Delhi High Court Sets Aside CBDT Order, Directs Tax Exemption For NOIDA On Loans Income

A bench headed by Justice Yashwant Varma said the board erred in holding that the loans and advances extended by the NOIDA fell within the ambit of commercial activity, and directed the authority to process the exemption request.

The Court observed that the NOIDA, constituted under the Uttar Pradesh Industrial Area Development (UPIAD) Act, acts as an agent of the government in undertaking planned development of the areas placed under its control and it cannot possibly be viewed as a corporation intended to have been incorporated for a profit or commercial motive.

"We allow the instant writ petition and quash the order dated December 24, 2020 impugned herein. The respondents are consequently directed to process the application for exemption made by the petitioner under section 10(46) of the Act, bearing in mind the observations made hereinabove," the bench, also comprising Justice Purushaindra Kumar Kaurav, said in its judgment.

The CBDT had refused to grant the appropriate certification to the NOIDA in terms of section 10(46) of the Income Tax Act on the ground that the extension of loans appeared to be an activity undertaken otherwise than for the benefit of the public.

Section 10(46) enables the CBDT to certify the specified income of a statutory body, constituted with the object of regulating and administering activities for the benefit of the general public and that does not engage in any commercial activity, to be exempt from taxation.

According to the CBDT order, the NOIDA had advanced loans of more than Rs 5,000 crore to various entities, including private parties, which had no direct or fundamental connection with its statutory objective, leading to an "interest income" of Rs 793 crore in Assessment Year (AY) 2018-19 and Rs 350 crore in AY 2017-18.

The high court, in its judgment, stated that the grant of these loans was not established to have been for profit and some of those were extended to finance activities supplemental to the development activity that was liable to be undertaken by the petitioner.

"It is manifest from a reading of the various provisions of the UPIAD Act that the petitioner acts primarily as an agent of the government obligated to undertake planned development of areas placed under its control. It cannot possibly be viewed as being a corporation intended to have been incorporated for a profit or commercial motive," the Court said.

"In our considered opinion, the respondents have clearly erred in holding that the loans and advances extended by the petitioner would fall within the ambit of commercial activity. The aforesaid 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," it stated.

A financial statement placed on the record establishes that barring a few years, the "nominal margin in percentage terms between the income and expenditure of the petitioner has primarily remained in the negative" during the financial years 2011-12 to 2022-23, the Court added.

The petitioner was represented by Senior advocate Balbir Singh and lawyers Jasmeet Singh and Saif Ali. The respondent was represented by advocate Ruchir Bhatia.

In its order, the court noted that a similar exemption is granted to various government bodies, such as the Competition Commissions of India, the Uttar Pradesh Electricity Regulatory Commission, the Punjab State Electricity Regulatory Commission etc., in respect of a similar specified income.

It noted that exemptions have also been granted to other statutory bodies like the Yamuna Expressway Industrial Development Authority and the Greater Noida Industrial Development Authority, constituted under the UPIAD Act.

Cause Title: New Okhla Industrial Development Authority v. Union of India & Ors., [2024:DHC:5081-DB]