of the Hon'ble Supreme Court in the case of CIT vs. Nagpur Hotel Owners Association (2001) 114 taxman 255 (....
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....ted money should be invested in one of the modes specified in section 11(5). However as per Rule 17(2) of the Income tax Rules,the notice in Form 10 had to be filed before the due date of filing of return under section 139(1). However, the Hon'ble Courts have held that the statutory requirements would be fulfilled if such notice of accumulation were before the ld. AO at the time that the ld. AO did the assessment. In the instant case, it is seen that the notice of accumulation was submitted to the ld. AO before the completion of assessment Thus the Ld CIT (a) has correctly applied the Judgments in the case of Nagpur Hotel Owners Association (supra) and in giving relief to the assessee in this regard. It is a fact that the resolution by the Board was not passed before the due date of the filing of the return but to our mind, the Resolution of the Board is only to demonstrate the decision of the Managers of the trust/institution to accumulate the funds for a particular purpose. Even if it was passed at a later date and information is provided to the ld. AO regarding such accumulation, before the completion of assessment, then going by the observation of the Hon'ble Supreme Court in t....
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.... a public charitable trust had claimed exemption under section 11 for assessment year 1984-85, including for accumulation under section 11(2), for which purpose it had filed Form No.10. In the said form, as purposes of accumulation of income, the assessee had listed all the charitable objects for which it was created. These were 16 in number. The resolution passed by the Board of Trustees of the trust was to the effect that the balance of unapplied income of the year was to be accumulated and / or set apart for application to any one or more of the objects of the trust as set out in Item Nos. (I) to (XVI) under paragraph 1 of the deed of the trust. The assessment was completed allowing the exemption under section 11, including accumulation under section 11(2). Subsequently, the ld. Commissioner revised the case under section 263. According to him, section 11(2) contemplated only specific or concrete purposes and since those were not specified by the assessee, the assessment order was erroneous and prejudicial to the interest of revenue. Accordingly, the assessment was set aside. On appeal to the Tribunal, the Tribunal held, that on an examination of the scheme of the Act, since a p....
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....t or objects. The very requirement or purpose predicated that the purpose must have an individuality. The Hon'ble High Court further observed that it was not necessary that the assessee had to mention only one specific object; there could be setting apart and accumulation of income for more objects than one, but whatever the objects or purposes might be, the assessee must specify in the notice, the concrete nature of the purposes for which the application was being made. Plurality of purposes of accumulation may not be precluded, but it must depend on the exact and precise purposes for which the accumulation was intended; generality of the objects of the trust could not take the place of the specificity of the need for accumulation. According to the Hon'ble High Court, the provision of section 11(2) was a concession provision to enable a charitable trust to meet the contingency, where the fulfilment of any project within its object or objects, needed heavy outlay calling for accumulation to a mass sufficient money to implement it and, therefore, specification of purpose, as required by section 11(2), admitted of no amount of vagueness about such purposes. The facts of the assessee'....
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....se of latter, the person has to specify both the purpose as well the period for which the income is to be accumulated. Further the money so accumulated or set apart is to be invested or deposited in forms or modes as specified in sub-section (5) of section 11 of the Act. Rule 17 of Income Tax Rules prescribes the notice as mentioned in sub-section (2) of section 11 of the Act. Form No. 10 prescribes the format of a notice to be given to the prescribed authority conveying the intention and purposes for which the income is to be accumulated or set apart. The aforesaid format makes a reference to the resolution passed by the Trustees to accumulate the surplus funds. Space has also been provided for indicating purposes/objects for which accumulation is sought. From the aforesaid format it is clear that the setting apart of the income could be for more than one purpose. As per language used in clause (b) of sub-section (2) of section 11, the purpose for which the income is being accumulated or set apart has to be specific. The expression specific as commonly understood is something which is contrary to what is general and vague. As per the meaning given in the Random House Dictionary of....
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....ts of the trust as the purpose for accumulation, would not meet the requirements of the said section. It is however true, that the Courts are divided on this issue. While the views of the Hon'ble Calcutta High Court in the case of DIT(Exemption) vs. Trustees of Singhania Charitable Trust(supra) have been followed by the Hon'ble Madras High Court in the case of CIT vs. M.CT Mutthaiah Chettiar Family Trust 245 ITR 400, some other Hon'ble High Courts like the Hon'ble Delhi High Court in the case of CIT vs. Hotel and Restaurants Association 261 ITR 190 have held, while refusing to admit Revenue's appeal, that plurality of purpose of accumulation was not precluded, the purpose or purposes to be specified could not have been beyond the objects of the trust and Revenue had not come to a finding that any of the objects of the assessee-company were not for charitable purposes. The concurrent findings by the lower authorities were findings of fact and they gave no rise to questions of law. Both these judgments had been followed by various other courts and Tribunals. The decision of the Hon'ble Delhi High Court has been followed in subsequent decisions of the Hon'ble Delhi High Court in Bhara....
