2024 (2) TMI 922 - AT - Income Tax

Exemption u/s 11 - charitable purposes u/s 2(15) or not? - assessee is an authority constituted under the UP Urban Planning and Development Act 1973 to promote and secure the development of areas according to plan HELD THAT - As similar issue involved in has been decided in favour of the assessee by the Hon ble Allahabad High Court 2022 (8) TMI 1400 - ALLAHABAD HIGH COURT wherein held that for the applicability of proviso to Section 2(15) the activities of the trust should be carried out on commercial lines with intention to make profit. Where the trust is carrying out its activities on non-commercial lines with no motive to earn profits for fulfillment of its aims and objectives which are charitable in nature and in the process earn some profits the same would not be hit by proviso to section 2(15). The aims and objects of the assessee-trust are admittedly charitable in nature. Mere selling some product at a profit will not ipso facto hit assessee by applying proviso to Section 2(15) and deny exemption available under Section 11. The intention of the trustees and the manner in which the activities of the charitable trust institution are undertaken are highly relevant to decide the issue of applicability of proviso to Section 2(15). There is no material/evidence brought on record by the revenue which may suggest that the assessee was conducting its affairs on commercial lines with motive to earn profit or has deviated from its objects as detailed in the trust deed of the assessee. In these facts and circumstances of the case the proviso to Section 2(15) is not applicable to the facts and circumstances of the case and the assessee was entitled to exemption provided under Section 11 for the relevant assessment year. From the record it also appears that the authority had been maintaining infrastructure development and reserve fund IDRF as per the notification dated 15 th January 1998 the money transferred to this funds is to be utilized for the purpose of project as specified by the committed having constituted by the State Government under the said notification and the same could not be treated to be belonging to the authority or the receipt of taxable nature in its hands. For this reason also it appears that the funds are utilized for general utility. The findings and observations in the aforesaid judgment are squarely applicable in the case in hand also. Decided in favour of assessee. Treating the income/loss earmarked relating to infrastructure fund as taxable - By respectfully following the orders of the Hon ble High Court own case 2022 (8) TMI 1400 - ALLAHABAD HIGH COURT the Tribunal in Assessee s own case 2021 (9) TMI 698 - ITAT DELHI we remand the matter to the file of the AO to decide the issue afresh keeping the ratio laid down in Saharanpur Development Authorities 2021 (3) TMI 1223 - ITAT DELHI and Khurja Development Authoritie 2019 (4) TMI 361 - ITAT DELHI with a view that source of funds transferred to Infrastructure Development Fund control over the same and obligation of its utilization is required to be examined to ascertain the real nature of Infrastructure Development Fund. Accordingly direct the Assessing Officer to adjudicate the issue afresh.

Summary

Issues Involved:
1. Denial of benefit of Section 11 and 12 of the Income Tax Act.
2. Taxability of income/loss relating to the infrastructure fund.
3. Charging of interest under Sections 234A, 234B, 234C, and 234D of the Income Tax Act.

Summary:

Issue 1: Denial of Benefit of Section 11 and 12 of the Income Tax Act
The primary issue was whether the assessee authority is entitled to the benefits of Sections 11 and 12 of the Income Tax Act, given the proviso to Section 2(15). The Assessing Officer (AO) held that the assessee's activities, including the purchase, sale, development, and management of properties, are commercial in nature and thus do not qualify as charitable activities under Section 2(15). The AO invoked the provisions of Section 13(8) read with Section 2(15) to deny the exemption.

The Tribunal referred to the Hon'ble Allahabad High Court's decision in the assessee's own case for earlier assessment years, which held that the nature of the assessee's activities is charitable and not hit by the proviso to Section 2(15). The High Court had remanded the matter to the AO to examine the activities and allow the benefit of exemption under Section 11 if found to be in consonance with the objects. The Tribunal followed this precedent and allowed the ground in favor of the assessee.

Issue 2: Taxability of Income/Loss Relating to Infrastructure Fund
The AO treated the income/loss earmarked as an amount relating to the infrastructure fund as taxable, arguing that the assessee did not maintain separate books of accounts for the infrastructure development fund and that the receipts were revenue receipts. The Tribunal noted that similar issues had been decided in favor of the assessee in previous years by the Co-ordinate Bench of the Tribunal and the Hon'ble Allahabad High Court.

The Tribunal remanded the matter to the AO to adjudicate afresh, keeping in mind the ratio laid down by the Co-ordinate Benches in the cases of Saharanpur Development Authority and Khurja Development Authority, which held that the infrastructure fund was not taxable as it was to be utilized as per the directions of the State Authorities and did not belong to the assessee.

Issue 3: Charging of Interest under Sections 234A, 234B, 234C, and 234D
This ground was consequential and did not require separate adjudication as it depended on the outcome of the primary issues.

Conclusion:
The appeals were partly allowed for statistical purposes, with the Tribunal directing the AO to re-examine the issues related to the infrastructure fund and the applicability of Sections 11 and 12 in light of the precedents set by the High Court and the Tribunal's Co-ordinate Benches.