9911796707
TMI Blog2025 (4) TMI 664X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Bench. ITA No.533/LKW/2014 "1.1) 1.1) The Ld. CIT (A) has erred in law and on facts of the case in directi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 appellant authority during the course of appellate proceedings, met fully with the requirement of law relating thereto and view to the contrary as has been taken by the "CIT(A)" is wholly erroneous as being inconsistent wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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/2014 and 533/Lkw/2014, the Department also subsequently filed additional grounds of appeals as under:- 1. That the Ld. CIT(A) erred in not considering the provision contained 13(8) inserted by the Financial Act of 2012 with retrospective effect from 01.04.2009. 2. That the Ld. CIT(A), erred in allowing exemption un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the Parishad and pointed out that the Parishad was charging a price for the common amenities and ambience, from the buyer/allottees of the said housing scheme. The ld. AO therefore, concluded that there was no mention of any set of objects in the UPAEVPA, 1965 which could be considered as charitable. Therefore, he rejected the contention of the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsored 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 by the ld. AO which showed that the activities of the said assessee were not charitable. The ld. AO observed that a large surplus has been generated from the sale of properties, interest had been taken on payment of installments which also included penal interest on all kinds of properties including sales made on, "Valmiki Ambedkar Yojna" which showed that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 with the return of income, which the assessee had not done. However, during the course of proceedings, on 21.12.2009, the assessee submitted a statement showing working of income set apart for utilization, on the basis of a decision of the Board on 27.11.2009 that Form No.10 shall be furnished by the Finance Controller of the Parishad. Thereafter, Form 10 for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 balance-sheet relating to the Vambay Scheme Fund, the ld. AO observed that the receipts under this head were also not included in the income and expenditure account by the assessee but taken directly to the balance-sheet. The assessee was therefore, confronted with this and also required to furnish the complete details of the claim made in this regard. In response, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 the details were not produced before the ld. AO, the expenses were disallowed. 5. The ld. AO also observed that the assessee had claimed the status of Artificial Juridical Person (AJP) in the return of income filed. Hence, in view of the claimed status and the detailed discussion held on this issue in the assessment year 2003-04, the assessment was completed in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee exemption under section 11. Relying upon the decision of the Hon'ble Supreme Court in the case of CIT, Kerela vs. Cochin Chambers of Commerce and Industries and Indian Chamber of Commerce vs. CIT, West Bengal-2, the ld. AO pointed out that the Constitution of the Uttar Pradesh Awas Evam Vikas Parishad did not bring into existence any institution to render ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 16/2006. After consideration of such arguments, following the decision taken in earlier assessment years, the ld. CIT(A) decided to direct the AO to compute the income in the manner specified in section 11 taking into account the information given in the audit report in Form 10-B. Accordingly, this issue was decided in favour of the assessee. With regard to the issue of no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. ADIT (Exemption) 79 ITD 1 (Del). the ld. CIT(A) held that in the case of the assessee, the purpose of accumulation of setting apart the income to attain the objects showed a lack of application of mind and specificity as prescribed in section 11(2) of the Act. He, therefore, held that if the contention of the assessee were to be accepted, it would make the provision of section 11(3A) redundant. He noted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 fixed portion of the receipts would be deposited and out of which expenses would be incurred with the approval of an empowered committee. He observed that all the receipts form part of normal receipts of the assessee and the expenses incurred were also normal expenses. He further observed that the role of the committee was of a regulatory nature which only acted in furtherance of fulfilment of the assessee's objec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 the Vambay Scheme were more than the receipts, there was no surplus which could be brought to tax. He, therefore, deleted the additions made by the ld. AO in this regard. 9. On the issue of revolving fund, the ld. CIT(A) observed after seeing the G.O. dated 11.07.2005 that the principle of diversion of income by overriding title, as argued by the ld. AR was not applicable as the sums credited to the said fund, as it merely represented appropriation of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee 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 later, the ld. AO was called upon to give appeal effect to the orders of the ld. CIT(A). In his orders, under section 143(3) r.w.s. 251 of the I.T. Act dated 6.08.2014, while vacating the additions deleted by the ld. CIT(A), the ld. AO continued to assess the income on the basis of the computation made by his predecessor and accordingly, the income of the assessee was determined at Rs. 278,58,93,903/-for the assessment year 2007-08 and at Rs. 206,83,75,346/- f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(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 to the order of the ld. CIT(A) dated 10.03.2014, he pointed out that since the ld. CIT(A) had held that the assessee was eligible for exemption under section 11, he should have considered the findings of the ld. AO with regard to violation of section 11(2), violation of section 13(1)(d) and violation of section 13(3). The ld. Special Counsel submitted that these were legal issues that were germane to determining the amount of taxable income in the hands of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 been set apart was invested or deposited (in the forms or modes specified in sub section 5). Ld. Special Counsel also invited our attention to the provisions of section 11(3) which stated that any income referred to in sub section 2 which is applied for purposes other than charitable or religious purposes or