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....ly with the procedure strictly to avail the benefit, the Hon'ble Supreme Court, referred to its own earlier judgment in the case of CCE vs. Hari Chand Shri Gopal (2011) 1 SCC 236 in which case, the Constitution Bench had held that, if exemption is available on complying with certain conditions, the conditions have to be complied with. The mandatory requirements of those conditions must be obeyed a fulfilled exactly, though at times, some latitude can be shown, if there is failure to comply with some requirements which are directory in nature, the non-compliance of which would not affect the essence or substance of the notification granting exemption. The Constitution Bench in that case, then considered the doctrine of substantial compliance and held in paragraph 33 and 34 of its order as under:- "33. A fiscal statute generally seeks to preserve the need to comply strictly with regulatory requirements that are important, especially when a party seeks the benefits of an exemption clause that are important. Substantial compliance with an enactment is insisted, where mandatory and directory requirements are lumped together, for in such a case, if mandatory requirements are com....
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.... of sub section (2), cannot be applied for the purpose for which it was accumulated or set apart, the ld. AO may, on an application made to him in this behalf, allow such person to apply such income for such other charitable or religious purpose in India, as is specified in the application by such person and is in conformity with the objects of the Trust and thereupon, the provisions of sub section 3 will apply, as if the purpose specified by such a person in the application under this sub section, were a purpose specified in the notice given to the ld. AO under clause (a) of sub section (2). Thus, from a plain reading of section 11(3A), it becomes clear that specificity of purpose is mandatorily required as per the provisions of section 11(2), failing which, section 11(3A) would be rendered otiose. No provision of the Act can, in our opinion, be interpreted in such a manner, so as to render a related provision as otiose. Therefore, 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 ....
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....in this particular case the five-year period, which was the outside limit for accumulation, had already passed and therefore the notice which was being filed before him as additional evidence could not be entertained. In consideration of this matter, we are of the view that any application for additional evidence has to be accompanied by an explanation as to why that evidence could not be placed before the assessing officer. No such explanation has been placed before us or narrated in the order of the Ld CIT(A). Moreover, since the outside limit for utilization of accumulated income had already lapsed and a notice of accumulation cannot be given for regularization of funds already utilized in a particular manner, in our opinion, the case would squarely be covered by the decision of the Hon Supreme Court in Nagpur Hotel Owners association (supra). We therefore find 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. Accordingly, ground no 1 of the appeal is dismissed for assessment year 20....
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.... declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings." The Learned CIT(DR) has also invited out attention to the orders of the Hon Supreme Court in Union of India vs. Dhanwanti Devi and Ors in 1996 Supp. (5) S.C.R. 32 for the proposition that a decision is only an authority for what it actually decides and it is the essence of the decision which constitutes its ratio and not every observation found therein nor what logically follows from the various observations made in the judgment. He has also invited our attention to the order of the Hon Supreme Court in State of U.P. and Another vs. Synthetics and Chemicals Limited and Another (....
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....pment and Reserve Fund (IDRF), was not a question of law presented to the Hon'ble Court for decision. Furthermore, the order does not show that any arguments were presented before the Hon'ble Court with regard to the nature of and title over the Infrastructure Development and Reserve Fund (IDRF). Thus, it is quite clear that the judgment and order of the Hon'ble Court in the aforesaid case, primarily related to the eligibility of the assessee authority for exemption under section 11 and the correctness or otherwise of the Tribunal's decision, to order its registration under section 12AA. It's judgment with regard to these issues is reflected in the paragraphs 18 to 28 and specifically in paragraphs 26 to 28 and it appears, that the observation made in para 29 of the said order with relation to the Infrastructure Development and Reserve Fund (IDRF), was also with a view to demonstrate that the funds of the authority were utilized for general utility, in support of the decision that was being rendered by the Hon'ble Court. Therefore, while we have the greatest regard for the views expressed by their Lordships, we are inclined to agree with the learned CIT D.R. that th....
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.... Police Housing Corporation Limited(supra), which related to taxability of interest on bank deposit made out of unutilized government grants, which in our view is a different issue altogether and with regard to which there is a contrary decision by the Hon'ble Patna High Court in the case of Bihar Police Building Construction Corporation(supra), which in turn, has been delivered on the basis of the findings of the Hon'ble Supreme Court in Tuticorin Alkali Chemicals and Fertilizers Ltd v. CIT (1997) 6 SCC 117. Therefore, the only judgment the ownership of the Infrastructure Development and Reserve Fund (IDRF), among the decisions cited by the learned AR is the judgment of the Hon'ble Delhi Bench in the case of Saharanpur Development Authority. Here too, we observe that the basic question before the Hon'ble Delhi Bench was whether, if the principal amount (of the Infrastructure Development and Reserve Fund) had not been brought to tax by the ld. AO, whether the interest from the investment of such principal, could be brought to tax by him. It is true that the Hon'ble Delhi Bench held in the course of that order, that the said Infrastructure Development and Reserve Fund (IDRF) did not....
