Delhi High Court orders income tax exemption for Noida
Jul 12, 2024
Synopsis
The Delhi High Court has directed the income tax department to grant income tax exemption to the New Okhla Industrial Development Authority (NOIDA) under Section 10(46) of the Income Tax Act, 1961. The court rejected the Central Board of Direct Taxes' decision that denied NOIDA's request for tax exemptions, stating that the revenue department erred in categorizing NOIDA's activities as commercial.
The Delhi High Court has asked the income tax department to grant income tax exemption to the New Okhla Industrial Development Authority under Section 10(46) of the Income Tax Act, 1961.
Rejecting the Central Board of Direct Taxes' order that refused to accede to the NOIDA's prayer for granting tax exemptions, a division bench comprising justices Yashwant Varma and Purushaindra Kumar Kaurav said that the revenue department had “clearly erred in holding that the loans and advances extended by the petitioner (NOIDA) would fall within the ambit of commercial activity… NOIDA cannot be viewed as being a corporation intended to have been incorporated for a profit or commercial motive.”
Section 10(46) states that a trust established by a government for benefitting the general public and not performing any commercial activity is exempted from income tax payment. The tax department had argued that NOIDA was systematically indulging in activities which were commercial in character and undertaken with the view to earning profit.
Rejecting the stand of the tax authorities, the HC said that some of the loans were given to finance activities supportive and supplemental to the development activity that was liable to be undertaken by them.
“It is manifest from a reading of the various provisions of the UPID Act (Uttar Pradesh Industrial Area Development Act, 1976) that the petitioner acts primarily as an agent of the government obligated to undertake planned development of areas placed under its control," the judgment stated.
Terming it a “landmark judgement, which is in line with the true objectives of Section 10(46),” Noida’s counsel Jasmeet Singh said that the ruling will not only be “beneficial for the State industrial Development Authorities seeking income tax exemption, but will be a guiding judicial precedence for other statutory authorities advancing non-commercial public utility function.”
While NOIDA had moved an application in November 2011 seeking according of the requisite certification under Section 10(46), the CBDT had observed that NOIDA had made huge investments in bonds, shares of various entities and created interest yielding fixed deposits which 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) thereof.
The CBDT had concluded that NOIDA was systematically indulging in activities which were commercial in character and undertaken with the view to earning profit. Besides, NOIDA was engaged in activities of advancing loans to various entities including private parties and had earned huge interest on the same, it alleged. "The financial statements furnished by the authority shows that there are huge loans and approximately Rs. 5,000 crore that have been advanced in FY 2018-19 and more than Rs 5,000 crore in FY 2017-18 to various entities including private parties..."according to the department.
[The Economic Times]
