9911796707
TMI Blog2005 (7) TMI 539X X X X Extracts X X X X X X X X Extracts X X X X ..... re the CIT(A). 4. Assessee's second plea that the assessee's income is exempted under section 10(20A) of the Income-tax Act, 1961 was also rejected. 5. The next objection of the assessee was against the order of the CIT(A) in holding that assessee Corporation is not an instrumentality of the State and is not a State within the meaning of Article 289 of the Constitution of India and thereby holding that the assessee is not having any immunity from tax. 6. The other grounds taken by the assessee are on merit; regarding treatment of interest income, income from house property and claim for set off and carry forward of loss under the head "Income from business". 7. Aggrieved again by the order of the first appellate authority, assessee approached the Tribunal. The Tribunal gave partial relief to the assessee. Aggrieved by the above order, assessee approached the Hon'ble High Court. 8. Vide Their Lordships order dated 27th July, 2004, the Hon'ble High Court held, two substantial questions of law do arise from the decision of the Tribunal which is set out (in Para 3) of Their Lordships order. It is reproduced below : (i) Whether the income of the assessee is not exigible to tax by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Income-tax Act, 1961. Alternatively assessee objected the denial of carry forward and set off against future profit of the Corporation. 14. The CIT(A) set out at page 5 of her order the attributes of a "Local Authority". Firstly, she noted, it should have a separate legal existence as Corporate bodies and must not be a mere Government agency. Secondly, it should function in a "defined area" and should wholly or partially, directly or indirectly be an elected body, by virtue of election by inhabitants of the area. Thirdly, there should be certain degree of autonomy, though not complete and not necessarily fully independent. Further, so as to constitute "Local Authority", body must be entrusted by statute with such Government functions and duties as are usually entrusted to Municipal bodies, such as those connected with providing amenities to the inhabitants of the locality, like health and education services, water and sewerage, town planning and development, roads, markets, transportation, social welfare services, etc. In other words, it should be entrusted with performance of civic duties and functions which otherwise would be duties and functions of the Government; and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Corporation ('VIDC') was to complete some ongoing irrigation projects in time-bound manner and to promote and operate some schemes for the generation of hydro-electric energy. Some allied activities connected with the above two main objectives are also to be undertaken, like fisheries, sericulture, tissue culture, horticulture, promotion of tourism, water sports and many other related activities. Hence, the learned first appellate authority held, if the objectives for which VIDC has been brought into existence are compared with those of Delhi Development Authority (for short DDA), it is more than evident that the functions assigned to the assessee are not governmental functions which normally entrusted to municipal bodies. Completion of irrigation projects and generation of hydro-electrical energy generally are not the functions of Municipal bodies, as such not a governmental function. It has nothing comparable with the functions of a Municipal body or Municipal Corporation. Assessee was brought into existence only to complete the ongoing irrigation projects in a time-bound manner and for harnessing electricity. 16. The CIT(A) further held that the activity of DDA was limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment of Hon'ble Supreme Court in the case of Housing Board of Haryana v. Haryana Housing Board Employees Union AIR 1996 SC 434. One of the reasons why the decision went against the assessee in the case of Haryana Housing Board Employees Union (supra) was that it had no independent functioning. Similar is the case with the assessee. The non-official Members are nominated by the State Government. Their services can be terminated prematurely by the Government, if so desired. The Special Invitees to the meeting of the Corporation had no right to vote. Even the subordinate officials can be appointed only if the State Government approves it. In short, she held, assessee's Members had no independent powers or not can function independently and the Members are not elected but selected and nominated by State Government. Hence, assessee's plea was rejected by the learned first appellate authority on the point. 20. The Tribunal, in the first inning, concurred with the view taken by the CIT(A). The decision of the Tribunal was challenged before the Hon'ble High Court and the Hon'ble High Court, while setting aside the Tribunal's order, made the observations, which are to be treated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usted by the Government with, the control or management of a Municipal or local fund; or (iv) Cantonment Board as defined in section 3 of the Cantonments Act, 1924 (2 of 1924);" Section 10(20A) omitted by the Finance Act, 2002, w.e.f. 1-4-2003. Prior to its omission, clause (20A), as inserted by the Finance Act, 1970, w.r.e.f. 1-4-1962, reads as under : "10(20A) any income of an authority constituted in India by or under any law enacted 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." 