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....already in existence under section 20 of the Act and it had to credit the fees and charges collected by it, to its own funds, which were to be applied to the fulfillment of the assessee's object. The ld. Bench observed, that going through the office memorandum, would reveal that paragraph 1 of the said O.M. contemplates that the "income" of the development authorities described in Clause 5 of the said memorandum, would not be deposited in an ordinary pool, but would be deposited in a separate account, which would be used exclusively for residential infrastructure. Thus, it held that the provisions of the said memorandum itself showed that firstly, the fees and charges collected by the assessee in Clause 5 of the memorandum, would be the income of the development authority but it would not be deposited in the ordinary pool, rather it would be earmarked to ensure the development of residential infrastructure. It therefore held, that the memorandum only provided a regulatory mechanism for incurring the expenses and carving out a preferential area within the assessee's objects. The Hon'ble Bench had observed, that the arguments of the assessee demonstrating that the infrastructure fund....
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.... buildings and other properties, movable and immovable and all monies received by the authority by way of rents and profits, or in any other manner from any other source. Sub Section 20(2) states that that fund shall be applied towards meeting the expenses incurred by the authority, in the administration of this act and for no other purpose. Section 41 of the Act relates to control by the State Government and empowers the State Government to issue such directions to the authority from time to time, as may be necessary, for the efficient administration of the Act and it states, that if there is any dispute between the authority and the State Government with regard to the exercise of its powers and discharge of its functions by the authority, then the decision of the State Government on such dispute shall be final. Thus, the provisions of the U.P.U.P.D.A. 1973 as laid out above makes it quite clear that all the money received by the authority from the State Government, from loans, from its earnings or from any source, would constitute the funds of the Authority. Furthermore, the provisions of section 41 allow the State Government to issue directions to the authority for the effective....
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....of levies by statutory authorities in the nature of fees, charges, tax etc. imposed by the State through an enactment (U.P.U.P.D.A. 1973) can be said to be income of such authority. Thereafter, it compared the provisions of section 17 of the Bihar Industrial Area Development Authority Act, 1974, with the corresponding provision in the Uttar Pradesh Urban Planning and Development Act, 1973, i.e. section 58 and pointed out that both the provisions were effectively para materia in substance. The Hon'ble High Court thereafter pointed out, that since the Mussoorie Dehradun Development Authority, also constituted under the Uttar Pradesh Urban Planning and Development Act, 1973, was a separate entity which was distinct from the State, having its own legal identity, as a cooperate body which could sue or be sued in its name and having its own assets and liabilities, it was only when the State Government decides that the purpose of the development authority had been achieved and there was no need for continuance of such an authority, then upon dissolution of that authority the income, assets and liabilities of the authority would vest with the State Government and not before. It, therefore,....
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....at it was merely a Nodal agency for implementing the projects of the State Government, is fit to be rejected. The Learned AR has pointed to some inconsistencies in the order of the Delhi Bench and also pointed out that the Adityapur Development Authority ( whose case was followed by the Hon High Court) was seeking exemption under another section as also the fact that one of the items of receipt ie stamp duty was collected by the state Govt, but to our mind those arguments are not material because the specific provision of the U.P.U.P.D.A. 1973 render diversion of income to the state prior to the dissolution of the authority as an impossibility and the Govt Order dated 15.01.1998 could not be read as being issued for a purpose that was vires of the Act. It could only be read as issued under section 41 of the U.P.U.P.D.A. 1973 for better administration of the Act by channelizing some portion of the funds to certain preferential areas of the assessee's objects and nothing more. Therefore, following the Judgment of Hon. Uttarakhand High Court in Mussoorie Dehradun Development Authority (Supra), we hold that the Infrastructure Development and Reserve Fund is also the fund of the Assesse....
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....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. Ground No.2 for both assessment years 2007-08 and 2008-09 are accordingly partly allowed, as above. 30. Ground No. 3 & 4 of the assessee's appeal for the assessment years 2007-08 and 2008-09 pertained to the disallowance of certain expenditures claimed by the assessee under the head legal expenses, consultancy expenses and rates and taxes, on account of the fact that the assessee had not submitted the requisite details before either the ld. AO or the ld. CIT(A). The assessee has submitted that the amount of expenses claimed under the above-mentioned heads were fully supported by proper bills and vouchers....
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....sessee parishad, while the expenditure being booked by the units, would presumably be consolidated into the expenditure account of the assessee parishad. The Ld 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. In the circumstances, these additional grounds of appeal are allowed for statistical purposes. Accordingly, the assessee's appeals in ITA no 534 & 535/Lkw/2014 are partly allowed. 32. We shall now turn our attention to the Department's appeal in ITA Nos.21 & 22/Lkw/2019. In both the years in question, the Revenue is in appeal against the decision of the ld. CIT(A)-4, Lucknow directing the ld. AO to compute the income of the assessee as per the direction given by the ld. CIT(A)-1, Lucknow, in the manner specified in section 11(1) of the Act, taking into account information given in the audit report in Form No.10B. ....