ceases to be accumulated or set apart for application within the period referred to in section 11(2)(a), shall be deemed to be the income of such person in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 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), in which the assessee was also a party, wherein the Hon'ble High Court had held that the registration under section 12A could not be treated as conclusive and it was always open to revenue authorities while processing the return of income of assessees registered under section 12A, to examine the claim of the assessees under sections 11 to 13 and give such treatment to those institutions, as were warranted by the facts of the case. Furthermore, the Court had held that the authorities were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 and complete information in this regard was not being furnished to the Revenue. The ld. Special Counsel placed reliance on the decision of the Hon'ble Andhra Pradesh High Court in the case of Talaprolu Bapanaiah Vidya Dharma Nidhi Trust vs. CIT (1987) 167 ITR 482 (AP); Hon'ble Allahabad High Court in the case of CIT-2, Lucknow vs. Awadh Educational Society in ITA No.142 of 2007; DIT vs. Maruti Centre for Excellence (2012) 208 taxman 236 (Delhi) and Buddha Vikas Samiti vs. CIT-1, Patna (2011) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). 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) was the ground of the assessee and not that of the Department and therefore, the Department could not raise this issue in the course of this appeal. She submitted that a revised computation had been made during the course of assessment and therefore, it was admissible. The ld. AO did not entertain Form No.10 that had been filed prior to completion of assessment (for the A.Y. 2007-08) and the ld. AO was clearly in error on account of the judgment of the Hon'ble Supreme Court in the case of Nagpur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Development Authority and accordingly, the additions made by the ld. AO by treating such funds as assessable in the hands of that assessee had been deleted. The ld. AR also placed reliance on the judgment of the Hon'ble Chandigarh Bench of the Tribunal in the case of Improvement Trust Sungrur vs. ACIT (Exemption), Circle, Chandigarh in ITA No. 273/CHD/2020 where the Hon'ble Bench had held that neither the second proviso to section 2(15) or section 13(8) were applicable to the assessee's case and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 had given specific findings as to why he was making the disallowances. The ld. Special Counsel questioned the assessee's line of argument that because of certain government instructions, it could carry the funds directly to the balance-sheet. He submitted that if the assessee had chosen to be a charitable institution, it had to follow the accounting regime of a charitable institution that was prescribed in section 11 of the Act and the residual amount had to be charged to tax if 85% of the amount so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m, 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 that circulars of the State Government providing for deduction of grants in successive years to the extent of interest earned from the grants of early years, could not regulate the taxability under the Income Tax Act and if the interest was brought to tax in the hands of the assessee corporation, then the assessee corporation could request the Government not to deduct the amounts paid as income tax from grants of subsequent years, but the circular issued by the State Government regulating the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see 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 Infrastructure fund through Income and Expenditure account. On the other issues raised by the assessee, he submitted that the matter could be restored to the AO for examination of details. 18. We have duly considered the facts and circumstances of the case, heard the rival parties and gone through the material placed on record. The question of whether development authorities and statutory corporations like the assessee, indulged in promoting housing and planned development can be regarded as a body indulged in o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. By way of example, it had been highlighted that mere sale of Government properties, movable or immovable or granting of leases and licenses in respect of its properties, does not amount to carrying on trade or business. Only where a trade or business is carried out with a profit motive - or any property is used or occupied for the purpose of carrying out such trade or business that the proviso or for that matter Clause ii of Article 289 would be attracted. From the said judgment, the Hon'ble Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 for providing services in relation thereto. 19. Thus, the issues raised by the ld. AO that the activities of the assessee Parishad carried on as per its objects laid down in section 15 of U.P. Awas Evam Vikas Parishad Adhiniyam, 1965 were not charitable activities do not hold any water after this decision of the Hon'ble Supreme Court which categorically states that statutory bodies engaged in housing development, town planning etc., are involved in objects of, "general public utility" and therefore are e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 by the ld. AO was against the provisions of law and judicial propriety, which could not be sustained. The ld. CIT(A) held that the ld. AO had to restrict himself to the computation of income as provided under section 11 and thereafter he should examine the application of income. We observed that any controversy regarding the eligibility of the assessee for registration under section 12AA of the Act, had already been settled by the Hon'ble Allahabad High Court, Lucknow Bench in favour of the assessee vide it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 Act and therefore in our opinion, there is no occasion to allow the Revenue a further opportunity in this regard. Therefore the third additional ground of appeal is also dismissed. With regard to the issue of possible violation of section 13(3) of the Income Tax Act on account of discount given to employees of the parishad on the valuation of allotted properties and also on account of the reservation provided to them in the allotment of properties, on account of the U.P. Government order dated17.12.1999, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (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 person specified under sub-section (3) of section 13, then such trust becomes disentitled to claim any exemption under section 11. But the list of such persons as contained under section 