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TMI Blog2012 (9) TMI 331X X X X Extracts X X X X X X X X Extracts X X X X ..... State without any profit or commercial motive attached with it. The only clause left for our consideration then would be clause (3), which shall come into play once clause (2) is disbanded which operates only if “Parliament may by Law declare to be incidental to the ordinary functions of Government”. Here, in the instant case, we have to read “Parliament” as “State Government” because in the instant case, it is the State Government which has authorized the assessee to perform the development projects at Navi Mumbai, Vasai- Virar, Waluj and such other places - as soon as the “Project” is complete, the project gets handed back to the State, i.e. when there is a development project, as per phases, and in the case of local authority, as and when the authorizing committee is satisfied, the reins are transferred to the municipal boards, from whom, the project was taken over, as we have seen from Resolution no. 10375 dated 06/08/2010. No agreement with the argument of the DR that there is no document which has drawn out the Agent-Principal relationship, because the very first Resolution dated 18th March, 1970 mention in para no. 2 that “…………… which would act as an “agent” of Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, wholly owned by the Government of Maharashtra. 6. In the year under consideration, the assessee company did not file its return of income either u/s 139(1) or even u/s 139(4). The AO, after recording his reasons, issued notice u/s 148, against which the assessee filed its return on 13.08.2010, declaring a loss of Rs. 68,18,000/-. 7. The basic facts as noted by the AO in the assessment order, are, that the assessee company is a New Town Development Authority for Navi Mumbai and Special Planning Authority for various other towns of Maharashtra. The business activity of the assessee company is construction of residential and commercial structures as well as development of infrastructures and towns. In earlier years, i.e. up to assessment year 2002-03, the assessee was claiming exemption u/s 10(20A) of the Act in respect of its income. However, the provisions of section 10(20A) of the Act were deleted/omitted w.e.f. 01.04.2003 i.e. assessment year 2003-04 onwards. 8. In the proceedings for assessment as carried on by the AO, the AO proposed the case of the assessee to be referred to Special Audit u/s 142(2A). The AO called for the assessee s comments, who objected to the appo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Counsel submitted that the assessee was incorporated as a company on 17.3.1970 with a share capital, which was wholly and exclusively subscribed by the Government of Maharashtra, with the object of creation of new town of Navi Mumbai, New Aurangabad, New Nashik, New Nanded, Tarapur, Waluj Mahanagar, Oras, Vasai- Virar sub region, Nagpur and Mhaismal Projects. To implement these projects, as New Town Development Authority and Special Planning Authority as Statutory Agents of the Government of Maharashtra for planned development and disposal of notified areas vested with the Government of Maharashtra, which includes development of infrastructure such as roads, railways, water supply, storm water drainage, sewerage etc. and after completion of the development of new township, the assessee company shall submit final accounts to the State Government after disposal of the facilities developed by it, which shall be done without any profit or commercial motive. The Senior Counsel submitted that all these activities being totally commercial activities, but, since the performance of the assessee being totally non-profit and non-commercial and which has to perform the functions of local a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e resident Audit Officer, Pay and Accounts Officer, Bombay. The senior Deputy Account General, Nagpur. All Departments of Secretariat. The Divisional Commissioner, Bombay Division, Bombay. The Budget Branch, Industries Labour Department, Bombay. The Director of Publicity, Bombay. Vide the Gazette of the State of Maharashtra, which read as Urban Development, Public Health and Housing Development, dated 20th March, 1971 provided : MAHARASHTRA REGIONAL AND TOWN PLANNING ACT, 1966 No. RPB. 1171-18124-1, Whereas, the area comprised in the villages specified in the Schedule hereto (hereinafter referred to as the said area) has been designated as a site for a new town in the draft Regional plant for the Bombay Metropolitan Region. Submitted to the State Government under section 15 of the Maharashtra Regional and Town Planning Act, 1966 (Mah. XXXVII of 1966); And whereas, the State Government is satisfied that it is expedient in the public interest that the said area should be developed as a site for the proposed new town; Now, therefore, in exercise of the powers conferred by sub-section (1) of the section 113 of the said Act, the Government of Mah ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 971. The