Income of Mussoorie Development Authority not the income of State: Uttrakahand High Court


Income of Mussoorie Development Authority not the income of State is upheld by the High Court of Uttarakhand in the case of  Mussoorie Dehradun Development Authority v. Additional Commissioner of Income Tax & Anr by Bench constituted by Acting Chief Justice S.K. Mishra and Justice Alok Kumar Verma.


The Mussoorie Dehradun Development Authority, the appellant, filed its income tax return stating zero income. The appellant’s income tax return was chosen for scrutiny evaluation. The Assessing Officer (AO) discovered that the Assessee, that is, the appellant had a “Infrastructure Fund” in its books of accounts, to which some receipts were credited and out of which certain expenses connected to infrastructure were paid.

 The AO approved the aforementioned infrastructure expenditures made by the appellant and attempted to tax any remaining funds found in the “Infrastructure Fund” of the appellant accounting records. According to the appellant’s testimony that was submitted before the AO, the State Government had an overriding title on the receipts that appear in the aforementioned “Infrastructure Fund” and as a result, they did not contribute to the appellant’s total income.

The AO disregarded the appellant’s representations and issued a ruling adding specific amounts to the appellant’s income. As a consequence, the appellant filed an appeal before the CIT(A) in opposition to this order. It was held by the the CIT(A) that there is no overriding title of the State Government in relation to the “Infrastructure Fund” account that the appellant maintains, hence the funds in that account should be included in the appellant’s income.

According to the CIT(A), as the appellant is a corporation, he does not possess the status of a state government, which is free from paying taxes. The appellant appealed to the ITAT against the decision of the CIT(A). The ITAT rejected the appeal and upheld the CIT’s decision. Then, the appellant appealed against the judgement of the ITAT in the High Court of Uttarakhand.


The Uttarakhand High Court has held that even if a Development Authority established by an Act of the State Legislature does not engage in any trade or business as defined by Article 289(2) of the Constitution of India, it still maintains a separate legal identity from the State and as such. Therefore, its income cannot be regarded as the State’s income for the purpose of being exempt from Union taxation under Article 289(1) of the Constitution.

The Court also held that the assets and funds of the Mussoorie Dehradun Development Authority, which was established in accordance with the U.P. Urban, Planning & Development Act, 1973, were only supposed to pass to the State Government upon its dissolution. As a result, the Court determined that the Mussoorie Dehradun Development Authority’s levies were taxable in its possession and were not subject to the principle of revenue diversion due to a superseding title.

Accordingly, the appeal of the appellant was dismissed by the Court.

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