13(3) does not include the employees of the author of the trust. The employees of the author of the trust do not fall within the specified categories of persons referred to in section 13(3). Even section 13(3)(d), which includes any relative of the author, can have no application in the case of the employees of the author because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions 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-serviceman and their dependents, employees of U.P. Housing Board, Water Board, Municipal Corporation etc,. Therefore, the said Government Order must be viewed as a social welfare measure for a broad category of citizens and not as an order to confer benefit on the employees of the authority in violation of the provisions of section 13(3) of the Act. Furthermore, the said Government Order, in fact, shows that the process of allotment and pricing of land to be based on social rather than commercial consideration, which woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 funds of the authority and not the state Govt. However we agree with the assessee, that before any portion of the same could be held to be its income and added to surplus, the expenditures incurred against the same have to be have to be allowed as application against that receipt. However, we also note the assessee's submissions that the grants were received from the state Govt for setting up certain specific tourism projects in Ayodhya & Faizabad. If true, that would make them capital receipts, which are not income as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals 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 (SC), the intimation required under section 11(2) had to be filed before the ld. AO completed the assessment because it was only such requirement that was mandatory. The Ld AR has also pointed out that the mandate that the form 10 should be filed before the due date of filing of return was introduced later and the only requirement at the time was that it must be filed before the assessing officer, which the assessee had done in 2007-08.It has also been argued that the ld. CIT(A) erred in rejecting the notice for accumulation that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment 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 the case of CIT vs. Nagpur Hotel Owners Association (supra), such Form 10 was to be considered. As regards, the other contention of the ld. AR, that the Resolution passed by the Board and the notice under section 10, which stated that that the income was being accumulated to meet the objects of the Parishad as enshrined in section 15 of the adhiniyam, fully met the requirements of law, as the object of the Parishad was one, we are unable to agree with the same. We observe that section 15 of the U.P. Awas Evam Vikas Parishad Adhiniy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 plurality of charitable purpose was not ruled out, no objection could possibly be taken to the assessee listing out all its objects in Form No.10. It held that it had complied with the provisions of the Act and disagreed with the findings of the Commissioner. Before the Hon'ble Calcutta High Court, it was contended on behalf of the assessee that one purpose of accumulation was interlinked with the other and therefore, the mention of all the purposes did not make any difference and satisfied the requirements of section 11(2). However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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's case are exactly similar to the facts in the case of DIT(Exemption) vs. Trustees of Singhania and Charitable Trust (supra). In this case also, the assessee has filed the Form 10, in which it has given notice of accumulation for the generality of the objects of the functions of the parishad as enshrined in section 15 of the U.P.A.E.V.P.A. 1965. The ld. AR has submitted that the functions (which are 21 in number) are all inter-related and because the assessee parishad cannot spend any money outside of its objects, it is fully compli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the English language (the Unbridged Edition), the expression 'specific connotes having a special application explicit, or definite, to state one's specific purpose as against this, the expression general has been defined as 'pertaining to all persons or things belonging to the group or category...... common to most prevalent or usual. not limited to one class, field, product, service ete. Thus, the purpose has to be a definite and precise one. The expression 'specific' has to be read in the context and the text in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave 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 Bharat Kalyan Pratisthan vs. DIT(Exemption) 299 ITR 406 (Del),DIT vs. Mitsui and Co. Environmental Trust 303 ITR 111 (Del) and Bharat Krishak Samaj vs. DDIT(Exemption) 306 ITR 153 (Del). The ld. Special Counsel has pointed out that the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Hotel and Restaurant Association cannot constitute a valid precedent because it related to the question of an admission of a case, which was rejected on the basis of concurrent findings of lower authorities and therefore, could not be read as an exposition of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompliance 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 complied with, it will be proper to say that the enactment has been substantially complied with notwithstanding the non-compliance of directory requirements. In cases where substantial compliance has been found, there has been actual compliance with the statute, albeit procedurally faulty. The doctrine of substantial compliance seeks to preserve the need to comply strictly with the conditions or requirements that are important to invoke a tax or duty exemption and to forgive non-compliance for either unimportant and tangential requirements or requirements that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (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 the permission of the ld. AO, and then such other purpose would be treated as the purpose given in Form No.10 submitted under Rule 17 and section 11 (2)(a) as the purpose of accumulation, makes it clear that the said provision could not be operable, if the arguments of the assessee were accepted that the notice of accumulation for the general objectives of trust were compliant with the requirement of section 11(2). In the circumstances, after considering the provisions of section 11(2)(a) and section and section 11(3A), we are inclined to agree with the ld. CIT(A), th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulated 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 2008-09 also. 28. Ground No.2 of the assessee's appeal in both assessment years relates to the decision of the ld. AO and the ld. CIT(A) to direct that sums credited in the, "infrastructure fund" be included in the receipts of the assessee. The assessee has argued that it had no right, title or interest in the sums credited to this fund as the same stood diverted by overriding title in favour of the State Government and therefore, the ld. CIT(A) should have held that the sums in question along with the interest thereon were outside the ambit of assessment in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easonings." 