2021 (3) TMI 1223 - AT - Income Tax

Exemption u/s 11 - activity of the various city development authorities as charitable or not? - CIT- A allowed the exemption - HELD THAT - The issue of treating the activity of the various city development authorities as charitable or not has been adjudicated by various Courts and Tribunals which consistently held that the activity of acquiring land, development of plots and construction of residential as well as commercial places is an activity considered as charitable in nature. Infrastructure Development Fund in the instant case , the AO held that the amount should have been first credited in the income and expenditure account and the amount spends out of the same should have been debited to this account. It is an undisputable fact that the fund is not under the exclusive control of the assessee and the expenditure to be incurred out of the infrastructure funds are approved on the recommendation of high powered committee. Hon ble Allahabad High Court in the case of Lucknow Development Authority 2013 (9) TMI 570 - ALLAHABAD HIGH COURT has held that the money transferred to the Infra structure fund account is to be utilized for the purpose of the projects as specified by the Committee having constituted by the State Government and cannot be treated as belonging to the authority or receipt is taxable nature in its hand. In the absence of any change in the factual matrix brought to our notice by either of the parties, we hereby decline to interfere with the order of the ld. CIT (A). - Decided against revenue.

Summary

Issues:
1. Whether the activity of city development authorities is charitable.
2. Treatment of infrastructure fund amount as revenue receipt.

Issue 1: Activity of City Development Authorities as Charitable:
The revenue appealed against the CIT(A)'s order allowing the benefit of section 11/12AA of the Income Tax Act, treating the activity as charitable. The revenue contended that certain High Courts had not admitted SLPs related to development authorities, questioning the charitable nature of their activities. However, various Courts and Tribunals consistently held that acquiring land, developing plots, and constructing residential and commercial places are charitable activities. Several judgments were cited to support this, including decisions related to different development authorities like Haridwar, Muzaffarnagar, Khurja, Jalandhar, and others. The ITAT noted that the funds received were under government orders and controlled by a high-powered committee, leading to the conclusion that the interest income from such funds is not taxable. The ITAT also referred to a judgment by the Allahabad High Court regarding the utilization of infrastructure funds for specific projects as directed by the State Government, emphasizing that such funds do not belong to the authority or constitute taxable receipts.

Issue 2: Treatment of Infrastructure Fund Amount:
Regarding the Infrastructure Development Fund, the AO insisted that the amount should have been credited in the income and expenditure account, with expenditures debited accordingly. However, it was established that the fund was not under the exclusive control of the assessee, and expenditures were approved by a high-powered committee. The ITAT referenced a previous decision related to the appellant, where it was held that interest income from infrastructure funds is not the appellant's income due to lack of control over the funds. Given the consistent rulings in favor of the assessee for previous assessment years and the legal direction on fund utilization by the State Government, the ITAT declined to interfere with the CIT(A)'s order, ultimately dismissing the revenue's appeal.

In conclusion, the ITAT upheld the CIT(A)'s decision, affirming the charitable nature of city development authorities' activities and the non-taxable status of infrastructure funds due to governmental control and specific project directives.