24. The learned counsel for the assessee submitted, section 10(20A) of the Income-tax Act, 1961 has two parts. The first part stipulates that the authority must be constituted by or under any law enacted for the purpose of dealing with and satisfying the need for housing accommodation. If that be so, then, such authority will be exempted from tax. The second part provides that income of such authority, whose objective is planning, development or improvement of cities, towns and villages or for both, is also exempted from tax. If either of the condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and operation of irrigation projects and scheme of hydro-electrical energy; (b) to plan, investigate, design, construct and manage irrigation projects and their command area development; and (c) empowers the assessee to plan, investigate, design, construct and manage schemes of generation of hydro-electrical energy. Assessee is also to promote irrigation-related activities such as fisheries, pisciculture, floriculture, horticulture, sericulture, tissueculture, etc. and also assessee is to promote tourism, water sports and other related activities on and around the irrigation and hydro-electric power projects. Assessee is empowered to develop the land around or nearby lake and in other suitable locations with irrigation facilities and other infrastructure facilities and lease part or whole of such developed properties to the interested parties. Assessee also has to prepare annual plan and five-year working development plan. 27. Inviting our attention to section 19 of the VIDC Act, which deals with general powers of the Corporation, counsel submitted, assessee-Corporation had power to construct or cause to be constructed dams, barrages, reservoirs, power houses, power structures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties and carry out the functions entrusted to assessee-Corporation. 30. The learned counsel for the assessee took us through the Maharashtra Irrigation Act, 1976, i.e., Maharashtra Act No. XXXVIII of 1976. "Canal Officer" is defined as "any officer duly appointed by the State Government by an order in writing for all or any of the purposes of this Act specified in the order, and includes in relation to a canal constructed, maintained, controlled or managed by the Company, a Company Officer, and by a Zilla Parishad, a Parishad Officer, and the expression 'Canal Officer duly empowered in this behalf', or any like expression means a Canal Officer empowered by the Appropriate Authority by an order in writing for all or any of the purpose of this Act specified in the order and also includes a person acting under the general or special order of such Canal Officer. Again inviting our attention to section 11 (Part III) of the Maharashtra Irrigation Act, 1976, learned counsel for the assessee submitted, it deals with Notification when water supply to be applied for the purposes of canal or for regulation, supply or storage of water. Assessee's counsel submitted, this is in fact delegation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such returns, statistics, reports, accounts and other information with respect to its conduct of affairs, properties or activities or in regard to any proposed work or scheme as the State Government may, from time to time, require. These are the sovereign functions of the State, which had been delegated to the assessee by virtue of VIDC Act. 33. Particularly the learned counsel for the assessee brought our attention to section 50 of the VIDC Act, which deals with rehabilitation and resettlement of the project affected persons. It reads as under :- "50. The rehabilitation and resettlement of the persons affected due to the irrigation and the Hydro-electric Power Projects shall be carried out by the State Government in accordance with the provisions of the Maharashtra Project Affected Persons Rehabilitation Act, 1986 : Provided that, all the expenditure required to be incurred by the State Government for the rehabilitation and the resettlement of persons affected by the irrigation and Hydro-electric Power Project shall be borne by the Corporation." 34. Again, the learned counsel brought our attention to section 70 of the VIDC Act, vide which the State Government is empowered t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment agencies, Cultivators and Water Users' Association. This, the learned counsel submitted, is nothing but a developmental activity of towns and villages. The learned counsel further submitted, assessee had entered into agreement with MIDC/CIDCO for sale of water and such sale is credited to the Profit and Loss Account. The sale is at subsidised rates. 36. Inviting our attention to Paper Book II, Page 150 [Page 35, Para 86 of CIT(A)'s order], the learned counsel further submitted, even the revenue in fact admits that the purpose for which the Corporation has been brought into existence is in the nature of general public utility. Bringing again our attention to sections 18 and 19 of the VIDC Act, which deals with functions of the Corporation and general powers of the Corporation, the learned counsel submitted, these sections make it clear that the objects to be achieved by the assessee-Corporation are nothing but development, planning and improvement of cities, villages and towns. 