Managing Director, City Industrial Development Corporation of Maharashtra Ltd., 10th Floor, Nirmal Bombay-1. Sub:- Financial Arrangement between CIDCO and Government. Sir, Under Government Resolution, Industrial and labour Department No. IDL- 5770/IND-I dated the 18th March, 1970, the City and Industrial Development Corporation of Maharashtra Limited has been appointed as an agent of Government for the development of New Bombay . Government agree in principle to reimburse the expenditure incurred by CIDCO on the development of land in the project area and to reimburse CIDCO suitably with its remuneration. This letter has been issued with the concurrence of the Finance Department (vide that department s U.O.R. dated 10.9.1971 on General Administration Department File No. CID-1271/U). Yours faithfully, Sd/-xxxxx (S.S. Gadkari), Under Secretary to Govt. of Maharashtra, General Administration Department. 15. The Senior Counsel pointed out that similar notifications existed for the development of already existing townships like Aurangabad, Vasai-Virar, Sindhudurg Nagari etc., which had developed in haphazard and uncont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ident Audit Officer, Bombay. The Finance Department (F-12, Sec.) The Other Departments of Sachivalaya. The Commissioner, Bombay Division, Bombay. The collector of Kolaba. The Collector of Thane. The Budget Branch of General Administration Department, Sachivalaya, Bombay 32. The Senior Counsel then invited our attention to the 36th Annual Report which said at page 108 of paper book that the : Note: 1. Navi Mumbai Project is being developed by for and on behalf of the Govt. of Maharashtra vide its Resolution No. CID-2072-U dated 11th January, 1974 and No. CID-2084-1320-161- 84/UD-4 of General Administration Department and Urban Development Department respectively of the Government of Maharashtra. 2. Accounts in the prescribed form were submitted to the Govt. of Maharashtra upto the year ended 31st march, 1988. No confirmation has been received to date. 3. Land admeasuring 26315.52 (20312.18) Hectares has been handed over by the Government of Maharashtra, to the Corporation for the purpose of development of Navi Mumbai Project including 5289.40 (5289.40) Hectares of Government land. The payment amounting to Rs. 258.10 crore (Previous year Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a new town as reserved or designated [in any draft or final Regional Plan] it may by notification in proposed new town. The town shall be known by the name specified in the notification. (2) After publication of the notification under sub-section (1), for the purpose of acquiring, developing and disposing of land in the area of a new town the State Government shall by another notification in the Official Gazette, constitute a New Town Development Authority. The New Town Development Authority shall consist of a Chairman, a Vice- Chairman, [two members representing the local authorities functioning in the Region and such number of other members not exceeding seven] as in the opinion of the State Government have special knowledge or practical experience in matters relating to town and country planning, an officer to be called the Town Planning Officer and a Chief Executive Officer. The Chairman and the Vice-Chairman and all other members shall be appointed by the State Government. He drew special emphasis on sub-section 3A to section 113, which read as under: 113 (3A) Having regard to the complexity and magnitude of the work involved in developing any area as a site for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accordance with section 115, according to which the State Government shall, from time to time submit the proposals for development of land within its designated area. 18. According to sections 118, 119 and 122 of MR TP Act, 1966, the State Government has laid down procedures for the disposal of lands by the Development Authority. According to section 122(3), it was pointed out that all sums made available to the State Government by the Development Authority shall be paid into the Consolidated Fund of the State. According to sub-section 5 to section 122, the accounts shall be subject to audit and according to sub-section (2) to section 122A, all moneys borrowed under sub-section (1) may be guaranteed by the State Government as to the repayment of principal and interest . The Senior Counsel then drew our attention to section 147 which is the protection given to all persons coming under MR TP Act, for actions undertaken in good faith (which will include the employees of the Development Authority, i.e. the assessee company in the instant case). According to section 160(1) : Where the State Government is satisfied that the purposes for which any Regional Board, Special Plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be handed over to the Development Authority, i.e. the assessee. 