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TMI Blog2017 (2) TMI 919X X X X Extracts X X X X X X X X Extracts X X X X ..... the Constitution does not arise at all. Even the Hon'ble Apex Court in Adityapur Industrial Area Development Authority Vs. UOI, (2006 (5) TMI 61 - SUPREME Court ) read the relevant clauses of the authority in that case, which we find are identical to that in the assessee's case and held it to be a distinct entity separate from the State. The Apex Court further held that the exemption otherwise specifically provided to the assessee authority under section 10(20A)/10(20) having been expressly taken away there was no merit in the contention of the assessee. Thus the assessee is distinct and separate from the State and thus not entitled to claim exemption from taxation under Article 289 of the Constitution. - Decided against assessee. - ITA Nos. 880 & 881/Chd/2014 - - - Dated:- 12-1-2017 - Shri Bhavnesh Saini, Judicial Member And Ms. Annapurna Gupta, Accountant Member Appellant by : S/Shri Bipin Negi, C.S.Verma Neeraj Sharma Respondent by : Shri Sushil Kumar Ravi Sarangal, CIT, DR ORDER Per Annapurna Gupta, A. M. Both the above appeals have been filed by the assessee against the common order passed by Commissioner of Income Tax (Appeals), Shimla dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this authority was development of the areas of Baddi, Barotiwala and Nalagarh. For the impugned years, the assessee filed return of income under section 139 of the Income Tax Act declaring income of ₹ 11,57,42,995, which was claimed exempt under section 10(20) of the Income Tax Act. Assessment under section 143(3) was framed in the status of AOP, at an income of ₹ 12,54,78,392/-, being the surplus of Income over Expenditure, after denying the assessee's claim for exemption under section 10(20) of the Act, since the Assessing Officer held that the assessee did not qualify as a local authority as defined under the section. 5. The matter was carried in appeal before the learned CIT (Appeals) where the assessee made detailed submissions both verbal and written reproduced at para 4 of his order. The gist of the submission made was that the assessee being the government body, for the purpose of carrying out functions delegated by the Government to it and being funded by the Government also, the assessee cannot be said to be carrying out any business activity resulting in profits. Therefore, the surplus shown by the assessee in its income and expenditure account coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the representatives, gone through the documents Placed before us as also the orders of the authorities below. 10. We find that the sole issue before us is that whether the assessee is State not carrying out any activity in the nature of trade or business and whose income, therefore, cannot be taxed. Putting it differently, the issue before us is whether the assessee is a person as defined under section 2(31) of the Act and thus an assessee for the purpose of the Act. Since the issue raised was an additional ground, we shall begin by first adjudicating the aspect of the admission of the same. Before us, the Ld. counsel for the assessee stated that this was a legal ground arising from the assessment proceedings and the Tribunal was not prevented from considering such question of law. The Ld. counsel for the assessee referred to the judgment of the Hon'ble Apex Court in the case of National Thermal Power Company Ltd. Vs. CIT, 229 ITR 383 in this regard. The learned D.R. on the other hand, objected vehemently to raising of this issue at this point of time stating that the assessee being a State never raised in any proceedings either before the Assessing Officer or the CIT ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R.C. Jain Others (1981) 2 SCC 308, more specifically, to para 6 of the order where the Apex Court had held that the planned development of towns was a government function which has been delegated by Legislature to support Town Planning Authorities or development authorities. Thus, the learned counsel for the assessee contended that the function performed by the assessee was a government function. To buttress his arguments that the assessee was in fact State the learned counsel for the assessee drew our attention to the notification by the Himachal Pradesh Government Town Country Planning Department by virtue of which the assessee was created, placed at Paper Book page Nos.36 to 41. The learned counsel for the assessee also referred to a letter written by the Principal Secretary (TCP) to the Government of Himachal Pradesh, Shimla by the Director, Town Country Planning Department, Himachal Pradesh in which the assessee i.e. BBNDA has been stated to have been constituted under the provisions of State law to perform functions of the State and is an extension of the Government. 