The Delhi High Court has directed the income tax dept. to process application for exemption made by New Okhla Industrial Development Authority (NOIDA).
The court observed that the respondent-department have clearly erred in holding that the loans and advances extended by the petitioner would fall within the ambit of commercial activity. The conclusion not only fails to bear in consideration the directives of the State Government which prompted and facilitated the said action, the grant of those loans has also not been established to have been motivated with a view to profiteer. As was noticed hereinabove, past precedents rendered in the context of Sections 2(15) and 10(46) guide in this regard to apply the test of activities undertaken with a profit motive and intent. That clearly does not appear to be the case which obtains here.
The court found that some of the loans came to be extended to finance activities supportive and supplemental to the development activity that was liable to be undertaken by the petitioner. The finding in the order that the petitioner had advanced loans to private entities such as M/s Amarpali Silicon City has been found to be factually incorrect. Equally destructive of any assumption of commercial activity are the details appearing in the financial statement that has been placed on the record and which establishes that the nominal margin in percentage terms between the income and expenditure of the petitioner has primarily remained in the negative during the period FY 2011-12 to FY 2022-23.
The court allowed the writ petition and quashed the order. The respondent department are consequently directed to process the application for exemption made by the petitioner under Section 10(46) of the Income Tax Act.
Facts
The New Okhla Industrial Development Authority, an entity constituted under the Uttar Pradesh Industrial Area Development Act, 19762 impugns the order dated 24 December 2020 in terms of which the Central Board of Direct Taxes3 has refused to accede to its prayer for being accorded appropriate certification as contemplated in terms of Section 10(46) of the Income Tax Act, 19614. The aforenoted statutory provision enables the CBDT to certify the specified income of a body or authority constituted under a Central, State or Provincial enactment or one which is created by the Union or the State Governments with the object of regulating and administering any activity for the benefit of the general public and which is not engaged in any commercial activity to be exempt from taxation with the income so specified not being liable to be included in its total income of the previous year.
The impugned order has come to be passed based on an application made in November 2011 by NOIDA for being accorded the requisite certification under Section 10(46) of the Act. The record would reflect that since the said application had remained pending for a considerable period of time, the petitioner was constrained to approach this Court by way of W.P.(C) 5574/2020 which came to be disposed of on 24 August 2020 with the Court directing the CBDT to decide the petitioner‘s application within 12 weeks.
As would be evident from a reading of the order impugned before us, the CBDT has principally drawn an adverse inference in light of NOIDA having extended loans to various entities.
The CBDT has also observed that NOIDA had made huge investments in bonds, shares of various entities and created interest yielding fixed deposits which again could not be said to have had any direct, immediate and fundamental connection‖ with the role assigned to it under the UPID Act and thus being in contravention of Section 20(2). On an overall consideration of the above, the CBDT came to conclude that NOIDA was systematically indulging in activities which were commercial in character and undertaken with the view to earning profit. In view of the above, the CBDT concluded that the petitioner did not fulfill the conditions for grant of exemption as contemplated under Section 10(46).
Case Name : Noida Versus UOI & Ors.
Judicial Level & Location : Delhi High Court
Case Number : W.P.(C) 4711/2021
Date of Ruling : 11-07-2024
Ruling in favour of: Taxpayer
Coram: Justice Yashwant Varma, Justice Purushaindra Kumar Kaurav
Petitioner Advocate: Balbir Singh, Sr. Adv. with Mr. Jasmeet Singh, Mr. Mahinder Singh Hura, Mr. Saif Ali, Mr. Pushpendra S. Bhadoria, Mr. Karan Sachdev, Mr. Vijay Sharma, Ms. Mamta Chakraborty, Mr. Pranav Menon & Mr. Ransiv Khatana, Advs.
Respondent Advocate: Nidhi Raman, CGSC with Mr. Zubin Singh, Adv. for Resp./UOI. Ruchir Bhatia, SSC with Mr. Anant Mann, JSC.
