Income Tax Appellate Tribunal - Delhi
Dcit, Exemption Circle, Ghaziabad, ... vs Aligarh Development Authority, ... on 29 April, 2026
1 ITA Nos. 7754, 7755, 7756, 7757/Del/2025
DCIT Vs. Aligarh Development Authority
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: 'E' NEW DELHI
BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT
AND
SHRI MANISH AGARWAL, ACCOUNTANT MEMBER
ITA No. 7754/Del/2025 ( A.Y 2016-17)
ITA No. 7755/Del/2025 ( A.Y 2017-18)
ITA No. 7756/Del/2025 ( A.Y 2018-19)
ITA No. 7757/Del/2025 ( A.Y 2021-22)
DCIT Vs. Aligarh Development Authority
Exemption Circle, CGO Complex, 2, Ramghat Road, Aligarh, Uttar
Kamla Nehru Nagar, Ghaziabad, Pradesh
Uttar Pradesh
(APPLICANT) PAN: AAALA0082G
(RESPONDENT)
Appellant by Sh. Deepak Singh, Adv
Respondent by Ms. Amisha S Gupt, CIT DR.
Date of Hearing 22.04.2026
Date of Pronouncement 22.04.2026
ORDER
PER MAHAVIR SINGH, VP :
The captioned 04 Appeals are filed by the Revenues against the orders of Ld. Commissioner of Income Tax (Appeals/ National Faceless Appeal Centre ('Ld. CIT(A)/NFAC' for short), New Delhi dated 25/9/2025 pertaining to Assessment Years A.Y 2016-17, A.Y 2017-18, A.Y 2018-19 & A.Y 2021-22 respectively.
2. As the Department preferred the captioned Appeals against single Assessee having identical issues to be decided, the above appeals were heard together. For the sake of convenience grounds of Appeal for Assessment Year 2016-17 are reproduced as under:-
"1. The CIT(A) has erred in treating the activities of assessee of charitable activities. However assessee was partially engaged in the charitable activities and partially in the commercial activities, the assessee is required to prepare separate books of accounts in accordance to the provisions of section 11(4A) of the IT Act, which assessee has not maintained.2 ITA Nos. 7754, 7755, 7756, 7757/Del/2025
DCIT Vs. Aligarh Development Authority
2. The Ld. CIT(A) has erred in applying the Supreme Courts judgement in Ahmedabad Urban Development Authority (AUDA, CA No. 21762/2017, 19/10/2022) which mandates Examine whether receipts from business ./ commercial activities exceeded 20 percent of total receipts and whether consideration charged is at cost or nominally above cost. Mandate of maintaining separate books of account for such incidental activities as per section 11(4A). If above threshold or conditions are breached, exemption u/s. 11/12 is nota available for those receipts, which was not reviewed properly by CITA() in ADAs case.
3. The ld. CIT(A) has erred in holding that the Infrastructure Development Fund constitutes a separate and independent fund and the amounts transferred to the Infrastructure Development Fund (IDRF) cannot be treated as taxable income of the assessee, despite the assessee retaining ownership, control and discretion over utilization of such funds.
4. The Ld. CIT(A) has erred in directing the Assessing Officer to allow exemption u/s. 11 in respect of sums transferred to IDRF without appreciating that such transfers are in the nature of appropriation of surplus and not application of income for charitable purposes.
5. The order of Ld. CIT(A) be cancelled and the order of the Assessing Officer be restored.
3. Briefly stated facts of the case are that the assessee being a development authority, filed its return of income for the year under consideration on 27/09/2016, declaring nil income. In the return of income, assessee declared surplus of Rs. 2,42,55,989/- on total income / gross receipts of Rs. 7,71,89,098/-. The case was selected for scrutiny and statutory notice u/s. 143(2) dated 10.8.2017 was served on the assessee. Further notice u/s. 142(1) dated 23.8.2018 alongwith detailed questionnaire was issued to the assessee. In compliance, the assessee filed submissions in which computation of income, income and expenditure account, copy of ITR for ASSESSMENT YEAR 2016-17, balance sheet and other documents were submitted and books of accounts were also produced by the assessee and the same have been checked on test basis. Assessing Officer noted that on the basis of assessee's receipts, being in the nature of development fees, conversion charges, betterment charges, compounding fees, and other statutory levies, are commercial in nature since they arise from services rendered against specific consideration. Hence, he invoked the restrictive provisio to 3 ITA Nos. 7754, 7755, 7756, 7757/Del/2025 DCIT Vs. Aligarh Development Authority section 2(15) of the Act and held that the assessee is engaged in the business activity rather than charitable activity and thus on this reason, exemption under sections 11 and 12 were denied and further the expenses under the Infrastructure head have not been allowed. Therefore, the Assessing Officer also added the amount of Rs,. 21,13,89,003/- this amount to the total income. Further, the Assessing Officer also made addition of ₹ 27,36,814/- by way of making disallowance for depreciation.
4. Aggrieved with the action of the Assessing Officer, the assessee filed appeal before the Learned CIT(A) who allowed the appeal of the assessee. Aggrieved with the finding of the Ld. CIT(A), the Revenue is in appeal before us.
5. The Ld. Department's Representative vehemently contended that Ld. CIT(A) has erred in treating the activities of assessee of charitable activities. However assessee was partially engaged in the charitable activities and partially in the commercial activities, the assessee is required to prepare separate books of accounts in accordance to the provisions of section 11(4A) of the IT Act, which assessee has not maintained. She further submitted that Ld. CIT(A) also erred in applying the Supreme Courts judgement in Ahmedabad Urban Development Authority (AUDA, CA No. 21762/2017, 19/10/2022) which mandates Examine whether receipts from business ./ commercial activities exceeded 20 percent of total receipts and whether consideration charged is at cost or nominally above cost. Mandate of maintaining separate books of account for such incidental activities as per section 11(4A). If above threshold or conditions are breached, exemption u/s. 11/12 is nota available for those receipts, which was not reviewed properly by CIT(A) in ADAs case. She further submitted that ld. CIT(A) has erred in holding that the Infrastructure Development Fund constitutes a separate and independent fund and the amounts transferred to the Infrastructure Development Fund (IDRF) cannot be treated as taxable income of the assessee, despite the assessee retaining ownership, control and discretion over utilization of such funds.
6. Per contra, the Ld. AR for the assessee relied upon the order of the Ld. CIT(A) and submitted that the issues involved in the present appeal are also squarely covered by the coordinate bench decision in its own case in ITA No. 7806/Del/2017 (ASSESSMENT YEAR 2014-15) dated 27.4.2021 and also covered by the coordinate bench decision in the case of similar Development Authority viz. Agra Development Authority in the case of 4 ITA Nos. 7754, 7755, 7756, 7757/Del/2025 DCIT Vs. Aligarh Development Authority DCIT vs. Agra Development Authority in ITA 1461/Del/2025 (ASSESSMENT YEAR 2013-14) & Ors. vide common order dated 27.2.2026. Therefore, the he requested that Ld. CIT(A)'s order be confirmed by respectfully following the precedents and appeals of the revenue be dismissed.
7. We have heard the rival contentions and perused the records. We find that Ld. CIT(A) has dealt the issues by observing as under:-
4. Decision on Ground 1, 2 and 3:
I have considered the findings of the Assessing Officer and the detailed submissions made by the appellant. The AO has proceeded on the basis that the assessee's receipts, being in the nature of development fees, conversion charges, betterment charges, compounding fees, and other statutory levies, are commercial in nature since they arise from services rendered against specific consideration. He therefore invoked the restrictive proviso to section 2(15) of the Act and held that the assessee is engaged in business activity rather than charitable activity. On this reasoning, exemption under sections 11 and 12 was denied.
On the other hand, the appellant has placed reliance on the judgment of the Hon'ble Supreme Court in ACIT (Exemptions) v. Ahmedabad Urban Development Authority (19.10.2022), wherein it was held that development authorities established under State enactments to discharge statutory functions of town planning, regulation, and civic development are prima facie charitable in nature. It has further relied on the subsequent legislative insertion of section 10(46A) by the Finance Act, 2023, which codifies that income of such statutory bodies, not being companies, is exempt, thereby recognizing their activities as charitable. The appellant has also pointed out that its receipts are either earmarked for transfer to the Infrastructure Development Fund under Government Orders or utilized strictly for statutory purposes, thus amounting to diversion of income by overriding title.
