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2012 (9) TMI 331 - AT - Income TaxAssessment of business income - whether the assessee should be held to be an “agent” of the State or an “arm” of the State and exempt from assessment of income in his hands - Held that:- 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)which says “The property and income of a State shall be exempt from Union Taxation”, 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. The observation above 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 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 Government for the development of the areas with a view to secure the above objective”, and in para no. 3 of this Resolution clearly say, “The subsidiary company will work under the control and supervision of the State Government in the General Administrative Department”. Thus the first Resolution itself makes it clear that the assessee is to be an agent, but functions as an arm of the State Government, because, if the assessee can only work under the control and supervision of the State Government, meaning thereby that the assessee cannot make / take any decisions suo moto, then, in such a case authority for performance of all activities lie somewhere else. In any case, as per this Resolution, it clearly makes the assessee an “agent” of the State - looking into the financial functions of the assessee it is founded that all dealings have to be routed through authorizations by the Government and all funds receivable shall be in compliance and with intimations to State Industrial and Investment Corporation of Maharashtra Ltd. Bombay - as 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 and applying the ‘rule of consistency’ the department cannot be allowed to take a distinctive approach in the current year - in favour of assessee.
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