14. The learned counsel for the assessee drew our attention to clause 68 of the Himachal Pradesh Town ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the Hon'ble Apex Court in the case of New Delhi Municipal Corporation Vs. State of Punjab (1977) 7 Supreme Court cases 339 wherein the Hon'ble Apex Court had drawn a distinction between governmental activity and trade and business carried on by the Government for the purpose of clause (2), Article 289 and held that unless an activity in the nature of trade and business is carried on with a profit motive, it would not be a trade or business contemplated by clause (2) of Article 289 of the Constitution. Thereafter, the learned counsel for the assessee drew our attention to the findings of the Assessing Officer at paras 4.3 and 4.4 for its order and stated that even the Assessing Officer had held that the assessee had been formed by a declaration of the Government, its office bearers were mostly appointed by the Government and were either Government officers or other persons in the empanelment of the Government or deriving benefit from the Government. At para 4.4, the learned counsel for the assessee pointed out that the Assessing Officer had held that the assessee was not an independent entity in the sense that it primarily dependent on the receipts of the Town Coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the constitution exempts property and income of a State from taxation provided it is not in respect of a trade or business carried out by the State on which tax is imposed by the Union. 19. The short question, therefore, that has to be answered in the present case is whether the income from property of the assessee authority could be said to be income from property of the State and if so whether the same is derived from trade or business carried out by it. 20. On the issue, whether the income of the assessee Authority can be said to be income of the State, we find that identical question had come up before the Hon'ble High Court of Bombay in the case of Vidarbha Housing Board v. ITO [1973] 92 ITR 430 (Bom) wherein after examining the relevant provisions of the enactment by virtue of which the assessee board was created, the Hon'ble High Court held that it was a distinct entity separate from the State. The High Court pointed out that the fact that the appellant was incorporated as a body corporate with perpetual succession and common seal, that some of its members could be nominated by the Speaker of the Legislative Assembly and by the State Government, that it cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In our view, it is not possible to accept this submission of Mr. Thakar, for, all that s. 32A provides for is merely to indicate a mode of recovery and simply because a particular mode of recovery which is generally available to the State Government for making its recoveries has been made available to the board for making its recoveries, it cannot mean that the said recoveries become recoveries of the State Government or that the recoveries made by adopting that particular mode become recoveries made by the board for and on behalf of the State Government. Similarly, the provision under which the board has been deemed to be a local authority for the purposes of the Land Acquisition Act could not be suggestive of an inference which would favour or support the petitioner's contention. In fact, the provision contained in s. 3(3) is a deeming provision which implies that but for the said provision the board would not be a local authority, and what is more, it has been declared a local authority for the purposes of certain enactment, namely, the Land Acquisition Act, which only facilitates acquisition of properties for the board. The features that the board as a corporate body ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses its own property, assets or funds and undertakes the various activities on its own account. The other provision which, in our view, is of a clinching character is the one to be found in s. 40(2) of the Act. That provision indicates as to what should happen to the property and assets of the board upon its dissolution being made by the State Government. Under sub- cl. (a) of sub-s. (2) of s. 40 it is provided that with effect from the date specified in the notification under sub-s. (1), all properties, funds and dues which are vested in or realizable by the board shall vest in and be realizable by the State Government. If the board was acting as a department of the State Government or was merely an agent undertaking the activities for and on behalf of the State Government, it was utterly unnecessary to make the provision of the type indicated above. The very fact that provision has been made in s. 40(2)(a) that upon the dissolution of the board all properties, funds and dues recoverable by the board shall vest in the Government clearly shows that the board is a distinct entity and is not an agent or a department of the State Government. Similarly, s. 40(2)(b) is a further indicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Court came to the conclusion that the trading or business activity that was being carried on by the Andhra Pradesh State Road Transport Corporation was not carried on by that corporation either as a Department of the State Government or as an agent on behalf of the State Government, but the corporation indulged in the concerned trade or business activity on its own and it was held that the immunity claimed by that corporation under Art. 289(1) of the Constitution was not available to it. In that case there were provisions of that Act which showed that the bulk of the capital necessary for the establishment of the corporation had been contributed by the State Government, a small portion by the Central Government and a few shares were held by some individuals ; the provisions of the Act also