Importantly, the jurisdictional Allahabad High Court has consistently held that activities of development authorities under the U.P. Urban Planning & Development Act are charitable in nature. The judgments in CIT v. Lucknow Development Authority (2014) 265 CTR (All) 433, CIT v. Hapur Pilkhuwa Development Authority (29.08.2016), and CIT (Exemption) v. Yamuna Expressway Authority (2017) 395 ITR 18 (All) are squarely applicable. Further, in assessee's own case for earlier years, the ITAT Delhi has accepted its charitable status and granted exemption. These binding precedents cannot be disregarded.
The legal principle laid down by the Supreme Court in Surat Art Silk Cloth Mfrs. Association (121 ITR 1) and later reaffirmed in Gujarat Maritime Board (295 ITR 5 ITA Nos. 7754, 7755, 7756, 7757/Del/2025 DCIT Vs. Aligarh Development Authority
561) and Sai Publication Fund (258 ITR 70) makes it clear that the dominant purpose test governs the determination of charitable character. If the primary purpose is advancement of general public utility, incidental collection of fees or incidental surplus does not negate charitable status. The appellant here is established by statute to perform essential public functions--urban planning, housing, provision of civic amenities-functions which otherwise fall within the domain of the State. Thus, its activities are intrinsically charitable.
In view of the above legal position and facts, I hold that the AO erred in treating the appellant activities as business. The appellant is a statutory development authority performing functions of the State and squarely falls within the ambit of "charitable purpose" under section 2(15). Its income is therefore exempt under sections 11 and 12, subject to compliance with other conditions. The addition made by the AO is directed to be deleted.
Hence the grounds of appeal 1, 2 and 3 are allowed, the appellant is to be treated as a charitable organisation and all additions stands deleted.
Grounds Number 4:
AO has erred in stating that an amount of Rs 211389003/- has not been credited in the income and expenditure a/c. The amount transferred to the infrastructure fund is out of income and expenditure a/c only and was not transferred directly to the balance sheet. The AO has accordingly erred in making the addition of Rs 211389003/-.
Grounds Number 5:
AO has erred in not allowing infrastructure expenditure amounting to Rs 116741970/-
AOs Findings :
During the course of the assessment proceedings, it was noticed from the details filed by the assessee that a sum of Rs. 21,13,89,003/- had not been credited to the Income & Expenditure Account. Instead, the assessee earmarked this amount as relating to the Infrastructure Fund and directly carried it to the Balance Sheet. When queried on this treatment, the assessee submitted that this was not a case of diversion of income, as it functioned merely as a development agency of the State Government. The assessee explained that it only acted as custodian of such funds, which could be utilized strictly for developmental activities and only with approval of the State authorities. It was also contended that such treatment had been accepted by the Department in earlier years.6 ITA Nos. 7754, 7755, 7756, 7757/Del/2025
DCIT Vs. Aligarh Development Authority In support, the assessee relied upon Government Order No. 162/E-0-1-1908 issued by the Housing Department of the Government of Uttar Pradesh. As per the said order, the assessee was required to transfer a major percentage of its receipts under various heads to an Infrastructure Development Fund, such as 90% of receipts from conversion of land use, betterment and registration, income from stamp duty, and free hold charges, as well as 50% of compounding fee. However, this explanation was not accepted by the Assessing Officer. It was observed that although the receipts were earmarked in the books, they were originally received by the Development Authority under different heads and no separate bank account had been maintained exclusively on behalf of the State Government. Similarly, no separate books of account were maintained for the so-called Infrastructure Development Reserve. The reliance placed by the assessee was thus held to be distinguishable.
The Assessing Officer emphasised that the principle of taxation is that income is taxed at the point when it is earned, and taxability does not depend on its eventual destination or the manner of utilization. Reference was made to the decision of the Hon'ble Supreme Court in Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT (1997) 227 ITR 172, wherein it was held that income is taxable at the stage of accrual if it is of revenue nature. Since the receipts in the present case were clearly revenue receipts, the assessee could not, on one hand, treat a portion of them as taxable revenue income while at the same time claiming that the balance portion was not income at all, even though the nature and source of such receipts were identical.
The Assessing Officer also pointed out an inconsistency: while large amounts of infrastructure-related expenses had been debited by the assessee to the Income & Expenditure Account, thereby reducing the taxable income, the corresponding infrastructure-related receipts were directly taken to the Balance Sheet without being routed through the Income & Expenditure Account. This selective treatment was found to be without logic or justification. The assessee's further argument that these collections were on behalf of the State Government was rejected on the ground that the assessee is not the State itself. As per section 4(2) of the Uttar Pradesh Special Area Development Authority Act, the assessee is a distinct statutory corporation with perpetual succession, power to contract, and to sue and be sued in its own name. Thus, the exemption available to the State Government under Article 289 of the Constitution of India could not be extended to the assessee.
The Assessing Officer further analysed the claim of diversion by overriding title. While the assessee relied on the Government Order and the principle that a portion of its receipts was required to be deposited in a designated bank account under the supervision of a committee, the AO highlighted that the so-called "Infrastructure Fund" was not an independent entity. It was merely a designated account 7 ITA Nos. 7754, 7755, 7756, 7757/Del/2025 DCIT Vs. Aligarh Development Authority maintained by the assessee, out of which expenses were incurred by it, mostly for its own purposes. Moreover, it was noted that the directions of the State Government were not followed strictly, as the requirement of allocating at least 80% of expenditure towards residential infrastructure was not adhered to. The empowered committee, whose approval was required, consisted largely of the same office bearers as the assessee itself. Thus, the arrangement was viewed as a mechanism for better coordination and targeted use of funds, not as a divestment of income.
The AO also noted that there was no separate legal identity, audit, or return in respect of the "Infrastructure Fund." The fund formed part of the assessee's own balance sheet and was audited as such. Therefore, the plea that this constituted diversion by overriding title was held untenable. Reliance placed on the decision of the Karnataka High Court in Pandavpura Sahakara Sakkare Karkhane Ltd. was held to be distinguishable, as that case involved statutory compulsion under the Molasses Control Order, whereas here the Government Order merely prescribed application of income for priority development activities within the assessee's own mandate. Similarly, reliance on other case law was rejected on the principle that earmarking income for specific purposes within the control of the assessee does not amount to diversion of income at source.
On these grounds, the Assessing Officer concluded that the sum of Rs. 21,13,89,003/- credited to the Infrastructure Fund was in truth part of the assessee's income and required to be routed through the Income & Expenditure Account. Since corresponding infrastructure-related expenses had already been claimed in the accounts, the omission to credit the receipts had resulted in understatement of taxable income. Accordingly, the said amount was treated as taxable income of the assessee, and penalty proceedings under section 271(1)(c) were separately initiated for furnishing inaccurate particulars of income.
5. Appellants Submissions :
The appellant vide his replies dated 22/08/2023 and 24/07/2025 submitted that:
The A.O. has added back an amount of Rs. 21,13,89,003/- relating to Infrastructure Fund", by alleging that the funds were taken directly to the Balance sheet. The fact is that although the funds were taken directly to B/S but in the computation of income the amount relating to Infrastructure Fund" was considered in the income of the assessee. This is evident from the computation and its annexures filed herewith.
As annexure-B and Balance Sheet is filed herewith as Annexure-C. The computation is reproduced below:
Other sources-8 ITA Nos. 7754, 7755, 7756, 7757/Del/2025
DCIT Vs. Aligarh Development Authority Various Interest income Rotational 3,06,73,597/ Receipts 40,48,017/-
Other receipts
Rotational receipts 4,24,67,485/-
Other receipts 40,48,017/-
Amount transferred to infrastructure Fund A/c 21,13,89,003/-
Shelter Fees 12,55,751/-
Total income 28,98,33,853/-
Less- Application of income for Charitable Purpose
As per Annexure B 5,01,61,800/-
As per Annexure C 34,495/-
As per Annexure D 63,52,798/-
As per Annexure E 11,67,41,970/-
Less- B/F Accumulated income of earlier
years applied this year. (-) 2,14,54,017
15,18,37,045
Income Accumulated or set apart up to 15% 4,34,75,077/-
Amount accumulated and set apart for specified purpose 9,45,21,731/-
Assessee has filed Form No 10 for accumulation for future use within time Hence the amount of Rs, 21,13,89,003/- stands already considered in the surplus declared by the assessee in the ITR. Moreover, the A.O. has not allowed the expenses under the head "Infrastructure Fund" amounting to Rs 11,67,41,970/- which is clear from the computation of income. As the income under "Infrastructure Fund has been included in the income in the ITR computation accordingly the expenditure claimed under "Infrastructure Fund is legally allowable. The A.O. has accepted the quantum and nature of expenditure but missed the facts as mentioned in the ITR computation. In view of above facts, the addition of Rs 21,13,89,003/- may please be deleted and the "Infrastructure Fund expenses of Rs. 11,67,41,970/- may please be allowed to be deducted as expenses.
