Greater Ludhiana Area Development Authority v. Addl. CIT

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The Tax Publishers2015 TaxPub(DT) 1781 (Chd-Trib) : (2015) 170 TTJ 0457 : (2015) 120 DTR 0353 : (2015) 039 ITR (Trib) 0100 Greater Ludhiana Area Development Authority v. Addl. CIT INCOME TAX ACT, 1961 --Business expenditure--AllowabilityExpenses related to construction of railway underbridge--Assessee was a statutory authority constituted by Governent of Punjab. The assessee had made a payment of certain amount to Northern Railways for construction of railway under bridge and the same had been claimed as business expenditure by assessee (GLADA) on the ground that the said bridge was being constructed for the overall development and specifically to ease the traffic situation. The AO after considering the submissions of the assessee analysed the role of Public Works Department (Buildings and Roads) of Punjab in construction, upgradation and maintenance of roads/ bridges in the State. He also referred to the set up of the Punjab Roads and Bridges Development Board as an undertaking to act as catalyst for infrastructure development and the road sector in the State of Punjab. The AO further examined the 'Act' constituting GLADA in order to understand the objectives of the same and to find out whether construction of railway underbridge was intended to serve such business purpose. The AO referred to sections 28 and 29 of the Punjab Regional and Town Planning and Development Act, 1995, to hold that the construction of railway underbridge was not the function of GLADA. The AO, therefore, held that the amount claimed as expenditure was mere application of funds. The CIT(A), considering the objects of the assessee and construction of railway underbridge made for the business purposes, deleted the addition. *Held:* The CIT(A), therefore, correctly decided the issue in favour of the assessee holding that the amount is spent for the purpose of business activities of the assessee. There is, therefore, clear nexus between the amounts spent and the business activity of the assessee. Therefore, there was no justification to interfere with the order of the CIT(A) in deleting the addition. This ground of departmental appeal was dismissed. Income Tax Act, 1961, Section 37(1) INCOME TAX ACT, 1961 --Income --Accrual External development charges received and spent as a nodal agency--The assessee had received and shown Rs. 91.36 crores under the head External Development Charges (EDC) as on 31-3-2009, as liability in its books of account and out of same, an amount of Rs. 71,45,25,006 had been received during the year under consideration. The amount of interest of Rs. 5.53 crores earned on the same had been shown as interest income in the profit and loss account. The external development charges are collected from the promoters/developers of colonies as per the stipulated rates and are meant to be spent on the external development of the said colonies. The assessee claimed before the AO that amount received as external development charges did not belong to GLADA (assessee) but to the State Government and hence, had been treated as liability. The AO analysed the provisions of sections 2(p) and 5(5) of the Punjab Apartment and Property Regulation Act, 1995, to hold that it is nowhere envisaged that amount received as external development charges was collected on behalf of the Government and was to be treated as a liability. The said amount received as external development charges should have been treated as income on the same lines as interest accruing on the amount standing under this head. The CIT(A) confirmed the addition and dismissed this ground of appeal of the assessee. *Held:* The amount in question is in a separate bank account which is not in dispute. It is, therefore, clear that the amount in question is received by the assessee as per directions of the Government of Punjab. This amount was shown as payable in the accounts of the assessee. Therefore, the nature and character of the receipt should have been examined by the authorities below as per the relevant provisions of the law and the notification issued by the Government of Punjab in this regard. It appears that authorities below have failed to consider the relevant provisions of the law and the notifications issued by the Government of Punjab in this regard which would clearly through light on the nature and character of the receipt of external development charges received by the assessee. Because the assessee claimed that the amount is received as per direction of the State Government and was to be spent as per the direction of the State Government or specified authority. Thus, how the said amount could be income of the assessee, is not established by the authorities below. The main reason for the above addition, as made by the AO, is that the assessee has shown the amount of interest on the bank deposit as income for the year under consideration, thus, it is clear that nature and character of receipt was not examined by the authorities below, as such, issue was remitted back. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2015 TaxPub(DT) 1781 (Chd-Trib) : (2015) 170 TTJ 0457 : (2015) 120 DTR 0353 : (2015) 039 ITR (Trib) 0100