37. The learned counsel for the assessee further submitted that by the activities of the assessee, villages are formed. Electricity and water supply, which are the basic necessities, required for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ped into the shoes of the State Government and performed all the duties and functions, which prior to the appointed date were performed by the State Government through its Wing - Irrigation Department. It is clear Corporation was established to perform sovereign function of the State Government, which was performed before the appointed date by the Irrigation Department. Assessee-Corporation is entitled to undertake any other project or activities entrusted by the State Government in furtherance of the objectives, for which the Corporation is established. The power and functions of the Corporation clearly demonstrates that the Corporation is created to discharge the sovereign functions of the State. 40. The learned counsel for the assessee assailed the stand of the Department that the objects of the Corporation are only to complete the incomplete irrigation projects. The learned counsel submitted, Corporation is required to do planning for the purpose of construction of irrigation projects, its maintenance, management, as well as supply of water for the various purposes mentioned in the VIDC Act. The activities of the assessee - construction of dams, canals and to supply wate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... electric project and, therefore, is doing a pivotal role in the industrial revolution in the region which definitely constitutes planning, development and improvement of cities, towns and villages or both. 43. Relying upon the decision of the Hon'ble Supreme Court in the case of Gujarat Industrial Development Corpn. (supra), counsel submitted, for the purpose of section 10(20A), the word "development" should be understood in wider sense. Establishment of industries, Hon'ble Supreme Court held, is one of the modes of development and such an interpretation would preserve the object of section 10(20A). The learned counsel further submitted, when the object is such, an interpretation which would preserve it should be accepted even if the provision is capable of more than one interpretation. In the instant case, since it is dealing with the welfare of the public, even if two interpretations possible, the one in favour of the assessee should be preferred over the other. 43A. Further relying upon the decision of the Hon'ble Rajasthan High Court in the case of Rajasthan Land Development Corpn. (supra), the learned counsel for the assessee submitted, assessee's Preamble is similar to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the Tribunal to section 10(20A) did not find favour of the Hon'ble High Court. Learned counsel quoted the observation of Their Lordships in para 39, which reads as under, bring home the point :- "However, the conclusion arrived at by the appellate Tribunal in respect of question No. 1 mentioned hereinabove in the present appeal appears to be not correct and in our view, needs to be reconsidered by the Appellate Tribunal." Hence the learned counsel for the assessee concluded that the order of the revenue authorities on the point is to be reversed. 47. Replying to the above, the learned standing counsel for the revenue, Shri Anand Jaiswal submitted, assessee is a developmental authority. It exists for mobilisation of the resources that required for development. A reading of the various provisions of the VIDC Act makes it clear that the existence of the assessee will come to an end once it completes the work entrusted. Particularly, he brought our attention to section 70 of the VIDC Act, which reads as under :- "70. (1) Where the State Government is satisfied that the purposes for which the Corporation was established under this Act have been substantially achieved so as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the Hon'ble Supreme Court in the case of Gujarat Industrial Development Corpn. (supra), the learned standing counsel submitted, the facts are entirely different. Particulary, he brought our attention to Para 8, which reads as under :- "8. The scheme of the Gujarat Act, as is seen from a survey of the relevant provisions referred to above, would indicate that the Corporation set up thereunder is to chalk out plans for development of industrial area and industrial estate in different places which may locate in cities or towns or villages. Such schemes would normally involve planning and development of such areas. . ." 52. The learned standing counsel for the revenue brought our attention to the decision of the Hon'ble Supreme Court in the case of Aswini Kumar Ghose v. Arabinda Bose AIR 1952 SC 369, wherein Their Lordships observed - "It is not a sound principle of construction to brush aside words in a statute as being inapposite surplusage, if they can have appropriate application in circumstances conceivably within the contemplation of the statute". Again the learned standing counsel for the revenue brought our attention to the observation of the Apex Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the revenue also relied on the following decisions:- (1) State of Bombay v. Ali Gulshan AIR 1955 SC 810. (2) J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. State of Uttar Pradesh AIR 1961 SC 1170. 