1985 (6) TMI 93 - AT - Income Tax

Summary

Issues Involved:
1. Whether the corporation is a branch of the Government and thus immune from taxation under Article 288 of the Constitution.
2. Whether the assessee is an authority under Section 10(20A) of the Income-tax Act, 1961.
3. Whether the assessee is a public charitable institution and thus exempt under Sections 11 to 13 of the Income-tax Act.
4. Whether the income of the corporation arises from a revocable transfer of funds from the Government under Section 63 of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Branch of the Government and Immunity from Taxation under Article 288:
Shri Inamdar argued that the corporation is essentially a branch of the Government and thus immune from taxation under Article 288 of the Constitution. He emphasized that the corporation's members are nominated by the Government, employees are appointed by the Government, and it operates under the Government's control and direction. The Government's sweeping powers, including the power to dissolve the corporation, indicate that it is an indivisible limb of the Government. However, the Tribunal upheld the authorities' conclusion that the corporation is a separate legal entity with its own corporate existence, right to sue and be sued, and independent legal status. The Tribunal relied on the Gujarat High Court judgment in Gujarat Industrial Development Corpn. v. CIT to support its decision.

2. Authority under Section 10(20A) of the Income-tax Act:
Shri Inamdar contended that the corporation qualifies as an authority under Section 10(20A) of the Income-tax Act, as it is involved in planning and developing industrial areas, which indirectly involves the planning of cities, towns, or villages. However, the Tribunal agreed with the departmental representative that the corporation does not fulfill the conditions of Section 10(20A). The Tribunal cited the Calcutta State Transport Corpn. v. CIT case, which defined an authority as a body with the legal right to command and be obeyed, carrying out governmental or quasi-governmental functions. The Tribunal concluded that the corporation does not have such powers and is not constituted for the purposes specified in Section 10(20A).

3. Public Charitable Institution and Exemption under Sections 11 to 13:
Shri Inamdar argued that the corporation's objectives, as reflected in the preamble and other provisions, show that it is engaged in activities for public utility, such as promoting industry, reducing unemployment, and uplifting the masses. He emphasized that the corporation charges nominal rents and service charges and advances loans on liberal terms, indicating a lack of profit motive. The Tribunal agreed that the corporation's activities are for a public purpose and not intended to be pursued as activities for profit. The Tribunal concluded that the corporation fulfills the conditions for exemption under Sections 11 to 13, similar to the Andhra Pradesh State Road Transport Corpn. v. CIT case.

4. Income Arising from a Revocable Transfer of Funds under Section 63:
Shri Inamdar argued that the Government's power to dissolve the corporation and appropriate its assets constitutes a revocable transfer of funds, making the Government the liable party for taxation. However, the Tribunal agreed with the departmental representative that Section 63 is a provision for clubbing of incomes, not for excluding or exempting income. The Tribunal concluded that the relationship between the Government and the corporation is that of creditor and debtor, and the powers to regulate or dissolve the corporation do not constitute a power of revocable transfer. The Tribunal upheld the authorities' decision on this point.

Other Grounds of Appeal:
The Tribunal noted that the other grounds of appeal related to the computation of income and saw no reason to depart from its decision for earlier years. Shri Inamdar contended that certain allowable expenses had not been allowed, but he could not pinpoint the items. The Tribunal left the issue open for the assessee to approach the ITO for rectification if necessary.

Conclusion:
The appeals were allowed in favor of the assessee on the grounds of exemption under Sections 11 to 13 of the Income-tax Act, while the other contentions were rejected.