2013 (1) TMI 989 - AT - Income Tax

Summary

Issues involved:
The issues involved in this case are:
1. Whether the Appellant Authority qualifies as a charitable object u/s 2(15) of the Income Tax Act, 1961.
2. Whether the Appellant Authority can be considered a business entity earning profits and gains.
3. Whether the computation of income by the Assessing Officer (AO) by rejecting the principle of diversion of funds to the Infrastructure Development Fund is valid.

Issue 1: Charitable Object Qualification
The appellant, a Uttar Pradesh Government Organization, argued that it was created for general public utility, which falls under a charitable object as per Section 2(15) of the Income Tax Act, 1961. The organization's activities included municipal administration, provision of basic amenities, and development purposes. The appellant contended that any surplus generated was used for development and not distributed to members or employees.

Issue 2: Business Entity Status
The AO observed that the appellant declared profits and gains in business, along with income from other sources. The AO raised concerns about the appellant's treatment of receipts and interest income, leading to a show cause notice questioning the treatment of certain expenditures as income. The AO contended that the appellant's receipts were revenue receipts used at its discretion for various works.

Issue 3: Computation of Income
The appellant argued that the income in question was diverted at source for specific development purposes as per the State Government's notification. The appellant created an Infrastructure Fund for this purpose, with the government separating the income of the authority from total fees. The AO, however, considered all receipts as revenue receipts and made additions to the income. The CIT(A) upheld the AO's additions, leading the appellant to appeal to the Tribunal.

Tribunal's Decision
The Tribunal found that the case was similar to a previous year's decision involving the same appellant. Citing the earlier Tribunal order, the Tribunal remitted the case to the AO for fresh adjudication. The appeal filed by the appellant was allowed for statistical purposes, following the precedent set in the previous year's case.

This judgment highlights the importance of proper treatment of income and receipts, especially in cases involving charitable objects and revenue generation by government organizations.