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 (1992) 87 STC 289, for the proposition that an order passed sub silentio does not constitute a declaration of law .Perusal of the order in Lucknow Development Authority & others (supra), in the light of these orders of the Hon Supreme Court, shows that the questions of law that were raised before the Hon'ble High Court and answered by it in the said order, related to the eligibility of the assessee authority for exemption under section 12 of the Income Tax Act and grant of registration by the Tribunal under section 12AA of the Income Tax Act. The third question related to the reopening of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the reference to ownership of the Infrastructure and Development Reserve Fund (IDRF) in para 29 of the said order, cannot be treated as an exposition of law having binding precedent, that would preclude us from looking into this question after considering the arguments on the issue, but was only an observation in support of the actual decision rendered by the Hon'ble Court. 45. The ld. AR had also submitted that a number of decisions rendered by various Benches of the ITAT in the cases of Lucknow Development Authority, Varanasi Development Authority and Meerut Development Authority had followed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 belong to the assessee but to the State Government, but it did so by relying on the judgments of the Hon'ble Delhi High Court in the case of Delhi State Industrial Development Corporation (supra) and the ITAT Bangalore in Karnataka Urban Infrastructure Development and Finance Corporation (supra). While doing so, the Delhi Bench did not delve into the provisions of the U.P.U.P.D.A. 1973 and therefore, its judgment was rendered without reference to the same. Nor did the said judgment look into the status of the assessee as an independent entity, possibly because that issue was never before them. Subseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 funds were a separate entity independent of the assessee, were a fiction and there was nothing in the memorandum to this effect. The memorandum only spoke of a designated bank account in which a fixed portion of the assessee's receipts would be deposited and out of which, expenses would be incurred in a preferred area of the assessee's objects, with an approval of an empowered committee. The Hon'ble Bench observed, that all these receipts formed part of the normal receipts of the assessee and that the committee referred to in the memorandum as well as in the Act, was not alien to the assessee (possibly because o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 administration of the Act. A conjoint reading of these two provisions, make it abundantly clear that the O.M. dated 15.01.1998, which arises out of the powers of the State Government under section 41 of the U.P.U.P.D.A. 1973, cannot divert the title to the funds of the authority to the State Government, but rather has to be viewed as directions to the authority, for efficient administration of the Act, in accordance with the objects of the authority. This interpretation is further reinforced by the judgment of the Hon'ble Uttarakhand High Court in the case of Mussoorie Dehradun Development Authority in ITA Nos.5 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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, held that in deference of the orders of the Hon'ble Supreme Court in the case of Adityapur Industrial Area Development Authority (supra), any fees collected for infrastructure development by the development authority, would be treated as the income of the authority and the expenses incurred by the authority for the purposes of infrastructure development would be deductible from its' income. What emerges from the said order, is that the funds of the authority, which are defined vide section 20 of the U.P.U.P.D.A. 1973 cannot devolve or be diverted to the State Government, prior to the dissolution of the authority a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Assessee authority and liable to be considered in its hands. Needless to say, before any part of the same is considered as income of the authority, the expenditure made out of the same has to be considered as application towards the objects of the assessee authority (as the assessing Officer has already done). 48. The ld. AR has also made an alternative argument against routing this amount through the income and expenditure account, pointing out that because of the effect of the OM, the receipts to the fund were capital receipts and were therefore to be considered as accretion to the corpus of the Authority rather than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and the same were duly accounted for in the books of accounts, which had been subjected to twin audits and no defects or discrepancies had been found or specified therein. It has also been submitted by the ld. AR, that because the expenditure was incurred by various units of the assessee parishad, which were located in different parts of U.P., it was difficult to collate and present the details as desired by the ld. AO, within the limited time frame allowed to it. After considering these arguments, we deem it appropriate to restore the matter back to the file of the ld. AO, with a direction to the assessee to present the nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. It appears that on going through the orders under section 251 r.w.s. 143(3) of the Act that while giving appeal effect, while the ld. AO granted the relief allowed vide CIT(Appeal's) order dated 10.03.2014 on account of the specific additions that had been made by him, he merely subtracted this amount from the income already assessed by him previous to the passing of the appeal order dated 10.03.2014. Thus, the balance of the additions that had been made by him were retained in the orders giving appeal effect to the orders of the ld. CIT(A). The assessee again went in appeal to the ld. CIT(A) stating that the appeal effect had no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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