Loans by NOIDA not Commercial Activity: Delhi HC allows Income Tax Exemption u/s 10(46) [Read Order]

The Delhi High Court has ruled that the loans and advances given by the New Okhla Industrial Development Authority (NOIDA) are not commercial activities and are therefore eligible for exemption under Section 10(46) of the Income Tax Act.

NOIDA, established under the Uttar Pradesh Industrial Area Development Act, 1976, challenged the order by the Central Board of Direct Taxes (CBDT) which denied its request for certification under Section 10(46) of the Income Tax Act, 1961.

Section 10(46) allows the CBDT to certify that the specified income of an authority established under a Central, State, or Provincial law, or created by the Union or State Governments to regulate and manage activities for the public benefit and not engaged in commercial activity, is exempt from taxation.

The order was issued following NOIDA's application for certification under Section 10(46). As the application was pending for a long time, NOIDA approached the Court, which directed the CBDT to decide on the application within 12 weeks.

The CBDT also noted that NOIDA made substantial investments in bonds and shares of various entities and created interest-bearing fixed deposits, activities not directly related to its role under the UPID Act, thereby violating Section 20(2). The CBDT concluded that NOIDA was engaged in commercial activities aimed at profit-making and therefore did not qualify for the exemption under Section 10(46).

NOIDA argued that it is an authority established under Section 3 of the UPID Act for public benefit, and the Board's claim that it is engaged in commercial activity was incorrect. NOIDA functions as an extension of the state government, tasked with the planned development of the industrial area under its jurisdiction.

NOIDA emphasized its status as an industrial township under Article 243Q(1) of the Constitution and its performance of municipal functions as outlined in Schedule XII of the Constitution.

The department argued that for an entity to be certified under Section 10(46), it must be established by a Central, State, or Provincial Act and created to serve the public without engaging in commercial activities. The financial statements showed NOIDA advanced loans exceeding INR 5,000 crores to various entities, including private parties, which did not align with its statutory objectives. These statements also revealed NOIDA earned significant interest income in AY 2018-19 and AY 2017-18.

The court determined that NOIDA did not seek exemption for interest income from bonds and shares under Section 10(46), and the placement of funds and interest income should not be grounds for denying the exemption.

The bench, consisting of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav, noted that the respondent department incorrectly categorized the loans and advances provided by the petitioner as commercial activities. This conclusion failed to consider the state government's directives that prompted these actions and did not prove that the loans were intended for profit. The court allowed the writ petition, quashed the CBDT order, and directed the department to process NOIDA's application for exemption under Section 10(46).

To Read the full text of the Order CLICK HERE

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NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY vs UNION OF INDIA & ORS. , 2024 TAXSCAN (HC) 1536 , Mr. Kavin Gulati, Mr. Jasmeet Singh, Mr. Saif Ali , Ms. Nidhi Raman, Mr. Ruchir Bhatia, Ms. Mansie Jain