54. The learned standing counsel for the revenue further submitted, even in the case of Gujarat Industrial Development Corporation v. CIT AIR 1997 SC 3275, the Hon'ble Supreme Court held - "the provisions of section 10(20A) applied specifically to development of cities, towns and villages, which clearly indicates that the term 'development' deals with development of city, town or village and does not deal with general development; but it should be specific and should be the development of civic in nature". 55. Replying to the above, the learned counsel for the assessee submitted, to exemption under section 10(20A), the activity should be in the nature of civic activity and it should be within the city, village or town, is not well founded and is contrary to law as laid down by the Apex Court in the case of Gujarat Industrial Development Corpn. (supra) and the decision of the Hon'ble Rajasthan High Court in the case of Rajasthan Land Development Corpn. (supra). Learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 20(2), In re AIR 1963 SC 1760 (under Sea Customs Act) held that immunity conferred by clause (1) of Article 289 is only in respect of tax on property and the property includes not only lands and buildings, but all forms of property. In the case in Gujarat Industrial Development Corporation v. CIT [1985] 151 ITR 255 (Guj.) the Hon'ble Gujarat High Court held that the assessee-Corporation was neither a State nor entitled for exemption under Article 289(1) nor an authority entitled to exemption under section 20(20A) of the Income-tax Act, 1961. This decision was reversed by the Hon'ble Supreme Court in the case of Gujarat Industrial Development Corpn. v. CIT [1997] 227 ITR 414 , which is heavily relied by the learned counsel for the assessee. Reversing the decision of the Hon'ble Gujarat High Court in Gujarat Industrial Development Corpn. v. CIT [1985] 151 ITR 255 . Their Lordships held, the word "development" in section 10(20A) of the Income-tax Act, 1961 should be understood in a wider sense. There is no warrant to exclude all develop- ment programmes relating to any industry from the purview of the word "development" in the said sub-section. There is no indication in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er being self-evident and finally determined by the Apex Court, is also need not be made subject to a reference application for re-examination". 59. Keeping in view the above two decisions and also the decision of the CIT(A), it is necessary for us now to go through the various provisions and rules framed thereunder to arrive at a conclusion whether the VIDC is an authority exempted from income-tax. 60. Before the CIT(A), the assessee claimed that it is a "Local Authority" entitled to exemption under section 10(20) of the Income-tax Act, 1961. The CIT(A) considered each one of the attributes of which an authority must possess to come within the definition of "Local Authority" as laid down by the Apex Court in the case of Union of India v. R.C. Jain AIR 1981 SC 951. The CIT(A) held - (a) that assessee-Corporation cannot be treated at par with a Municipal Committee, District Board or Body of Port Commissioner and it does not handle any Governmental functions and duties as are usually entrusted to Municipal bodies; (b) assessee does not have a defined jurisdiction and in any case, the area of operation belonging to the assessee-Corporation cannot be called a local area; (c) assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r improvement of cities, towns and villages or for both. 64. We are unable to fully agree with the above finding. In the case of Gujarat Industrial Development Corporation (supra), the Hon'ble Supreme Court, dealing with section 10(20A), held that the word "development" should be understood in its wide sense. Hon'ble Supreme Court further held, "there is no warrant to exclude all development programmes relating to any industry from the purview of the word 'development' in the said definition". Their Lordships further held "there is no indication in the Act that development envisaged therein should confine to non-industrial activities. The development of a place can be accelerated through varieties of schemes and establishment of industries is one of the modes of developing an area". 65. Now the question to be posed is whether development of a place is accelerated through establishment of Corporation like assessee and whether it is one of the modes of development of an area. When we carefully analyse section 10(20A), the wordings used are "for the purpose of planning, development or improvement of cities, towns and villages, or for both. From the above it is clear that the area of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly, 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. 