6. Decision I have examined the findings of the Assessing Officer and the submissions of the 9 ITA Nos. 7754, 7755, 7756, 7757/Del/2025 DCIT Vs. Aligarh Development Authority appellant with regard to the treatment of Rs. 21,13,89,003/- earmarked as "Infrastructure Fund." The AO's view was that such sums constituted revenue receipts in the assessee's hands and had to be first credited to the Income & Expenditure Account. However, this reasoning overlooks the fact that in Ground Nos. 1 to 3, I have already held that the assessee is a charitable organisation within the meaning of section 2(15) of the Act and that its activities are entitled to exemption u/s. 11 and 12. Once that position is accepted, the controversy about whether the infrastructure receipts are diverted by overriding title or carried directly to the Balance Sheet loses much of its force, because the critical test is whether the receipts and their application are in furtherance of the statutory objects of the Authority. The Government Orders relied upon by the appellant, requiring earmarking of specified portions of receipts for infrastructure development, only strengthen the nexus of these receipts with its charitable purpose. Even if technically the AO were correct that such sums should pass through the Income & Expenditure Account, the end result would still be the same, as the receipts and their application are squarely within the charitable framework and do not violate sections 11 or 13. The reliance on Tuticorin Alkali Chemicals (227 ITR 172) is misplaced in this context, as that judgment dealt with a company earning interest prior to commencement of business, and not with a statutory authority already recognized as charitable. On the other hand, the principle in CIT v. Pandavpura Sahakara Sakkare Karkhane Ltd. supports the appellant's contention that statutory diversion and controlled application of receipts does not result in taxable income in its hands. Accordingly, I find that the addition of Rs. 21,13,89,003/- is not sustainable, and the same is directed to be deleted. The Appellant has also established the infrastructure expenditure and the same needs to be allowed and deducted as expenses by the AO.
Ground 4 and 5 are allowed and additions stands deleted.
Ground No. 6: Diversion on Income by overriding title.
Appellants Submissions "That as per government order No 152/E-0-1-1998 issued by Housing Department Government of UP Assessee has to transfer a major percentage of receipts under various heads to infrastructure development fund. The percentage of receipts which are transferred to infrastructure development fund are as follows-
Percentage transferred
Conversion of Land Use 90%
Betterment & Registration 90%
Compoundin 50%
10 ITA Nos. 7754, 7755, 7756, 7757/Del/2025
DCIT Vs. Aligarh Development Authority
g
Income from Stamp Duty 90%
Free Hold Charges 90%
Assessee has no discretion to spend any of the infrastructure expenses with its own sweet will. A committee consisting of Chairman (Commissioner), Vice Chairman, District Magistrate, M.NA Nagar Nigam, Executive Officers of Nagar Palika Parishad, Jal Nigam, Electricity Department, looking to the requirements and instructions provided by Govt, of UP, decides on utilization of funds The expenditures are budgeted and ADA is only the Agency through which these expenses are incurred.
And the income under "Stamp Duty" is levied and recovered by the State Govt, and its expenditure is decided by the State Govt. Assessee is merely an execution agency of the State Govt, for recovery (except Stamp Duty) and expenditure of all the above noted income and these income fall under" diversion of income by overriding title" and are not includable in assessee's income.
RAJA BEJOY SINGH DUDURIA VS. COMMISSIONER OF INCOME TAX (1933) 1 ITR 135 (PC) In this case the step-mother of the Raja had brought, a suit for maintenance and a compromise decree was passed under which the step-mother was to be paid Rs. 1.100 per month, which amount was declared a charge upon the properties in the hands of the Raja, by the Court. The Raja sought to deduct this amount from his assessable income, which was disallowed by the High Court at Calcutta. On appeal to the Privy Council. Lord Macmillan observed as follows:
"But their Lordships do not agree with the learned Chief Justice in his rejection of the view that the sums paid by the appellant to his step-mother were not income of the appellant at all. This is their Lordships' opinion is the true view of the matter. When the Act by s. 3 subjects to charge 'all income of an individual, it is what reaches the individual as income which it is intended to charge. In the present case the decree of the Court by charging the appellant's whole resources with a specific payment to his step-mother has to that extent diverted his income from him and has directed it to his step-mother to that extent what he receives for her is not his income. It is not a case of the application by the appellant of part of his income in a particular way, it is rather the allocation of a sum out of his revenue before it becomes income in his hands."
In Prince Khanderao Gaekwar vs. CIT (1948) 16 ITR 294 (Bom.) there was a family trust out of which two grandsons of the settler had to be paid a portion of the income. It was provided that if their mother lived separately then the trustees 11 ITA Nos. 7754, 7755, 7756, 7757/Del/2025 DCIT Vs. Aligarh Development Authority were to pay her Rs. 18,000 per year. The mother lived separately, and two deeds were executed by which the two grandsons agreed to pay Rs. 15.000 per year to the mother, andcreated a charge on the property. The sons, having paid Rs 6,000 in excess of their obligations, sought to deduct the amount from their assessable income, and it was allowed by the Bombay High Court, observing that though the payment was a voluntary payment, it was subject to a valid and legal charge which could be enforced in a Court of law and the amount was thus deductible under s. 9(1)(iv). There is no distinction between a charge created by a decree of Court and one created by agreement of parties, provided that by that charge the income from property can be said to be diverted so as to bring the matter within s. 9(1 )(iv) of the Act Seth Motilal Manekchand vs. CIT (1957) 31 (TR 735 (Bom): TC38R.611.
In that case, there was a managing agency, which belonged to a Hindu joint family consisting of A. his son, B and A's wife. A partition took place, and it was agreed that the managing agency should be divided. A and B taking a moiety each of the managing agency remuneration but each of them paying A's wife 2 as 8 pies out of their respective 8 as, share in the managing agency remuneration, Chagla. C.J. and Tendolkar, J., held that under the deed of partition A and B had really intended that they were to receive only a portion of the managing agency commission and that the amount paid to A's wife was diverted before it became the income of A and B and could be deducted. The learned judge observed at page 741 as follows:
"We are inclined to accept the submission of Mr. Kolah that it does constitute a charge, but in our opinion, it is unnecessary to decide this question because this question can only have relevance and significance if we were considering a claim made for deduction under s. 9(1 )(iv) of the IT Act where a claim is made in respect of immovable property where the immovable property is charged or mortgaged to pay a certain amount. It is sufficient for the purpose of this reference if we come to the conclusion that Bhagirathibai had a legal enforceable right against the partner in respect of her 2 annas and 8 pies share and that the partner was under a legal obligation to pay that amount."
COMMISSIONER OF INCOME TAX VS. TOLLYGUNGE CLUB LTD. 1977CTR (SC)195, (1977)107 ITR 776(SC) Income-chargeability-Assessee, a club, levying a surcharge over and above admission fee- Same earmarked for local charities-Merely because surcharge is levied from ever race-goer who wants admission, it does not become part of price for admission-it is a payment made for specific purpose-Resolution was passed at the general meeting of assessee for levying surcharge- It was, therefore clearly impressed with an obligation in the nature of trust for being applied to local 12 ITA Nos. 7754, 7755, 7756, 7757/Del/2025 DCIT Vs. Aligarh Development Authority charities- Hence, it got diverted before it reached the hands of assessee and at no stage became a part of its income.
