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2005 (7) TMI 539 - ITAT MUMBAIHousing 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.
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