21. The Senior Counsel submitted, taking into all these factual aspects, which are linked totally to the authorization by the State, the assessee can only be regarded as the State on its own terms. If not the State, then it has to be held to be the agent of the State, which has been held as, by the State Government of Maharashtra and which has used the word agent . It has been pointed out that even an agency relationship, may not be a formal relationship, but herein in the instant case, the assessee is a legal agent, who is very closely held, guarded and monitored by its principal, to the extent to providing immunity from or all legal action against it. 22. The Senior Counsel, to demonstrate that CIDCO is an agent of the Government of Maharashtra, took us through the decision of Hon ble Bombay High Court in the case of Percival Joseph Pareira vs The Special Land Acquisition Officer, in WP No. 1211 of 2009, where CIDCO is the 3rd respondent, wherein it was held as under: From consideration of the aforesaid documents the following factual position emerges: a) For setting up of the new town of New Bombay, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ently agitated. One of the decisions referred to by the Full Bench was the case of Hoystead v. Commissioner of Taxation [1926] AC 155 (PC). Speaking for the Judicial Committee, Lord Shaw stated (p. 165) : Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted, and there is abundant authority reiterating that principle. Thirdly, the same principle-namely, that of a setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken. These observations were made in a case where taxation w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . DCIT, reported in 221 ITR 317 as under: The assessee was the Gujarat Municipal Finance Board. It came into existence under the Gujarat Municipal Finance Board Act, 1979, and had a perpetual succession and a common seal with powers subject to the provisions of the Boards Act. The Board used to receive grants on various occasions from the consolidated fund of the State and in discharge of its duties, the same was required to be disbursed for purposes such as roads, drainage, street lights, water supply, schemes for primary facilities, sanitation, play ground, public toilets/bathrooms, community hall, service vehicles, etc., to the local authorities, i.e., a municipality or municipal corporation under the provisions contained in the Gujarat Municipalities Act. The Board had some surplus amount with it and the same was invested, as a result of which there was income. The State Government decided that the interest amount which may be earned be retained by the Board as a part of the grant-in-aid given to it by the Government. The Income-tax Officer started reassessment proceedings to assess the interest in the assessment years 1984-85 to 1993-94. On a writ petition to quash the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot conclusive in deciding whether the amount which was deposited in that fund constitutes a diversion of the amount deposited in that account at source or not. What was necessary was to see whether there was a diversion at source and whether the assessee had lost domain and control over the amount so diverted. The assessee was under a statutory obligation to set aside Rs. 6 per kilolitre for the storage fund. There was, therefore, a clear diversion at source of this amount. In any event, the assessee had lost domain over this amount of Rs. 6 per kilolitre. It had to be utilised in the manner statutorily laid down. Even the storage facilities had to be constructed as per the directions of the Commissioner and the Commissioner had the power, if the assessee failed to construct storage tanks in the prescribed time schedule, to do the work and obtain the said amount from the assessee. Hence, this amount, over which the assessee had lost its domain, could not be considered as a part of its real income or its profit. It was, therefore, required to be excluded under section 28 of the Income-tax Act, 1961, for the purpose of calculation of income. He also referred to the case of CIT v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given a right to run the project, a separate account with respect to profits made or losses suffered in running that project was to be maintained. In this context, the agreement which referred to profits would mean profits made by running the milk project and could not mean profits earned by the assessee, in the sense that the assessee was free to distribute or use the profits in the manner it liked. The said clause spoke of physical receipt of profits by the assessee and not receipt of profits in the eye of law. Out of these profits, accumulated losses were required to be wiped out and only thereafter, net profits were to go to the assessee. Profits in the hands of the assessee would be that amount which remained with it after the payment contemplated by the agreement was made to the Government. This was a clear case of diversion of profits by overriding title . 