Infrastructure Development Fund Vs DCIT (ITAT Chandigarh)
The issue under consideration is whether the CIT(A) is correct in upholding IDC receipts as normal trading receipts ignoring that the money belongs to state government?
In the present case, revenue has argued that the assessee Fund is a separate entity from the State and has, besides relying on the statutory provisions creating it, also relied heavily on the assesses admission of the said fact while seeking registration as a charitable trust u/s 12A of the Act,and complying with the provisions of the Income Tax Act by getting its accounts audited under it and filing income tax returns since A.Y 2009-10 projecting itself as a separate entity. The Revenue has also contended that there was no diversion of income by overriding title vis a vis Infrastructure Development Charges (IDC) receipts as claimed by the assessee and relied on various case laws in support of its contention.
ITAT states that they do not find any merit in the argument of the Revenue that the assessee itself having admitted being a distinct and separate entity from the state ,while applying for grant of registration u/s 12A of the Act and filing income tax returns,it cannot now take a contrary stand. Undoubtedly the aforesaid admission of the assessee related to an interpretation of facts and did not relate to admitting a fact . Merely because the assessee had interpreted the facts relating to its creation and administration as demonstrating itself to be an entity distinct and separate from the state, while seeking registration u/s 12A of the Act, does not estop the assessee from taking a contradictory stand , which is in accordance with law,in any other proceeding. After all the purpose of the entire exercise of assessment proceedings, including appellate proceedings, is to determine the taxable income as per correct interpretation of law applied to the facts of each case. They therefore do not find any merit in the contention of the Revenue that the assessee having itself admitted to being an entity separate and distinct from the state in proceedings u/s 12A of the Act cannot now take a contradictory stand, and dismiss the same. At the same time ITAT hold that considering our findings as above that the assessee Fund was not an artificial juridicial person ,the Revenue is free to take all necessary action as a consequence ,within the framework of law. Also merely because the assessee fund no longer requires approval of the Finance Department of the state while utilizing the funds , does not in our view alter or impinge upon its character as held by us as being money of the state kept aside for specific purpose.The presence of the Revenue Secretary in the high powered committee takes care of the requirement of obtaining approval of the Finance Department for utilization of funds. In view of the above ITAT hold that Upto A.Y 2013-14,the Fund belonged to the State and was not liable to tax.The addition made of the IDC receipts and interest on FDRs in A.Y 2009-10 and A.Y 2013-14 are therefore directed to be deleted.
FULL TEXT OF THE ITAT JUDGEMENT
All the above captioned appeals have been preferred by the same assessee against separate orders passed by CIT(A)-II, Chandigarh (in short ‘CIT(A)’]dated 28/02/2018,31/01/17 & 28/02/2018 for A.Ys 2009-10, 2013-14 & 2014-15 respectively.
At the outset itself both the parties stated that the issue involved in all the appeals was identical. They were therefore taken up together for hearing.
2. Drawing our attention to the facts of the case it was pointed out that the assessee, i.e Infrastructure Development Fund had been created under the Haryana Development & Regulation of Urban Areas Act, 1975, as amended by the Haryana Development & Regulation of Urban Areas Ordinances 2006 ,and had been set up by the Govt. of Haryana through a notification dated 23.11.2006. To this fund was credited Infrastructure Development Charges (in short referred to as IDC charges),paid by various colonizers while setting up Housing Project in the State of Haryana , and which contribution was for the purpose of carrying out development of capital expenditure on infrastructure projects such as National/State Highways etc. The assessee fund had been granted registration u/s 12AA by the Commissioner of Income Tax,( CIT), Panchkula vide order dated 3 1.08.2010.
3. During assessment proceedings for A.Ys 2013-14 and 2014-15, the AO noted that the IDC charges received were not being shown/reflected in the profit and loss account nor the capital expenditure incurred from the same but were taken directly to the Balance Sheet. He further noted that the IDC charges received had been parked in Fixed Deposits in bank. It was the interest earned from the same only which was being reflected in the profit and loss account. The AO further noted that though the assessee fund was registered as charitable entity for the impugned years ,yet it had failed to comply with the conditions prescribed u/s 11(2) regarding intimation of income not utilized for charitable purposes during the year but accumulated for use in later years, read with rule 17 of the Income Tax Rule, 1961 ,of filing the statutorily prescribed Form 10 electronically, so as to be eligible to claim exemption u/s 11 of the Act.He also noted that the figures mentioned in the Form 10, of the Income applied for charitable purposes and that actually claimed by the assessee, did not tally. He also noted that the figures of the amount accumulated for use in later years did not tally with the details submitted and further no specific objects were mentioned for the purpose of accumulating the income. The AO therefore declined the application of income claimed by the assessee fund. Thereafter,he treated the entire interest income and IDC receipts of the year as income of the assessee , allowed the Revenue and capital expenditure incurred against the same during the year, and noted that there was short fall in the application of statutorily prescribed 85% of the income, amounting to Rs. 245.31 crores in A.Y 2013-14 and 382.08 cores in A.Y 2014-15. Accordingly the said amounts were subjected to tax in the respective assessment years.