Greater Ludhiana Area Development Authority v. Addl. CIT

INCOME TAX ACT, 1961

--Business expenditure--AllowabilityExpenses related to construction of railway underbridge--Assessee was a statutory authority constituted by Governent of Punjab. The assessee had made a payment of certain amount to Northern Railways for construction of railway under bridge and the same had been claimed as business expenditure by assessee (GLADA) on the ground that the said bridge was being constructed for the overall development and specifically to ease the traffic situation. The AO after considering the submissions of the assessee analysed the role of Public Works Department (Buildings and Roads) of Punjab in construction, upgradation and maintenance of roads/ bridges in the State. He also referred to the set up of the Punjab Roads and Bridges Development Board as an undertaking to act as catalyst for infrastructure development and the road sector in the State of Punjab. The AO further examined the 'Act' constituting GLADA in order to understand the objectives of the same and to find out whether construction of railway underbridge was intended to serve such business purpose. The AO referred to sections 28 and 29 of the Punjab Regional and Town Planning and Development Act, 1995, to hold that the construction of railway underbridge was not the function of GLADA. The AO, therefore, held that the amount claimed as expenditure was mere application of funds. The CIT(A), considering the objects of the assessee and construction of railway underbridge made for the business purposes, deleted the addition. Held: The CIT(A), therefore, correctly decided the issue in favour of the assessee holding that the amount is spent for the purpose of business activities of the assessee. There is, therefore, clear nexus between the amounts spent and the business activity of the assessee. Therefore, there was no justification to interfere with the order of the CIT(A) in deleting the addition. This ground of departmental appeal was dismissed.

Income Tax Act, 1961, Section 37(1)

INCOME TAX ACT, 1961

--Income --Accrual External development charges received and spent as a nodal agency--The assessee had received and shown Rs. 91.36 crores under the head External Development Charges (EDC) as on 31-3-2009, as liability in its books of account and out of same, an amount of Rs. 71,45,25,006 had been received during the year under consideration. The amount of interest of Rs. 5.53 crores earned on the same had been shown as interest income in the profit and loss account. The external development charges are collected from the promoters/developers of colonies as per the stipulated rates and are meant to be spent on the external development of the said colonies. The assessee claimed before the AO that amount received as external development charges did not belong to GLADA (assessee) but to the State Government and hence, had been treated as liability. The AO analysed the provisions of sections 2(p) and 5(5) of the Punjab Apartment and Property Regulation Act, 1995, to hold that it is nowhere envisaged that amount received as external development charges was collected on behalf of the Government and was to be treated as a liability. The said amount received as external development charges should have been treated as income on the same lines as interest accruing on the amount standing under this head. The CIT(A) confirmed the addition and dismissed this ground of appeal of the assessee. Held: The amount in question is in a separate bank account which is not in dispute. It is, therefore, clear that the amount in question is received by the assessee as per directions of the Government of Punjab. This amount was shown as payable in the accounts of the assessee. Therefore, the nature and character of the receipt should have been examined by the authorities below as per the relevant provisions of the law and the notification issued by the Government of Punjab in this regard. It appears that authorities below have failed to consider the relevant provisions of the law and the notifications issued by the Government of Punjab in this regard which would clearly through light on the nature and character of the receipt of external development charges received by the assessee. Because the assessee claimed that the amount is received as per direction of the State Government and was to be spent as per the direction of the State Government or specified authority. Thus, how the said amount could be income of the assessee, is not established by the authorities below. The main reason for the above addition, as made by the AO, is that the assessee has shown the amount of interest on the bank deposit as income for the year under consideration, thus, it is clear that nature and character of receipt was not examined by the authorities below, as such, issue was remitted back.