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2005 (7) TMI 539 - AT - Income TaxHousing boards or authority - establishment of Corporation - modes of development of an area - Whether the income of the assessee is not exigible to tax by virtue of the exemption u/s 10( 20A ) of the Income-tax Act, 1961? - Whether the Assessing Authority and the Tribunal were in gross error in holding that business of assessee has not commenced and as such, its income u/s 28 of the Income-tax Act, 1961 cannot be computed ? HELD THAT - A perusal of the order of the Assessing Officer makes it clear that the main thrust of the argument of the assessee before the revenue authorities was that the assessee falls within the scope of Local Authority as defined u/s 10( 20 ) of Chapter III, which deals with income which do not form part of the total income. This plea of the assessee was rejected, and rightly so, by the Assessing Officer, following the decisions of the Hon ble Supreme Court in the cases of Veljibhai Muljibhai Soneji 1963 (5) TMI 58 - SUPREME COURT , Calcutta State Transport Corporation 1996 (2) TMI 7 - SUPREME COURT and in the case of U.P. Forest Corporation 1998 (3) TMI 5 - SUPREME COURT . It was one of the contentions taken by the assessee in the instant case before the revenue authorities that Irrigation Minister is ex-officio Chairman; one of the non-official Member is nominated by the State Government as Vice Chairman; other officials like Chief Secretary and Secretary of the various departments are ex-officio Members; and five of the MLAs and 3 of the MLCs are also Members of the assessee and thus it has a popular representation . We are afraid; this is not what Hon ble Supreme Court has stated that the Members of the Corporation, either wholly or partly, directly or indirectly, must be elected by the inhabitants of the area . Section 3(2) of the VIDC Act does not say that ex-officio Chairman must be elected by the inhabitants of the area . So also in the case of MLAs and MLCs. In short, the revenue authorities rightly rejected assessee s claim of status of Local Authority . The local citizens of the area should elect them directly or indirectly. Perhaps the case of Irrigation Minister, MLAs/MLCs can be considered as indirect election. On a careful study this is also to be rejected. Therefore, this plea of the assessee was rightly rejected and held that the assessee is not a Local Authority as defined under General Clauses Act, 1897. We are of the view that the word Authority used in section 10(20A) does not necessarily require for a direct or indirect elected character unlike the word Local authority used in section 10(20). The authority should be one constituted firstly in India; secondly by or under any law enacted; and thirdly either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages or for both. In section 10(20) necessarily the Local Authority s area of activity must be within its own jurisdictional area ; whereas it appears in section 10(20A ) the area of activity is not limited to area but limited to the activity itself. The activity must be limited to either dealing with or satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages or for both. Thus, the revenue authorities were not correct in holding that the assessee is not entitled to benefit u/s 10(20A), particularly relying on the decisions which deal with the powers of the Local Authority . The Hon ble Supreme Court in the case of Gujarat Industrial Development Corporation 1997 (8) TMI 3 - SUPREME COURT has held, the word development in section 10(20A) is to be construed liberally. Hence, we answer Question No. (I) in favour of the assessee and against the revenue. We are of the view that there is no doubt that the assessee had commenced its entrusted activity - business. Assessee-Corporation was formed for completion of the already existing projects or for further entrusted projects. There is no doubt that even before the projects were entrusted to the assessee, some portion of the canals were completed and water supplied to various fields and water charges were being collected by the Irrigation Department of the State. Merely because the assessee had taken over construction activities it does not mean that the assessee has not commenced the business. It is almost exactly like an industrial undertaking. If an existing undertaking is purchased by a new assessee, it does not mean that the new assessee had not commenced its business. The new owner may expand the existing undertaking and its capacity. To say that only when it is in full swing and completed the entire expansion the business commenced is an incorrect appreciation. We have no doubt that the view canvassed by the learned standing counsel has no legal sanctity. Thus, we answer Question No. (II) also in favour of the assessee and against the revenue. In the result, appeal of the assessee stands allowed.
Issues Involved:
1. Whether the income of the assessee is exempt under section 10(20A) of the Income-tax Act, 1961. 2. Whether the assessee had commenced its business during the previous year for the purpose of computing income under section 28 of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Exemption under Section 10(20A): The assessee, a Statutory Corporation set up under the Vidarbha Irrigation Development Corporation Act, 1997, claimed exemption under section 10(20A) of the Income-tax Act, 1961, which was rejected by the Assessing Officer and CIT(A). The CIT(A) held that the assessee did not qualify as a "Local Authority" and was not constituted for the purpose of planning, development, or improvement of cities, towns, and villages. The Tribunal, upon reconsideration as directed by the High Court, analyzed the relevant provisions of the VIDC Act, Maharashtra Irrigation Act, 1976, and Bombay Canal Rules, 1934. The Tribunal noted that the assessee's activities, including the promotion and operation of irrigation projects, command area development, and hydro-electric energy generation, contribute to the development and improvement of villages, towns, and cities. The Tribunal referenced the Supreme Court's decision in Gujarat Industrial Development Corporation v. CIT, which held that "development" should be understood in a wide sense and includes various schemes for the development of areas. The Tribunal concluded that the assessee's activities fall within the ambit of section 10(20A), as they are for the purpose of planning, development, and improvement of cities, towns, and villages. 2. Commencement of Business: The second issue was whether the assessee had commenced its business during the previous year. The assessee argued that it had taken over ongoing irrigation projects from the State Government, which were at different stages of progress, and had generated revenue from the sale of water. The Tribunal noted that the assessee had indeed commenced its business activities, as evidenced by the sale of water and other activities related to the irrigation projects. The Tribunal rejected the revenue's argument that the business had not commenced merely because the projects were not completed. The Tribunal referenced the decision of the Supreme Court in United Commercial Bank v. CIT, which held that the preparation of financial statements in a particular manner does not preclude the assessee from claiming income based on the actual commencement of business activities. Conclusion: The Tribunal concluded that the assessee's income is exempt under section 10(20A) of the Income-tax Act, 1961, and that the assessee had commenced its business during the previous year. The appeal of the assessee was allowed, and both issues were decided in favor of the assessee.
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