JIT & PAL X-RAYS (P) LTD. S. COMMISSIONER OF INCOME TAX (2204)186 CTR (ALL) 541: (2004) 134 TAXMAN 62 (ALL) Income-Diversion by overriding title-Payment to wife of transferee of business by way of overriding charge created under the sale-deed-
Assessee company acquiring running business of One HS- It was stipulated in the sale deed itself that over and above sale consideration, company would be liable to pay to the wife of HS, an annual sum at the rate of 20% of the net profits earned by the company, subject to maximum of Rs 20.000 by way of overriding charge-AO holding that such amount was neither allowable as overriding charge nor as revenue expenditure- Not justified-Obligation to pay this amount is attached to the very source of income and integral part of sale deed- Amount paid to wife of HS is income diverted at source by overriding title, hence deductible-Fact that wife of HS was not owner of business was irrelevant.
ADA was established by the State Govt, to carry out activities which are the activities of the "State" and the State Govt, as per government order No 152/E-0-1- 1998 (supra) directed ADA to transfer certain percentage of the receipts collected by it to "Infrastructure Fund" over which it will not have any control. This clearly is a case of diversion of income by overriding title. The entire income which is subject of this government notification is not the income of the assessee.
(9) That the A.O is totally wrong in stating that audit report does not mention the assessee as a charitable as form No. 10B has been filed which is applicable only to charitable entities. The A.O is also wrong in saying that P&L account was prepared instead of lncome& Expenditure A/c. Firstly in the B/S it is clearly mentioned as Income & Expenditure A/c. Secondly merely by using a different nomenclature ie P&L instead of l&E a/c will not change the nature of income or the nature of activity.
(10) That all the properties sold during the year are at cost price and no commercial activity is thus involved. Hence also the contention of A.O. in treating the activities as commercial is wrong on facts also.
(11) That in view of above legal position and facts the A.O. is wrong in treating the amount of surplus Rs.2,42,55,989 as taxable incomes of the assessee.
In view of above submission and legal position as held by jurisdictional High Court it is requested that all the activities of assessee may please held as charitable in nature and to is entitled to exemption u/s 11 & 12 of the Ac 13 ITA Nos. 7754, 7755, 7756, 7757/Del/2025 DCIT Vs. Aligarh Development Authority I have perused the AOs order and also considered the submissions of the appellant. The case laws cited by the Appellant prove beyond doubt that it is a case of diversion of income by an overriding title and appellant has no discretion to spend any of the infrastructure expenses with its own sweet will but with the approval of an independent committee constituted by the State Government. As already discussed and decided in ground number 1,2 and 3 of this appeal, the activities of the appellant are clearly charitable in nature as laid down in various judicial precedents in this case, the appellant is entitled to claim exemption under section 11 and 12 of the Income Tax Act.
This ground of appeal is decided in favour of the appellant.
Grounds No. 7, 8 and 9:
These grounds are general in nature. Since the appellant is held to be a charitable organisation, there is no point in applying tax rates at maximum marginal rates. Similarly, if the appellant's submissions have been misquoted, the AO shall peruse the same from records available and rectify the order to that extent. The grounds are thus allowed."
8. We observed that similar issue has been decided by the coordinate bench in assessee's own case in ITA No. 7806/Del/2017 (ASSESSMENT YEAR 2014-15) dated 27.4.2021, wherein it has been observed as under:
"2. The Revenue has also preferred following additional ground of appeal:
"The Ld. Commissioner of Income Tax (Appeal) has erred in law and on facts by allowing the benefit of section 11 to the assessee ignoring the facts that the assessee is engaged in activity in nature of trade, commerce or business."
3. Briefly stated facts of the case are that the assessee being a development authority, filed its return of income for the year under consideration on 29/09/2014, declaring nil income. In the return of income, profit (surplus) declared of ₹ 6,35,39,809/- was claimed as exempt under the provisions of sections 11 and 12 of the Income-tax Act, 1961 (in short 'the Act'). In the scrutiny assessment proceedings, the Assessing Officer examined, the activity of the assessee and concluded that its activities are in the nature of trade, commerce or business in view of the dominant activity of acquisition and 14 ITA Nos. 7754, 7755, 7756, 7757/Del/2025 DCIT Vs. Aligarh Development Authority sale of immovable properties. The Assessing Officer also observed that activity of the authority were being carried out with the motive for profit and thus the assessee was not entitled for exemption under section 11 of the Act. He, accordingly, assessed the surplus of ₹ 6,35,39,809/- as income from business. Further, he also observed that ₹ 23,36,84,304/-received for 'infrastructure fund', was directly credited to a separate account of fund, without crediting the same towards income of the assessee. Therefore, the Assessing Officer also added this amount to the total income. Further, the Assessing Officer also made addition of ₹ 10,34,026/- by way of making disallowance for depreciation.
3.1 Aggrieved with the addition/disallowances made, the assessee filed appeal before the Learned CIT(A) who allowed the appeal of the assessee. Aggrieved with the finding of the Ld. CIT(A), the Revenue is in appeal before the Income Tax Appellate Tribunal (in short 'the Tribunal') raising the grounds and additional ground as reproduced above.
4. Before us, the parties appeared through Video Conferencing facility and the learned counsel of the assessee filed a paper-book.
5. The Learned DR relied on the order of the Assessing Officer and submitted that order of the Tribunal in the case of Khurja Development Authority (ITA No.4290 and 4291/Del/2014 and 5103/del/2016 might be followed.
6. On the contrary, Learned Counsel of the assessee submitted that finding of the Ld. CIT(A) might be upheld as he has followed orders of the Hon'ble Jurisdictional High Court in the case of the assessee itself.
7. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. As far as the additional ground and ground No. 1 of the appeal are concerned, the finding of the Learned CIT(A) are reproduced as under:
"5.2 These grounds relate to the issue of holding the activities of the appellant authority as charitable or otherwise. Similar issue was raised in 15 ITA Nos. 7754, 7755, 7756, 7757/Del/2025 DCIT Vs. Aligarh Development Authority the appeal for A.Y.2012-13 which was decided by me vide order passed u/s. 250 on 01.03.2017 in appeal No.09/2015-16/ Aligarh as under :-
"These grounds relate to the AO's decision of not holding the appellant's activities as activities towards charitable purposes. The AO has relied upon the decision of Hon'ble ITAT Amritsar Bench in the case of M/s Jalandhar Development Authority (supra). On the other hand, the appellant has relied upon the decision of jurisdictional Allahabad High Court in the case of CIT V/s Lucknow Development Authority (2014) 265 CTR (All) 0433. In the LDA case, the AO while passing the assessment order u/s 143(3) observed that the assessee was not eligible for the benefit of section 11 of the Act and assessed the entire income as business income. However, this finding was rejected by Hon'ble Allahabad High Court and the activities of the development authorities were held to be charitable in nature. This ruling of Hon'ble Allahabad High Court was followed by the same High Court in Income Tax Appeal No. 657 of 2007 in the case of Hapur Pilkhwa Development Authority and other authorities. Incidentally, the appellant was also one of the authorities for which the said order has been passed. Relying upon the aforesaid decision in the case of LDA, the Hon'ble court held that the activities of the developing authorities are of charitable nature and the authority is eligible to be registered u/s 12AA. As the Hon'ble Allahabad High Court upheld the Tribunal's decision of allowing registration u/s 12AA for the appellant authority, no question can be raised to doubt the charitable character of the activities which the authority has undertaken. Since the appellant enjoys benefit of registration u/s 12AA, it can be presumed that the objects of the appellant are of charitable character."
In view of the above, as the activities in the relevant previous year are similar to the activities undertaken during the previous year relevant to A.Y. 2012-13, it is prudent to hold that the appellant is engaged in the activities which are of charitable nature. Therefore, the appellant would be entitled to get the benefit of registration u/s 12AA. As such, in the assessment, the Assessing Officer's only is to see whether the actual activities undertaken during the year are in accordance with the objects with regard to which the authority was granted registration u/s. 12 AA. There is no finding in the assessment order that the appellant authority has deviated from its charitable objects during the course of the activities performed during the relevant previous year. Since the appellant is registered u/s. 12 AA, it is automatically entitled for exemption u/s. 11 if other conditions are fulfilled. Since the appellant's application of income plus accumulation of income for charitable purposes is more than the 85% of the total income, the whole income would get exempted u/s. 11. Thus, 16 ITA Nos. 7754, 7755, 7756, 7757/Del/2025 DCIT Vs. Aligarh Development Authority the income would have to be assessed at Nil as claimed in the return of income.
In light of the observations as narrated above, these grounds are being allowed."