69. Now before the Tribunal, the main thrust of the argument of the assessee is that the assessee falls within the ambit of section 10(20A). Thus, there is a clear difference between "Local Authority" used in section 10(20 ) and the word "Authority" used in section 10(20A). "Local Autho-rity", as noted, is not defined in Income-tax. Therefore, the definition given under another Central Act, i.e., General Clauses Act, section 3(31) was taken note of. Under General Clauses Act, section 3(31), "L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f hydro-electric energy to harness the water of Godavari and Tapi rivers allocated to the State of Maharashtra under the Water Disputes Tribunal Award and other allied and incidental activities including flood control". To hold that the activity of the assessee does not amount to planning, development or improvement of cities, towns and villages will not stand the scrutiny. It is true, assessee is not directly planning, developing or improving the cities, towns and villages. Assessing Officer as well as the CIT(A) held that the "Authority" should be constituted by or under any law enacted either for the purpose of dealing with and satisfying the needs of housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, and both the authorities held, it should be direct and immediate. However, the decision of the Hon'ble Supreme Court in the case of Gujarat Industrial Development Corpn. (supra) and the decision of the Hon'ble Rajasthan High Court in the case of Rajasthan Land Development Corporation (supra), makes it clear that if need not necessarily to be direct and immediate. As noted hereinabove, in the case of Gujarat Industrial Dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial estate in different places; whereas in the instant case of the assessee, the assessee-Corporation is set up for the purpose of "mobilization of resources" for completion of some on-going irrigation projects in time bound manner and for the promotion and operation of the said irrigation projects in Vidarbha region and command area development and schemes for generation of hydro-electric energy to harness the water of Godavari and Tapi rivers etc. is entirely different and the decision is not applicable. It is a proposition difficult to accept. 75. Again turning to section 10( 20A), it does not speak of establishment of industry. Yet the Hon'ble Supreme Court held that establishment of industry is for the purpose of planning, development and improvement of cities, towns and villages. If that be so, as we have already noted hereinabove, mobilization of resources and completion of irrigation projects in time bound manner and also generation of hydro-electric energy by harnessing the water allocated to the State of Maharashtra under Water Disputes Tribunal Award and other allied and incidental activities including flood control cannot be held as not helping or not for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act is clearly to have a planned development of the predominant activities related to the villages, viz., agriculture and agricultural lands. Further Their Lordships observed "the predominant activities of the Corporation is related to agricultural and development activity of the same for the purpose of plan development; and the agricultural land cannot be isolated from the development of villages and, therefore, the lands fall within the ambit of Corpo- ration engaging into the activities of planning, development and improvement of agricultural lands which related to planning, development and improvement of villages. Thus, the answer being self-evident and finally determined by the Apex Court, in our opinion, is also need not be made subject to a reference application for re-examination". 77. Now coming to the object of the VIDC Act, it is for the promotion and operation of irrigation projects in Vidarbha region, command area development and schemes for generation of hydro-electric energy to harness the water of Godavari and Tapi rivers allocated to the State of Maharashtra under the Water Disputes Tribunal Award and other allied and incidental activities including flood contro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purposes of all the activities of the Corporation; (f) to promote participation of any person or body or association of individuals, whether incorporated or not, in planning, investigation, designing, construction and management of irrigation projects, and command area development and Hydro-Electric Power Projects including flood control; (g) to undertake schemes or works, either jointly with other corporate bodies, or institutions, or with Government or local authorities, or on agency basis in furtherance of the purposes for which the Corporation is established and all matters connected therewith; (h) to promote irrigation related activities such as fisheries, pisciculture, floriculture, horticulture, sericulture, tissue culture, etc.; (i) to promote tourism, water sports and other related activities on and around the irrigation and hydro-Electric Power Projects; (j) to develop the land around or nearby lake and in other suitable locations with irrigation facilities and other infrastructure facilities and lease part or whole of such developed properties to the interested parties; (k) to prepare annual plan and five-year working development plan; (l) to prepare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... region; (iii) providing navigation condition in the Godavari and Tapi River and its tributaries in Vidarbha region; (h) to engage suitable qualified consultant or person having special knowledge or skill to assist the Corporation in the performance of its functions; (i) to do all such other things including making interest bearing monetary advances to the contractors executing works on the projects of the corporation and perform such acts as may be necessary for, or incidental or conducive to any matters which are necessary for furtherance of the objectives for which the Corporation is established." 