In A.Y 2009-10, the case of the assessee was reopened noting that neither did the assessee have registration u/s 12AA for the impugned year, nor had it filed return of income ,though it had received income of Rs.357.73 crores during the year. The AO after giving due opportunity of hearing to the assessee calculated income liable to tax during the year by treating the interest income earned and the IDC receipts as its income and deducting therefrom the expenses as per the Income & Expenditure account of the assessee. The AO did not allow the assessee the benefit of expenditure incurred on capital account in various projects ,holding that they were capital in nature and since the assessee was not eligible for exemption u/s 11 of the Act, held the same not allowable .Accordingly, the AO calculated the taxable income of the assessee for A.Y 2009-10 at Rs. 410.11 crores.
4. The matter was carried in appeal in all the years before the ld. CIT(A) where in A.Y 2009-10 & 2014-15,besides challenging the order of the AO on other grounds, the assessee raised a ground claiming that the money received on account of IDC belonged to the State Government and that the assessee was only Nodal Agency of the Government with regard to the same, having no control over expending the same also and therefore, the same was not in the character of income of the assessee. The ld. CIT(A) after considering the submissions of the assessee at length, rejected all the grounds raised and upheld the order of the AO in all the years. On the issue of the fund/IDC receipts belonging to the state government, Ld.CIT(A) held that the background leading to the formation of the fund, the provisions of the HUDR Act,1975 by which it was formed , coupled with the conduct of the assessee while seeking registration u/s 1 2A of the Act wherein it claimed itself to be a separate entity, belied assesses claim that it was not distinct and separate from the State.
Aggrieved by the same the assessee has now come in appeal before us. The Ld. Counsel for the assessee contended that the primary and foremost issue raised for adjudication in all the appeals, is regarding the taxability of IDC receipts in the hands of the assessee fund.Ld.Counsel for the assessee stated that while the facts relevant for the issue were identical in A.Y 2009-10 & 2013-14, with the Fund being administered by a High Powered committee,in A.Y 2014-15 the facts were different with a Board being created for the administration of the Fund.
We shall therefore deal first with the appeal pertaining to A.Y 2009-10 & 013 -14.
5. The Grounds raised by the assessee in A.Y 2009-10 & 2013-14 are as under:
ITA No.644/Chd/18 A.Y 2009-10
1. That the Ld. C1T(A) has erred in upholding the validity of the notice dated 29.03.2016 issued u/s 148 and consequently the assessment order passed u/s 147 r.w.s 143(3) which is void authorities below-initio and needs to be quashed.
2. That the Ld. C1T(A) has erred in law and facts of the case in upholding IDC receipts as normal trading receipts ignoring that the money belongs to state government and thus upholding addition of Rs. 357.72 Crores which is highly unjustified and uncalled for.
3. That the Ld. CIT(A) has erred in law and facts of the case in not allowing expenditure of Rs. 75.30 Crores incurred during the year on Infrastructure Development Projects which is highly unjustified and uncalled for.
4. That the Ld. C1T(A) has erred in law and facts of the case in upholding addition of Rs. 52.38 Crores on account of interest income from FDR’s which is highly unjustified and uncalled for.
5. That the appellant craves the leave to add, amend or modify any ground of appeal on or before the disposal of the same.”
ITA No.528/Chd/17 A.Y 2013-14
“1. That the Ld. C1T(A) has erred in law and facts of the case in upholding the disallowance of accumulation of income claimed under section 11(2) of the ~.T. Act which is highly unjustified and uncalled for.
2. A) That the ld. C1T(A) has erred in law and facts of the case in upholding the non acceptance of Form No. 10 submitted during the course of assessment proceedings and thereby upholding addition of Rs. 245,31,77,050/- which is highly unjustified and uncalled for.
B) That the appellant disputes the quantum of addition made.
3. That the appellant craves leave to add, amend or modify and ground of appeal on or before the disposal of the appeal.”
The assessee has further raised additional ground in A.Y 2013-14 as under:-
“1. That the Ld. AO has erred in not correctly appreciating the facts and wrongly treating IDC receipts amounting to Rs. 482.61 crores as income of the appellant ignoring that the money belongs to state government which is highly unjustified and uncalled for.
2. That the Ld. AO has erred in not correctly appreciating the facts and wrongly treating Rs. 146.61 Crores on account of interest income from FDR’s income of the assessee which is highly unjustified and uncalled for.”
6. Ld. Counsel for the assessee first took up the issue of addition made of IDC receipts raised in Ground No.2 of ITA No.644/Chd/ 18 for A.Y 2009- 10 and in Ground No.1 of the additional Grounds raised in ITA No.528/Chd/ 17 for A.Y 2013-14.The primary thrust of the argument made by the Ld.Counsel for the assessee against the said addition was that since the Fund belonged to the State, the IDC receipts were not taxable. Ld. Counsel, in this regard, referred to the background leading to the creation of the fund ,the levy of IDC charges, and the constitution of a high powered committee for its administration ,all effected by way of amendments to the Haryana Development & Regulation of Urban Areas Act, 1975(HDRUA Act). Referring to the same, the Ld. Counsel emphasized that all the above pointed to the fact that the fund belonged to the State. He contended that it was evident from the same that the IDC was charged by the State Government, pooled in a dedicated Fund and administered by a High Powered Committee comprising of the Chief Minister and Secretaries of various departments relevant for infrastructure development including the Finance Secretary, so as to enable efficient utilization of the amount for the stated purpose of infrastructure development in the State, which otherwise was difficult to be done out of State Budget. He contended that the Fund vested in the State Government. The brief synopsis of the arguments of the Ld.Counsel for the assessee ,made in writing before us is as under:
“Issue:-
Whether the Fund belongs to the State Government or not. Submissions;-
Levy and Deposition of IDC