7.1 We find that Ld. CIT(A) has followed the finding of the Hon'ble Jurisdictional High Court in the case of the assessee in earlier year and held that the activity of authority of developing of land etc. are charitable in nature and eligible for registration under section 12AA of the Act. The Ld. CIT(A) has accordingly found the claim of the assessee for exemption under section 11 of the Act in order and also observed that assessee has applied more than 85% of the total income towards charitable purposes. The registration granted by the CIT under Section 12AA of Act is validly in operation in the relevant year and not withdrawn. Thus, the assessee was entitled for exemption under Section 11 subject to fulfilling the conditions contained therein. In view of binding precedent followed by the learned CIT(A), we do not find any error in the order of the Learned CIT(A) on the issue in dispute and accordingly we uphold the same. The additional ground and ground No. 1 of the appeal of the Revenue are accordingly dismissed.
8. As far as ground No. 2 of the appeal is concerned, the Ld. CIT(A) has observed as under:
"The AO has alleged that an amount of Rs. 23,36,84,304/- has been transferred directly to infrastructure development funds and has not been routed through the income and expenditure account. For this reason, separate addition of the same amount was made. In this regard, the appellant has submitted that as per government order, the appellant society has to transfer the major percentage of receipts under various heads to infrastructure development fund and it has no discretion to spend any part of the said fund on its own. The expenditure from the said fund is supervised by a committee nominated by the state government. It has been explained that this income falls under " diversion of income by overriding title" and is not includible in the total income. In my opinion, since the appellant is entitled for exemption u/s 11, the only relevant point is that 85% of the total income should be utilized towards charitable objects. Total income during the year including the income received towards infrastructure development fund is Rs. 33,37,97,968/- out of which Rs.17 ITA Nos. 7754, 7755, 7756, 7757/Del/2025
DCIT Vs. Aligarh Development Authority 12,95,28,302/- has been utilized during the relevant previous year. In accordance with the provisions of section 11, 85% of the total receipts i.e. Rs. 28,37,28,272/- should have been utilized during the year. Thus, there is a shortfall of Rs. 15,41,99,970/-. The appellant has produced a copy of form-10 filed on 30.09.2014 which shows that an amount of Rs. 15,41,99,970/- has been requested to be carried forward for utilization in subsequent years. Thus, all the requirements for claiming exemption u/s 11 have been fulfilled. 'Also, it is observed that the income received towards the infrastructure development fund has been considered for working out the utilization u/s 11. Hence, the AO's conclusion that the income received under infrastructure development fund has not been considered is without any basis.
In view of the above, there is no justification for making any separate addition for the amount received towards infrastructure development fund and the AO is being directed accordingly. These grounds are therefore allowed."
8.1 The claim of the Revenue is that amount of ₹ 23,36,84,304/-has not been considered for application of funds and therefore this issue might be restored back to the file of the Assessing Officer as decided in the case of Khurja Development Authority (supra). The Tribunal in the case of Khurja Development Authority (supra) restored this issue to the AO with following observations:
"15. After considering the rival submissions, we are of the view that this issue also requires reconsideration at the level of the AO. The assessee has now been granted registration u/s 12AA of the Act and thus, assessee is entitled for exemption from income u/s 11 of the Act as per law. Even if the infrastructure reserve fund ITA Nos. 4290, 4291/Del/2014 & 5103/Del/2016 maybe treated as income of assessee, it will have to be examined, whether,- assessee is entitled for exemption u/s 11 of the Act on the same income. Therefore, it would depend upon fundings with regard to exemption u/s 11 of the Act. We have already restored the issue of exemption u/S 11 of the Act to the AO for fresh decision as per law. Further, the authorities below have not. appreciated the fact that assessee claimed that infrastructure fund was received for development activities from the State Authorities, the assessee has to spend the amount on the same as per approval of the State Authorities. Thus, there may not be any profit element out of the same sources. It may also be noted here that whatever amount has been spent by assessee on the same issue, the AO has accepted that assessee spent the same amount as per the directions of the 18 ITA Nos. 7754, 7755, 7756, 7757/Del/2025 DCIT Vs. Aligarh Development Authority State Authorities. Then in that event it is difficult to believe that part amount is capital receipt and part would be Revenue in nature. Therefore, there was no justification for Ld. CIT(A) to hold that the impugned receipt is Revenue in nature. This issue also requires reconsideration in view of the fact that assessee is entitled for exemption u/s 11 of the Act. We, accordingly, set aside the orders of the authorities below on the issue of infrastructure fund as well and restore the issue to the file of AO with direction to redecide the issue as per law by giving reasonable opportunity of being heard to the assessee."
8.2 However, we find that the Ld. CIT(A) has followed the provisions of the Act and Rules, 1962 (in short 'the Rules'). According to the provisions of the Act, exemption under section 11 is allowed, if 85% of the funds received are applied for charitable purposes in the year under consideration and, if there is any short fall in application of such funds, the assessee has to follow the procedure prescribed for getting benefit of section 11 of the Act. The relevant Explanation-1 below section 11(1)(d) is reproduced as under:
"Income from property held for charitable or religious purposes.
11. (1) ..................
Explanation 1.--For the purposes of clauses (a) and (b),--
(1) in computing the fifteen per cent of the income which may be accumulated or set apart, any such voluntary contributions as are referred to in section 12 shall be deemed to be part of the income;
(2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of eighty-five per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount--
(i) for the reason that the whole or any part of the income has not been received during that year, or
(ii) for any other reason, then--
(a) in the case referred to in sub-clause (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount, and
(b) in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount, may, at the option of the person in receipt of the income (such option to be exercised before the expiry of the time allowed under sub-section (1) 19 ITA Nos. 7754, 7755, 7756, 7757/Del/2025 DCIT Vs. Aligarh Development Authority of section 139 for furnishing the return of income, in such form and manner as may be prescribed) be deemed to be income applied to such purposes during the previous year in which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes, in the case referred to in sub-clause (i), during the previous year in which the income is received or during the previous year immediately following, as the case may be, and, in the case referred to in sub-clause (ii), during the previous year immediately following the previous year in which the income was derived."
8.3 The Ld. CIT(A) has noted that the assessee had produced before him prescribed form as laid down in the Rules, with the request for carry forward of the amount for utilization in subsequent years and, thus, has fulfilled the requirement as prescribed in Explanation -I to Section 11 of the Act. Before us, the learned DR failed to controvert this finding of the Learned CIT(A). In our opinion, in the instant case before us, the assessee has fulfilled the requirement of law and we do not find any reason for restoring the matter to the Assessing Officer. We do not find any error in finding of the Learned CIT(A) on the issue in dispute and accordingly we uphold the same. The ground No.2 of the appeal of the Revenue is also dismissed.
9. In the result, the appeal of the Revenue is dismissed."
9. We further note that again exactly identical issues were dealt by the Coordinate Bench in the case of similar Development Authority viz. Agra Development Authority in the case of DCIT vs. Agra Development Authority in ITA 1461/Del/2025 (ASSESSMENT YEAR 2013-14) & Ors. vide common order dated 27.2.2026, which was decided against the revenue by holding as under:-
"7. We have heard both the parties and perused the material available on record. The Ld. CIT(A) deleted the addition made by the A.O. in all the above Assessment Years by relying on the Judgment of Hon'ble High Court in the case of Lucknow Development Authority. For the sake of ready reference, relevant portion of the order of the Ld. CIT(A) for Assessment Year 2017-18 is reproduced as under:-
"5.4 The arguments of the AO and of the appellant on the impugned issue has been examined. In support of its claim, the appellant furnished the copy of assessment order dated 12.03.2024 for the A.Y. 2022-23 passed u/s 20 ITA Nos. 7754, 7755, 7756, 7757/Del/2025 DCIT Vs. Aligarh Development Authority 143(3) of the Act wherein the AO has accepted the status of the appellant as charitable organization. The stand of the AO on the impugned issue in subsequent years is testimony to the fact that the appellant was an organization engaged in charitable activities.
5.5 The appellant informed that the AO had requested the Ld. CIT Agra to cancel the registration of the appellant u/s 12AA of the Act on the ground that the appellant was engaged in the activities in the nature of trade and business. The issue was examined by the Ld. CIT and he withdrew the notice of cancelation. The appellant has furnished the evidences in this regard. It is seen that the power to cancel the registration lies with the CIT/PCIT and he has accepted the activities of the appellant as not constituting trade and commerce.
