2025 (3) TMI 1416 - AT - Income Tax

Eligibility for exemption u/s 11 and 12 - HELD THAT - The grounds raised by the assessee are decided in the favour of the assessee. Addition on account of infrastructure funds - HELD THAT - In the instant case the Infrastructure Funds are received by the assessee under the order of Government of Uttar Pradesh which was required to use as per the directions of the high-powered committee. The case of the assessee is squarely covered from the above sited case and the infrastructure funds are not taxable in the hands of the assessee. We decided the grounds in the favour of the assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

• Whether the assessee is entitled to the benefit of sections 11, 12, and 12A of the Income Tax Act, 1961, considering the proviso to section 2(15) of the Act.
• Whether the addition of Rs. 3,25,27,565/- on account of infrastructure funds is justified.
• Whether the assessee is liable for interest under sections 234A, 234B, and 234C of the Income Tax Act, 1961.

ISSUE-WISE DETAILED ANALYSIS

1. Entitlement to Exemption under Sections 11, 12, and 12A:

• Relevant Legal Framework and Precedents: The relevant sections of the Income Tax Act, 1961, particularly sections 11, 12, and 12A, deal with the exemption of income for charitable entities. The proviso to section 2(15) defines what constitutes a charitable purpose and excludes activities with a commercial motive. The case of ACIT vs. Ahmedabad Urban Development Authority was cited, where the Supreme Court held that certain development authorities were eligible for exemption under similar circumstances.
• Court's Interpretation and Reasoning: The Tribunal examined the nature of the assessee's activities and determined that they were aligned with public utility objectives, thus qualifying as charitable under section 2(15). The Tribunal found that the assessee's activities did not have a profit motive and were not commercial in nature.
• Key Evidence and Findings: The Tribunal noted that the assessee was set up to fulfill essential public services and promote public welfare. The activities were deemed necessary for public advancement, aligning with the charitable purpose.
• Application of Law to Facts: The Tribunal applied the precedent set by the Supreme Court in the Ahmedabad Urban Development Authority case and concluded that the assessee's activities were not hit by the proviso to section 2(15).
• Treatment of Competing Arguments: The Tribunal considered the Department's argument that the activities were commercial but found them unsupported by evidence.
• Conclusions: The Tribunal concluded that the assessee is entitled to the exemptions under sections 11 and 12.

2. Taxability of Infrastructure Funds:

• Relevant Legal Framework and Precedents: The issue revolves around whether infrastructure funds received under government directives are taxable. Precedents include ITAT decisions in similar cases, such as the Firozabad Shikohabad Development Authority and Saharanpur Development Authority cases, where such funds were deemed non-taxable.
• Court's Interpretation and Reasoning: The Tribunal interpreted that infrastructure funds, being controlled and directed by a high-powered committee and not by the assessee, do not constitute taxable income.
• Key Evidence and Findings: Evidence showed that the funds were received under government orders and were to be used as per specific directions, with no control by the assessee.
• Application of Law to Facts: The Tribunal applied the legal principles from previous ITAT decisions, finding that the infrastructure funds did not accrue as income to the assessee.
• Treatment of Competing Arguments: The Department's stance that the funds should be taxable was countered by the Tribunal's reliance on established precedents.
• Conclusions: The Tribunal decided that the infrastructure funds are not taxable in the hands of the assessee.

3. Liability for Interest under Sections 234A, 234B, and 234C:

• Relevant Legal Framework: Sections 234A, 234B, and 234C pertain to the interest payable for defaults in furnishing return of income, payment of advance tax, and deferment of advance tax, respectively.
• Court's Interpretation and Reasoning: The Tribunal did not find substantial grounds to uphold the interest charges, given the primary issues were resolved in favor of the assessee.
• Conclusions: The issue was deemed consequential and general in nature, with no specific determination made.

SIGNIFICANT HOLDINGS

• Verbatim Quotes of Crucial Legal Reasoning: The Tribunal referenced the Supreme Court's decision in Ahmedabad Urban Development Authority, emphasizing that the assessee's activities align with charitable purposes and are not commercial.
• Core Principles Established: The judgment reinforced that entities engaged in public utility activities without a profit motive can qualify for exemptions under sections 11 and 12, even if they incidentally engage in revenue-generating activities.
• Final Determinations on Each Issue: The Tribunal allowed the appeal, ruling in favor of the assessee on the primary issues of exemption entitlement and non-taxability of infrastructure funds. The matter was restored to the Assessing Officer for verification of exemptions under sections 11 and 12.