indicated that the activity of the corporation was controlled by the State and in particular there was a provision to be found in s. 30 of the Act for making over surplus receipts to the State Government after disbursements indicated in ss. 28 and 29 had been made and, notwithstanding these features, which emerged from the provisions of the Road Transport Corporations Act, 1950, the Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion involved both in that decision as well as in the case before us has been whether the income and the property of the board could be regarded as the income and property of the State Government and on that question the provisions of the Madhya Pradesh Housing Board Act, 1950, especially provisions of ss. 3, 4, 12 and 14, clinchingly indicate that the petitioner-board cannot be regarded as a department or an agent of the State Government and will have to be regarded as a separate legal entity distinct from the State Government, and, therefore, the income and property of the board could not be regarded as the income and the property of the State Government. In other words, the relevant provisions concerning a particular entity established under a particular enactment would have to be considered for deciding the question and, in our view, as stated earlier, the provisions of the Madhya Pradesh Housing Board Act, 1950, clearly indicate that the board, its property and income cannot be regarded as property and income of the State Government. In this view of the matter, we feel that the principle enunciated in the Supreme Court's decision in the case of Andhra Pradesh State Road ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... velopment Authority may for all or any of the purposes of this Act -- (a) accept grants from the State Government or a local authority; (b) raise loans, subject to such terms and conditions as may be prescribed. 78. (i) Whenever in the opinion of the State Government the continued existence of any authority constituted under this Act is un-necessary or undesirable the State Government may by notification declare that such authority shall be dissolved from such date as may be specified therein and the authority shall stand dissolved accordingly. (2) As from the said date-- (a) all the properties, funds and dues which are vested in or realizable by the authority shall vest in or be realisable by the State Government; (b) all liabilities which are enforceable against the authority shall be enforceable against the State Government; (c) for the purpose of realising properties, funds and dues referred to clause (a), the, function of the authority shall be discharged by the State Government ; (d) all powers and functions to be exercised or discharged by the authority under this Act shall be exercised and discharged by the Director and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision rendered therein squarely applies in the present case moreso when no other decision on identical facts favouring the assessee was brought to our notice. We, therefore, have no hesitation in holding that the assessee authority could not be termed to be an extension of the State. Even the arguments of the Ld. counsel for the assessee that it is the substance which is relevant for determining the case of the assessee and not form, is defeated by the relevant clauses reproduced above, which clearly point out that even in substance the assessee was not an extension of the State. Having said so, the question of granting immunity under Article 289 of the Constitution does not arise at all. 25. Even the Hon'ble Apex Court in Adityapur Industrial Area Development Authority Vs. UOI, 283 ITR 97(SC) read the relevant clauses of the authority in that case, which we find are identical to that in the assessee's case and held it to be a distinct entity separate from the State. The relevant findings at para 10 of the order are as follows : 10.It is true, as submitted by Sri Venugopal, that cl. (2) of Art. 289 empowers the Parliament to make a law imposing a tax on inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any income of a State, derived from Governmental or non-Governmental activities, cl. (2) provides an exception, namely, that income derived by a State from trade or business will be taxable, provided a law is made by Parliament in that behalf. Clause (3) of Art. 289 is an exception of the exception prescribed by cl. (2) of Art. 289 and it provides that income derived from particular trade or business may be made immune from Union taxation if Parliament declares such trade or business as incidental to the ordinary functions of Government (emphasis, italicised in print, supplied). The reason is obvious. Under the Constitution, the State has no power to tax any income other than agricultural income. Under the Constitution, power to tax income is vested only in the Union. Therefore, while any property of the Union is immune from State taxation under Art. 285(1), income derived by the State from business, as distinguished from Governmental purposes, shall not have exemption from Union taxation unless the Parliament declares such trade or business as incidental to the ordinary functions of Government of the State [See Art. 289(3)]. (emphasis, italicised in print, supplied). 12. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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