5.6 Like the appellant, the AO in the case of Lucknow Development Authority denied the claim of exemption. The matter was carried in appeal. The identical issue in the case of Lucknow Development Authority arose before the jurisdictional High Court. The Hon'ble High Court in the case reported in (2014) 265 CTR 0433 has held as under:
"On 22.04.2010, a Coordinate Bench of this Court has admitted the Appeal No. 149 of 2009, on the following substantial question of law:-"Whether keeping the facts and circumstances of the case, the Tribunal had committed substantially illegal by holding that the income of the assessee is exempted under Section 11 of the Income Tax Act, though there is no condition that no profit should be earned by its activities and the profit earned will not be distributed amongst the stake holders and the finding of the Tribunal with regard to exemption under Section 12 of the Act is also substantially illegal ?"
On 26.03.2010, a Coordinate Bench of this Court has admitted the Appeal No.31 of 2010, on the following substantial question of law:-"Whether by assuming registration under Section 12AA of the Income Tax Act and exempting income of the Assessee without considering the dispute in terms of Sections 11, 12 & 13 of the Income Tax Act coupled with nature of activities, the Tribunal has acted arbitrarily or substantially illegally ?"
21 ITA Nos. 7754, 7755, 7756, 7757/Del/2025DCIT Vs. Aligarh Development Authority On 16.12.2010, another Coordinate Bench of this Court has admitted the Appeal No.114 of 2010 on the following substantial question of law:-
"Whether the learned Income Tax Appellate Tribunal was correct in law in holding that without exhausting the provisions contained in section 143(2) of the Act the proceedings initiated by the Assessing Officer by issuing notice u/s 148 of the Act were not valid in the given facts and circumstances of the case".
Remaining two appeals were connected with the above-mentioned appeals. The facts and circumstances in all the appeals are identical. Hence, all the appeals are disposed of by this consolidated order for the sake of brevity. However, the dates, figures, etc. have been taken from the leading ITA No. 149 of 2009 for adjudication of the present appeals.
The brief facts of the case (ITA No. 149 of 2009) are that for the assessment year under consideration, the assessee has filed its return showing the NIL income and claimed exemption under Section 11 of the Income Tax Act, 1961, being an "Authority" as was notified by the Government of Uttar Pradesh under Section 4 of Uttar Pradesh Planning and Development Act, 1973 (for short, "the Act"). However, for the assessment year under consideration, the AO while passing the assessment order under Section 143(3) of the Act has observed that the assessee is not eligible for the benefit under Section 11 of the Act. The AO, finally, assessed the entire income as business income for the purpose of taxation. Being aggrieved, the assessee has filed appeal before the CIT(A), who after examining the entire issue directed the AO to compute the income of the assessee in the manner specified under Section 11 of the Act, by observing that on registration under Section 12AA has been granted to the assessee, the AO is bound by such grant of registration and he has necessarily computed the income under Section 11 of the Act by taking the different report in Form-10B. Not being satisfied, the Department has filed the appeal before the Tribunal and the Tribunal vide its impugned order has dismissed the appeals filed by the Department and as such, the Department has preferred the present appeals. With this backdrop, Sri D. D. Chopra, learned counsel for the Department has justified the orders passed by the AO. He submits that the assessee had 22 ITA Nos. 7754, 7755, 7756, 7757/Del/2025 DCIT Vs. Aligarh Development Authority applied for the registration as charitable institute under Section 12AA of the Act before the CIT, and the same was granted in pursuance to the orders dated 25.07.2005, passed by the Tribunal. Learned counsel further submits that while passing the assessment order under scrutiny, the Assessing Officer examined the nature of activities of the assessee and came to the conclusion that the entire activities of the assessee during the year under consideration are beyond the purview of charitable purposes and the income earned by the assessee is not eligible for the benefits available under Section 11 of the Act. So, the Assessing Officer has assessed the income as business income and taxed accordingly.
It is also a submission of the learned counsel that in case of a trust, if there is income derived from property held under trust or from voluntary contributions and to ascertain whether in the case of the assessee the character of income falls under any one of the two categories envisaged in Sections 11(1)(a), (b), (c), and (d), the factual activities being carried outby the assessee is to be examined. The assessee is engaged in the activity of acquiring land, development of plots and construction residential as well as commercial places and sale thereof. The sales are also undertaken through auction process and sold to the highest bidder to earn more and more profits. The said activities are "trade" in nature and liable to tax. Thus, the activities being in the nature of trade and as such the benefit which is extended to charitable activities are not available as per the ratio laid down in the cases of P.C. Raja Ratam Institution vs. Municipal Corporation of Delhi,(1990) 181 ITR 354 (SC); and Christian Children Fund Inc. vs. Municipal Corporation of Delhi, (1994) 4 SCC 377.Learned counsel further argued that the assessee is not on different footing from private colonizers and was making huge profits by giving compensation for land which is less than the market value of the actual land owners. As regards the claim of providing public amenities, private colonizers were also providing similar facilities. According to learned counsel, (i) assessee is a huge profit making agency for which it is taking money from general public; (ii) assessee did not engage in any charitable and if assessee developed any institution of public importance, the cost was recouped from the public at large; (iii) the 23 ITA Nos. 7754, 7755, 7756, 7757/Del/2025 DCIT Vs. Aligarh Development Authority objects/activities of the assessee were commercial in nature and they did not involve any charity; (iv)assessee also auctions plots at market rate and this does not involve any charity; and (v) in every activity of the assessee there was a scent of commercialization/profit motive and infrastructure/facilities provided by assessee are also provided by private builders also. Learned counsel also submits that in view of above, the Tribunal has grossly erred in holding that the assessee authority was not established for commercial purposes, but for charitable purposes. Lastly, he made a request that the impugned orders passed by the Tribunal may kindly be set aside and restore the order passed by the Assessing Officer.
On the other hand, Sri S.K. Garg, learned counsel for the assessee has supported the impugned order. He submits that as per Section 4 of the Uttar Pradesh Planning and Development Act, 1973, the assessee's object is "an act to provide for the development of certain areas of Uttar Pradesh according to plan and for matters ancillary thereto". The Act declared the assessee is an "Authority" under Section 7. The objects of the Authorities are as under:-
"7. Objects of the Authority-The objects of the Authority shall be to promote and secure the development of the development area according to plan and for that purpose the Authority shall have the power to acquire, hold, mange and dispose of land and other property, to carry out building, engineering, mining and other operations, to execute works in connection with the supply of water and electricity, to dispose of sewage and to provide and maintain other services and amenities and generally to do anything necessary or expedient for purposes of such development and for purposes incidental thereto:
Provided that save as provided in this Act nothing contained in this Act shall be construed as authorizing the disregard by the authority of any law for the time being in force.
"Learned counsel also submits that as per Section 58 of the Act, in case of dissolution of the authority, the entire assets will be vested with the State Government. So, no profit of interest is involved.24 ITA Nos. 7754, 7755, 7756, 7757/Del/2025
DCIT Vs. Aligarh Development Authority Up to the assessment year 2002-03, the assessee was also enjoying exemption from income tax, under Section 10(20A)of the Act, which reads as under:-
"Section 10.-In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- (20) the income of a local authority which is chargeable under the head "Income from house property", "Capital gains" or "Income" from other sources" or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service (not being water or electricity within or outside its own jurisdictional area".
Explanation.-For the purposes of this clause, the expression "local authority" means-
(i) Panchayat as referred to in clause (d) of Article 243 of the Constitution; or
(ii) Municipality as referred to in clause (e) of Article 243P of the Constitution; or
(iii)Municipal Committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; or
(iv) Cantonment Board as defined in Section 3 of the Cantonments Act, 1924 (2 of 1924)".
So, the income was exempted from the taxation.
Following the deletion of Section 10(20A) and insertion of Explanation in Section 10(20) by the Finance Act, 2002, applicable w.e.f. 01.04.2003, the assessee was advised to seek registration under Section 12A of the Act, which at the relevant time read as:-
"Section 12A. The provisions of Section 11 and Section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:-
(a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Commissioner before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the 25 ITA Nos. 7754, 7755, 7756, 7757/Del/2025 DCIT Vs. Aligarh Development Authority establishment of the institution, whichever is later and such trust or institution is registered under Section 12AA:
Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of Section 11 and 12 shall apply in relation to the income of such trust or institution,-
(i) from the date of the creation of the trust or the establishment of the institution if the Commissioner is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period aforesaid for sufficient reasons;
(ii) from the 1st day of the financial year in which the application is made, if the Commissioner is not so satisfied;
(b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of Section 11 and Section 12 exceeds fifty thousand rupees in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-section (2) of Section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.