25. The Senior Counsel pointed out that the instant assessee had to file a writ before the Hon ble Bombay High Court for the stay on demand, pending disposal of appeal before the CIT (A) for the year under consideration. He submitted that the Hon ble Bombay High Court cited the case of Percival Joseph Parcira vs Specia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of its 100% shareholding. So far as the argument of the appellant that it may be treated as a State since it was performing the activities of the state , the same cannot be accepted. It is akin to stating that any organization which is engaged in the task of providing infrastructure or development of real estate or providing housing, electricity or even rendering transport and communication facilities not to forget healthcare and education, essentially, all the activities of a welfare state like India, are exempted from filing their income tax returns. But, this is not the case. The Income Tax Act does not distinguish a class of persons or businesses from their statutory obligation of filing their returns, be it companies in the private sector or in the public realm. Examples of Govt. companies engaged in the business of railroad construction like IRCON, in the field of real estate like HUDCO, in the field of electricity like NTPC, in the provision of transportation like Konkan Railway Corporation, where the Govt. is the sole or majority shareholder and all of which are engaged in the activities of the State , would then be exempted from filing their Income Tax re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the income coming from it as their own. Section 28 which provides for the payment of interest clearly brings out the duality between the corporations on the one hand and the State and Central Governments on the other. Take for instance, the case of supersession of the corporation authorised by section 38. Section 38(2)(c) emphatically brings out the fact that the property really vests in the corporation, because it provides that during the period of supersession, it shall vest in the State Government. Similarly, section 39(2) which deals with the distribution of assets in case of liquidation, brings out the same feature. Therefore, the income derived by the appellant from its trading activity cannot be said to be the income of the State under article 289(1) of Constitution, and if that is so, the facts that the trading activity carried on by the appellant may be covered by article 289(2) of the Constitution does not really assist the appellant's case. Even if a trading activity falls under clause (2) of article 289 of the Constitution, it can sustain a claim for exemption from Union taxation only if it is shown that the income derived from the said trading activity is the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... radesh. The fact that this amount is said to belong to the Price Equalisation/Stabilisation Fund, Department of Civil Supplies, does not establish that it is the income of the Department. 11. The income of the company being distinct from the income of the State, immunity from taxation provided under art. 289(1) of the Constitution is not attracted. In A.P. State Road Transport Corporation v. ITO [1964] 52 ITR 524; 34 Comp Case 473 (SC), the Supreme Court, dealing with the c1aim of the A.P.S.R.T.C., constituted under the notification issued by the Government of Andhra Pradesh in 1950, that the income derived from its trading activities is immune from liability of income-tax under art. 289 of the Constitution on the ground that its trading activities are carried out by and on behalf of the State, held that though the majority of the shares are owned by the Andhra Pradesh Government and its activities are controlled by the State, the Corporation has a separate personality of its own. The trading activities of the Corporation and the profit and loss arising therefrom are the profit and loss of the Corporation. The income derived from its trading activities cannot be said to be the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (as reproduced in 148 ITR 497 (AP) referred to by the DR). He reiterated the fact that each activity, to be performed by the assessee has to be through a Government notification. Whenever the State entrusts the job, the control and authorization remain with the Government. He further submitted that the lands acquired by the State is entrusted to the agent (assessee in the instant case), for which neither the assessee has to pay anything, nor it can show the land in its Balance Sheet as an asset. He further reiterated that on completion of its project, the assets go back to the State. He further emphasized that it cannot wait until the liquidation process of the company, but, the passing over of the asset(s) is through an operation of law. To prove this contention, the Senior Counsel pointed out that in the case of completion of Vasai-Virar Project, the amounts collected by the assessee, on completion of the project, were ordered to be transferred to Vasai- Virar Municipal Corporation and as per Item No. 28 of Resolution No. 10375 dated 06/08/2010, it was decided that Vasai-Virar Project; CIDCO is withdrawn as Special Planning Authority from VVSR . He