80. A perusal of the sections 18 and 19 of the VIDC Act makes it clear that the Corporation has given general power to construct or cause to construct dams, barrages, reservoirs, power houses, power structures, electrical transmission lines and sub-stations, navigation works, irrigation, flood control and drainage canals and such other works and structures as may be required. The Corporation is also empowered to prevent pollution of water and is empowered to prevent discharges into such water of effluents, which are harmful to water supply, irrigation, public health or fish life. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he view that the assessee definitely falls within the scope of section 10(20A). 84. Coming to the decisions relied by the revenue authorities in the case of Veljibhai Muljibhai Soneji (supra); Calcutta State Transport Corporation's case (supra) and in the case of U.P. Forest Corporation (supra), these decisions does not fit into the facts of the instant case of the assessee. 85. Now coming to section 24 of VIDC Act, it empowers the Corporation to carry out all or any of the functions and exercise all or any of the powers of the State Government or appropriate authority. It further empowers any officer of the Corporation to carry out all or any of the functions and exercise all or any of the powers of the Canal Officer as defined in Bombay Canal Rules, 1934 and also Maharashtra Irrigation Act, 1976. Section 24 reads as under :- "24. Notwithstanding anything contained in the Maharashtra Irrigation Act, 1976 and the Bombay Canal Rules, 1934,- (a) the Corporation may carry out all or any of the functions and exercise all or any of the powers of the State Government or the appropriate authority; and (b) any officer of the Corporation authorize in this behalf by the Corporation m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing water for irrigation but also in providing necessary infrastructure like dams, canals and supply and generation of power etc. It was contended; assessee took over from the State Government existing and on-going irrigation projects, which were at different stages of progress. In other words, technically the business was actually going on even before the assessee took over from the State Government. It was further submitted; though construction and other works were going on, assessee sold the water during the previous year relevant to the assessment year under consideration and received a consideration of Rs. 1,12,09,306. Thus, the assessee submitted; assessee not only commenced the business but also generated revenue. It was also contended that the assessee has made huge borrowings by issue of bonds and it is for the business of the Corporation. 91. The learned counsel for the assessee submitted, the dam has already been constructed and water accumulated. The canals were dug out from the dam. Canals are planned for various lengths. Even if 5 kms. of canal is constructed, the irrigation facility commences. Assessee is selling water. Merely because the projects are still going on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee prepared financial statement of accounts as per provisions of Banking Regulation Act, 1949 and disclosing the investment in securities at cost. The Hon'ble Supreme Court in the case cited supra held that "it is open for the purpose of assessee to prepare books of account in particular manner whereas make a claim before the Income-tax Authority to show and get assessed on real income". In this case, the learned counsel for the assessee submitted, the Hon'ble Supreme Court held "preparation of the Balance Sheet in accordance with the statutory provision would not disentitle the assessee in submitting the income-tax return on the real taxable income in accordance with the method of accounting adopted by the assessee consistently and regularly. That cannot be discarded by the departmental authorities on the ground that the assessee was maintaining the Balance Sheet in the statutory form on the basis of the cost of the investments". 93. Relying upon the decision of the Hon'ble Supreme Court in the case of Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 , the learned counsel for the assessee submitted; what is necessary to be considered is the true nature of the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... water is not a business or function contemplated by the statute. The functions under the statute are for promotion and operation of irrigation and its power projects. Mere sale of water from existing standing bodies where water stored is not a business contemplated under VIDC Act. The system of accounting followed clearly proved that the assessee had not commenced its business. For the above proposition, the learned standing counsel for the revenue relied on the decision in the case of CIT v. L and T Mcneil Ltd. 238 ITR 663 (sic). 98. Considering the rival submissions and going through the decisions cited by the contending parties, 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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