[(2) Where an application has been made on or after the 1st day of June, 2007, the provisions of Section 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made.]"
Finally, learned counsel submits that the assessee's income is for "charitable purposes" as defined in Section 2(15) of the Act, which cover the objects for "advancement of any other object for General Public Utility".
Section 2(15) of the Act is reproduced as under:-
26 ITA Nos. 7754, 7755, 7756, 7757/Del/2025DCIT Vs. Aligarh Development Authority "Section 2(15) "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility [***]"
It is also a submission of the learned counsel for the assessee that the term "objects of general public utility" had been extensively dealt with and defined, to meant that where the objects of an institution cover the public at large or a section of public the objects are to be held to the "objects of general public utility" as meant in Section 2(15) of the Act. For this purpose, he relied on the ratio laid down in the case of Additional CIT, Gujarat vs. Surat Art Silk Cloth Manufacturer Association, (1980) 121 ITR 1. According to learned counsel, in the case of CIT vs. Lucknow Industrial Development Authority, Lucknow in ITA No. 156 of 2008 (copy of which is available on record), the Hon'ble High Court has held that the assessee being a "Statutory Authority" which was established under the Uttar Pradesh Industrial Area Development Act, 1976, is entitled to registration under Section 12AA of the Act.
Similarly, learned counsel also relied on the ratio laid down in the case of CIT vs. KrishiUtpadanMandiSamiti, (2011) 331ITR 154, where it was observed that the Samiti is entitled for the registration under Section 12AA of the Act. Lastly, he made a request that the appeals filed by the department may kindly be dismissed.
We have heard learned counsel for the parties and gone through the material available on record.
It is undisputed fact that the assessee is a "Statutory Authority" which was established under the provisions of the Uttar Pradesh Planning and Development Act, 1973. In the instant case, prior to 1st April, 2003, the assessee were enjoying exemption under Section 10(20A) and Section 10(29). When these provisions were amended w.e.f. 1st April, 2003, then the necessity arose to register these institutions under Section 12A. In view of the objects, there is no good reason forholding that statutory bodies could not be treated as "charitable" within the meaning of Section 2(15). The object of the" Authority" is to provide shelter to the homeless people, 27 ITA Nos. 7754, 7755, 7756, 7757/Del/2025 DCIT Vs. Aligarh Development Authority therefore, there is no objectionable material to treat these institutions as non-charitable. The registration under Section 12A is mandatory to claim exemption under Sections 11 &13, but registration alone cannot be treated as conclusive. It is always open to Revenue Authorities, while processing return of income of these assessees, to examine the claim of the assessees under Sections 11 & 13 and give such treated to these institutions as is warranted by the facts of the case. Revenue Authorities are always at liberty to cancel the registration under Section 12AA(3). Moreover, it may be mentioned that the benefit of Section 11 is not absolute orconclusive. It is subject to control of Sections 60 to 63. If it is found by keeping in view the provisions of Sections 60 to 63 that it is not so includible then such income does not qualify for any relief.
The contention that the assessee are earning profit has no merit as per the ratio laid down in the case Sarafa Association vs. CIT, [2007] 294 ITR 262 (MP), where it was observed that "the promotion of commercial trade is a charitable purpose under Section 2(15) of the Act". In the case of Director, ITO vs. Govinda, 315 ITR 237 (Mad), it was observed that the construction of commercial complex by charitable trust is eligible.
If the objects of the "Authority" is charitable as public utility then the benefit being a charitable trust is eligible as per the ratio laid down in the case of CIT vs. Gujarat Maritime Board, [2007] 295 ITR 561 (SC), where it was observed that:-
"... in Section 2(15), namely, "any other object of general public utility".
From the said decisions it emerges that the said expression is of the widest connotation. The word "general" in the said expression means pertaining to a whole class. Therefore, advancement of any object of benefit to the public or a section of the public as distinguished from benefit to an individual or a group of individuals would be a charitable purpose [CIT vs. Ahmedabad Rana Caste Association, [1983]140 ITR 1 (SC)]. The said expression would prima facie include all objects which promote the welfare of the general public. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be served. If the primary purpose and the predominant object are to promote the welfare of the general public the 28 ITA Nos. 7754, 7755, 7756, 7757/Del/2025 DCIT Vs. Aligarh Development Authority purpose would be charitable purpose. When an object is to promote or protect the interest of a particular trade or industry that object becomes an object of public utility, but not so, if it seeks to promote the interest of those who conduct the said trade or industry [CIT vs. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC)]. If the primary or predominant object of an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the dominant purpose, would not prevent the institution from being a valid charity [Addl. CIT vs. Surat Art Silk Cloth Manufacturer Association [1980] 121 ITR 1 (SC)]." Applying the ratio laid down in the case of CIT vs. Andhra Pradesh State Road Transport Corporation [1986] 159 ITR 1(SC), where of in the present case, the "Autonomous Authority" was established for the purpose of predominant of development the area and provide to shelter to the homeless people within the State of U.P. The management and control of the Authority is essentially with the State Government and there is no profit motive as the income earned by the Authority is deployed for the development of the State. Further, it may be mentioned that Section 12AA of the Act lays down the procedure for registration in relation to the conditions for applicability of Sections 11 & 12 as provided in Section 12A. Therefore, once the procedure is complete as provided in sub-section (1) of Section 12AA and a certificate is issued granting registration to the trust or institution the certificate is a document evidencing satisfaction about (i) the genuineness of the activities of the trust or institution, and (ii)about the objects of the trust or institution. Section 12A stipulates that the provisions of Sections 11 & 12 shall not apply in relation to income of a trust or an institution unless the conditions stipulated therein are fulfilled. Thus, granting of registration under Section 12AA denotes that the conditions laid down in Section 12A stand fulfilled. The effect of such a certificate of registration under Section 12AAA, therefore, cannot be ignored or wished away by the Assessing Officer by adopting a stand that the trust or institution is not fulfilling the conditions for applicability of Sections11 & 12. In the case of Gestetner Duplicators P. Ltd. vs. CIT [1979] 117 ITR 1 (SC), the Apex Court was called upon to determine as to whether the contribution made by the employer should be 29 ITA Nos. 7754, 7755, 7756, 7757/Del/2025 DCIT Vs. Aligarh Development Authority treated as a business expenditure, the requirement being contribution should be made to a recognized provident fund.
Needless to mention that this Hon'ble Court in the case of CIT vs. M/s. U.P. Forest Corporation Ltd., in Income Tax Appeal No. 70 of 2009 observed that the Forest Corporation being an statutory entity is entitled for the registration under Section12A of the Act. The said observations was upheld by the Hon'ble Apex Court vide its order dated 12.05.2011 in Special Leave Petition No. (Civil) No. 2590/2011.
We may also like to refer a C.B.D.T. Circular No. 11/2008 dated 19.12.2008, wherein the applicability of the commercial activities in respect of charitable purpose has been clarified. The said circular is reproduced as below:-
"2.2. 'Relief of the poor' encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on as commercial activity, subject, however, to the conditions stipulated under Section 11(4A) or the seventh proviso to Section10(23C), which are that -
(i) the business should be incidental to the attainment of the objectives of the entity, and
(ii) separate books of accounts should be maintained in respect of such business.
"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 noncommercial 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.30 ITA Nos. 7754, 7755, 7756, 7757/Del/2025
DCIT Vs. Aligarh Development Authority 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 15.01.1998, 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 is taxable nature in its hands. For this reason also, it appears that the funds are utilized for general utility.
Moreover, in the instant case, the Assessing Officer has not given any defective in computation of income as per Section11 as submitted in Form- XB, but observed that the activities of the assessee are not charitable. The activities of the assessee's are genuine. So, then it is so, then we find no reason to interfere with impugned orders passed by the Tribunal.
The same are hereby sustained along with reasons mentioned therein.
The answer to the substantial questions of law are in favor of the assessee and against the department.