further pointed out th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing given just to legalize the contractual agreement, because without a valid consideration, the contract, under the Indian Contract Act would become void. The Senior Counsel also reiterated the submission that the appointment of the assessee as an agent was through a State Government Gazette Notification. Senior Counsel, referring to the Hon ble Gujarat High Court decision, in the case of Gujarat Industrial Corp. Oths Vs CIT, relied and referred to by the DR, has since been reversed by the Hon ble Supreme Court of India, in the that case, as reported in 227 ITR 414 , pointed out that the decision has been reversed by the Hon ble Supreme Court of India. He pointed out before the Hon ble Apex Court, the issue of income belonging to the Government was not pressed, therefore, it was not chargeable. In any case, the Senior Counsel submitted that Town Planning activity is different from civil supplies and other commercial activities. 34. The Senior Counsel also responded to the decision of Hon ble Patna High Court, reported in 191 ITR 173 and pointed out that toll collection is a commercial activity, whereas town planning along with all socially responsible activities, as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on behalf of the Government or State, or any operation connected therewith, or any property used or occupied for the purpose of such trade or business, or any income accruing or arising in connection therewith and Article 289(3) reads, Nothing in clause (2) shall apply to any trade or business, or to any class of trade or business, which Parliament may by Law declare to be incidental the ordinary functions of Government . 39. To our mind, the entire case of the assessee in the instant case, hinges on clause (2) or clause (3) of Article 289 of the Constitution of India. The basic purport of Article 289(2) is to neutralize clause (1), but with a rider that, if there is any trade or business , done on behalf of the Government or any operations connected therewith or any property issued or occupied for the purposes of such trade or business, or any income accruing or arising in connection therewith. To make this clause effective, even for Government / State, conduct of trade or business is necessary, which simply means involvement of commercial and profit motive for the vendor. This is in line with the decision of Hon ble Supreme Court of India in the case of APSRTC (supra), r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporation may provide expressly or by necessary implication that the income derived by the corporation from its trading activity would be the income of the State . This observation read together with section 113(3A) of MR TP Act, 1966, shall emerge that the activity so performed by the assessee is nothing but an act of State without any profit or commercial motive attached with it. The only clause left for our consideration then would be clause (3), which shall come into play once clause (2) is disbanded and as soon as it become disbanded, clause (3) come to life, which operates only if, Parliament may by Law declare to be incidental to the ordinary functions of Government . Here, in the instant case, we have to read Parliament as State Government because in the instant case, it is the State Government which has authorized the assessee to perform the development projects at Navi Mumbai, Vasai- Virar, Waluj and such other places. 40. We cannot agree with the argument of the DR that there is no document which has drawn out the Agent-Principal relationship, because the very first Resolution dated 18th March, 1970 mention in para no. 2 that which would act as an age ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... municipal boards, from whom, the project was taken over, as we have seen from Resolution no. 10375 dated 06/08/2010. 43. In tune with these observations, read with sections 113 113A of MR TP Act along with Articles 289(1) 289(3) and holding that the assessee corporation is not doing any trade activity on its own accord, we hold, relying on the decision of the Hon ble Bombay High Court in the assessee s own case, in the Writ Petition, following the decision Percival case (supra), wherein it has been held, that CIDCO, the assessee herein, is an agent of the State Government of Maharashtra. We, therefore, respectfully follow the Hon ble jurisdictional High Court of Bombay, as held in the case of Percival (supra), and hold, the assessee to be the agent of the State Government of Maharashtra , read with the entire overwhelming documents, suggesting that there is no income to the assessee as such, and whatever is, generated, it gets deposited in the Consolidated Fund of the State. We also cannot ignore the fact that the department has been assessing the assessee as a State Government undertaking for the last three years, therefore, even this cannot be called as an afterthought ..... X X X X Extracts X X X X X X X X Extracts X X X X
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