In view of above, all the appeals filed by the department are dismissed, as stated above."31 ITA Nos. 7754, 7755, 7756, 7757/Del/2025
DCIT Vs. Aligarh Development Authority 5.7 The case of the appellant is identical to the case reported above. Thus, the Hon'ble jurisdictional High Court has decided the impugned issue which is in favour of the appellant. The Hon'ble Apex court in the case of Ahmedabad Urban Development Authority (Civil Appeal no. 21762 of 2017) had an occasion to deal with the identical issue. In this case the appellant was also a co-respondent. The Hon'ble Supreme Court in its Decision dated 19.10.2022 has held as under:
"IV. Summation of conclusions
253. In view of the foregoing discussion and analysis, the following conclusions are recorded regarding the interpretation of the changed definition of "charitable purpose" (w.e.f. 01.04.2009), as well as the later amendments, and other related provisions of the IT Act.
A. General test under Section 2(15) A.1. It is clarified that an assessee advancing general public utility cannot engage itself in any trade, commerce or business, or provide service in relation thereto for any consideration ("cess, or fee, or any other consideration");
A.2. However, in the course of achieving the object of general public utility, the concerned trust, society, or other such organization, can carry on trade, commerce or business or provide services in relation thereto for consideration, provided that
(i) the activities of trade, commerce or business are connected ("actual carrying out..." inserted w.e.f. 01.04.2016) to the achievement of its objects of GPU; and)
(ii) the receipt from such business or commercial activity or service in relation thereto, does not exceed the quantified limit, as amended over the years (Rs. 10 lakhs w.e.f. 01.04.2009; then Rs. 25 lakhs w.e.f. 01.04.2012;
and now 20% of total receipts of the previous year, w.e.f. 01.04.2016);
A.3. Generally, the charging of any amount towards consideration for such an activity (advancing general public utility), which is on cost-basis or 32 ITA Nos. 7754, 7755, 7756, 7757/Del/2025 DCIT Vs. Aligarh Development Authority nominally above cost, cannot be considered to be "trade, commerce, or business" or any services in relation thereto. It is only when the charges are markedly or significantly above the cost incurred by the assessee in question, that they would fall within the mischief of "cess, or fee, or any other consideration" towards "trade, commerce or business". In this regard, the Court has clarified through illustrations what kind of services or goods provided on cost or nominal basis would normally be excluded from the mischief of trade, commerce, or business, in the body of the judgment.
A.4. Section 11(4A) must be interpreted harmoniously with Section 2(15), with which there is no conflict. Carrying out activity in the nature of trade, commerce or business, or service in relation to such activities, should be conducted in the course of achieving the GPU object, and the income, profit or surplus or gains must, therefore, be incidental. The requirement in Section 11(4A) of maintaining separate books of account is also in line with the necessity of demonstrating that the quantitative limit prescribed in the proviso to Section 2(15), has not been breached. Similarly, the insertion of Section 13(8), seventeenth proviso to Section 10(23C) and third proviso to Section 143(3) (all w.r.e.f. 01.04.2009), reaffirm this interpretation and bring uniformity across the statutory provisions.
B. Authorities, corporations, or bodies established by statute B.1. The amounts or any money whatsoever charged by a statutory corporation, board or any other body set up by the state government or central governments, for achieving what are essentially 'public functions/services' (such as housing, industrial development, supply of water, sewage management, supply of food grain, development and town planning, etc.) may resemble trade, commercial, or business activities. However, since their objects are essential for advancement of public purposes/functions (and are accordingly restrained by way of statutory provisions), such receipts are prima facie to be excluded from the mischief of business or commercial receipts. This is in line with the larger bench 33 ITA Nos. 7754, 7755, 7756, 7757/Del/2025 DCIT Vs. Aligarh Development Authority judgments of this court in Ramtanu Cooperative Housing Society and NDMC (supra).
B.2. However, at the same time, in every case, the assessing authorities would have to apply their minds and scrutinize the records, to determine if, and to what extent, the consideration or amounts charged are significantly higher than the cost and a nominal mark-up. If such is the case, then the receipts would indicate that the activities are in fact in the nature of "trade, commerce or business" and as a result, would have to comply with the quantified limit (as amended from time to time) in the proviso to Section 2(15) of the IT Act.
B.3. In clause (b) of Section 10(46) of the IT Act, "commercial" has the same meaning as "trade, commerce, business" in Section 2(15) of the IT Act. Therefore, sums charged by such notified body, authority, Board, Trust or Commission (by whatever name called) will require similar consideration
- i.e., whether it is at cost with a nominal mark-up or significantly higher, to determine if it falls within the mischief of "commercial activity". However, in the case of such notified bodies, there is no quantified limit in Section 10(46). Therefore, the Central Government would have to decide on a case- by-case basis whether and to what extent, exemption can be awarded to bodies that are notified under Section 10(46).
B.4. For the period 01.04.2003 to 01.04.2011, a statutory corporation could claim the benefit of Section 2(15) having regard to the judgment of this Court in the Gujarat Maritime Board case (supra). Likewise, the denial of benefit under Section 10(46) after 01.04.2011 does not preclude a statutory corporation, board, or whatever such body may be called, from claiming that it is set up for a charitable purpose and seeking exemption under Section 10(23C) or other provisions of the Act."
5.8 If the case of the appellant is examined in the light of the above quoted judgements, it is seen that the activities of the appellant are in the nature of charitable activity and its profits are exempted.
5.9 The appellant was carrying out sovereign function for the state. Development of areas is the responsibility of the state. These functions were 34 ITA Nos. 7754, 7755, 7756, 7757/Del/2025 DCIT Vs. Aligarh Development Authority carried out by the state through the appellant Local Authority which was created and empowered by the Act of the state. Carrying out sovereign functions cannot be equated with carrying out trade and commerce for profits. Therefore, the appellant could not be treated as an organization conducting trade and commerce for profits.
5.10 In view of the above discussion and position of law as decided/laid out by Hon'ble Apex Court, it is held that the AO was not justified in holding that the appellant is not engaged in charitable activities. Further the AO was not justified in denying the benefit of exemption to the appellant and treating its receipt/income as taxable. Accordingly, the ground no. 1 and 2 of appellant's appeal are allowed.
6. Ground Nos. 3 to 8 of appeal are relating to treating the surplus of Rs.31,58,43,289/- as income of the appellant and taxing it. 6.2 In ground No.1 and 2, it has been held that the profits/surplus in the income and expenditure account of the appellant are exempted. It is not the case of the AO that the consideration charged by the appellant are significantly higher than the cost and a nominal markup. In the instant case the AO has not examined the issue as to whether the consideration for sale or services charged by the appellant body are significantly higher. The AO has not examined any comparable and arrived at the conclusion that the considerations are significantly higher. As the AO has not deliberated upon the impugned issue and as the issue donot emanate from the assessment order, therefore, the same need not be adjudicated in appellate proceedings. Consequently, the appeal in respect of ground no.3 to 8 are allowed.
7. In view of the above discussion, the appeal of the appellant is "Allowed".
8. Considering the fact that the Ld. CIT(A) has relied on the ratio laid down by the Hon'ble High Court in the case of Lucknow Development Authority, in the absence of any factual differences brought on record by the Revenue and also in the absence of any contrary decision brought to the notice of the Bench, we find no reason to interfere with the findings and the conclusion of the Ld. CIT(A). According, the Grounds of Appeal of the Revenue are dismissed as meritless.
35 ITA Nos. 7754, 7755, 7756, 7757/Del/2025DCIT Vs. Aligarh Development Authority
9. In the result Appeals of the Revenue are dismissed."
10. In the background of the aforesaid discussions and respectfully following the aforesaid precedents, as aforesaid, we do not find any infirmity in the order of the Ld. CIT(A)/NFAC, hence, we affirm the same and reject the grounds raised by the Revenue. Resultantly, the appeal of the revenue for the assessment year 2016-17 stand dismissed.
11. Our aforesaid decision taken for A.Y. 2016-17 will apply mutatis mutandis to other appeals relating to assessment years 2017-18, 2018-19 & 2021-22 also. Accordingly, the remaining 03 appeals of the revenue also stand dismissed on similar lines, as aforesaid.
12. In the result, all the 04 appeals of the Revenue stand dismissed.
Order pronounced in the open court on 22nd April, 2026
Sd/- Sd/-
(MANISH AGARWAL) (MAHAVIR SINGH)
ACCOUNTANT MEMBER VICE PRESIDENT
Date:- 29.04.2026
SR BHATNAGAR
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT, NEW DELHI