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The Commissioner of Income Tax-I, Nagpur Versus Vidarbha Irrigation Development Corporation

2017 (8) TMI 385 - BOMBAY HIGH COURT

Eligibility for exemption u/s 10(20A) - scope of development - assessee is a development authority - commencement of business - functions performed by assessee under the VIDC Act - Held that:- Hon’ble Supreme Court in the case of Gujarat Industrial Development Corporation [1997 (8) TMI 3 - SUPREME Court] held that the word “development” in Section 10(20A) of the Act should be understood in its wide sense and that schemes establishing industries help in accelerating development and that, therefor .....

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has held that as per the law laid down in the context of Section 10(20A) of the Act, it is not necessary that a direct nexus is to be established with the purpose of satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages and that an indirect nexus would suffice. - Tribunal has correctly found that the functions performed by the respondent- assessee under the VIDC Act result in facilitating the “development” of ci .....

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- The Tribunal on fresh consideration of the facts in the impugned order found that the respondent-assessee- Corporation, upon it being set up under the VIDC Act, took over the projects concerning irrigation development in the State. It further found that even before the projects were taken over by the assessee, some portion of the canals were completed and water supplied to various fields and water charges were being collected. In fact it is the assessee's case before the Tribunal that it ha .....

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from the fact that the assessee had already commenced its business. It has been found on facts by the Tribunal that the respondent -assessee- Corporation had commenced business. - The question as to when an assessee can be said to have commenced business is a question of fact and no universal test can be laid down. The impugned order is not shown to be perverse. Therefore, we do not find any reason to interfere with the said finding of fact of the Tribunal. - Decided in favour of assessee. .....

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er of challenge in this appeal, at the request of the parties this appeal being the lead appeal, was taken up for consideration. 2. By the instant appeal under Section 260-A of the Income Tax Act, 1961 ( the Act ), the appellant-Revenue has challenged order dated 22.07.2005 passed by the Income Tax Appellate Tribunal ( Tribunal ) in ITA No.5/Nag/02. This appeal concerns assessment year 1998-1999. 3. On 29.03.2007 the instant appeal was admitted on the following substantial questions of law:- &qu .....

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Vidarbha Irrigation Development Corporation Act, 1997 ( VIDC Act ) , claimed exemption from taxation under Section 10(20A) of the Act, on the ground that it was an authority constituted by law for the purpose of planning, development, improvement of cities, towns and villages and that, therefore, it was exempted from being brought to tax. However, the Assessing Officer by an assessment order on 9.3.2001 not only rejected the claim for exemption under Section 10(20A) of the Act but also held tha .....

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10(20A) of the Act and commencement of business for purpose of Section 28 of the Act, thereby confirming the liability of tax as imposed by the assessment order dated 9.3.2001. 6. Aggrieved by the order dated 11.10.2001 of CIT (Appeals), the respondent- assessee filed an appeal before the Tribunal. By an order dated 28.02.2003, the Tribunal dismissed the appeal of the respondent- assessee, confirming the liability of tax imposed on it. 7. The order dated 28.02.2003 of the Tribunal was challenged .....

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ss was not considered in the light of the facts which would substantiate that the business had already commenced. This Court by its judgment and order dated 28.07.2004, allowed the appeal of the respondent-assessee, set aside the order dated 28.02.2003 passed by the Tribunal and remanded the matter back to the Tribunal for fresh consideration on both the issues in the light of the observations made in the judgment. 8. It is in consequence of the above remand proceedings that the Tribunal has pas .....

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t an authority dealing with and satisfying the need of housing accommodation and that it is not involved in the planning, development or improvement of cities, towns and villages, as required under Section 10 (20A ) of the Act. According to him, since the nature of duties and functions performed by the respondent-assessee under the VIDC Act had nothing to do with the aforesaid functions of an authority contemplated under Section 10 (20A) of the Act, the Tribunal was not justified in setting asid .....

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.vs. U.P. Forest Corporation - 230 ITR 945, Calcutta State Transport Corporation .vs. CIT - 219 ITR 515, the judgment of the Karnataka High Court in Karnataka State Small Industries Development Corporation Ltd. .vs. Assistant Commissioner of Income Tax - 220 Taxman 4 (Karnataka) and the judgment of the Madras High Court in CIT .vs. State Industries Promotion Corporation of Tamil Nadu Ltd. - 311 ITR 197 (Madras). (ii) Per contra, Mr. K.P. Dewani, learned counsel appearing for the respondent-asse .....

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villages and that it was an authority constituted under law for the purposes of achieving the said objects. Mr. Dewani relied upon judgment of the Hon ble Supreme Court in the case of Gujarat Industrial Development Corporation .vs. CIT - 227 ITR 0414; judgment of the Rajasthan High Court in the case of CIT .vs. Rajasthan Land Development Corporation- 255 ITR 199. (iii) In order to decide the above mentioned question on which the instant appeal was admitted, it would be necessary to peruse Secti .....

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said provision would have to be applied to the respondent-assessee by examining the provisions of the VIDC Act under which it has been constituted and wherein the functions and the purpose of setting up of the respondent- assessee have been specified. In this regard, it would be necessary to peruse the following relevant provisions of the VIDC Act:- Section 18. The functions of the Corporation shall be,- (a) to promote and operate,- (i) some irrigation projects mentioned in the Schedule and comm .....

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(e) to invite tenders, bids, offers and enter into contracts for 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 instit .....

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r 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 annual budget ; (m) to undertake any other project and other activities entrusted by the State Government in furtherance of the objectives for which the Corporation is established. Section 19. (1) The Corporation shall have the power to accord technica .....

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ies, activities and to lease, sell, exchange or otherwise transfer any property held by it on such conditions as may be deemed proper by the Corporation ; (b) to construct or cause to be constructed such 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 ; (c) to make measures to prevent pollution of any water under its co .....

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ilities made available by the Corporation ; (f) to lease right for water sports, other recreational activities related to the use of reservoirs and its surroundings and reservoir water ; (g) to establish, maintain and operate laboratories, experimental and research stations and farms for conducting experiments and research for - (i) utilising the water, electrical energy, and other resources in the most economical manner for the development of the Godavari and Tapi River Valley in Vidarbha regio .....

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ntractors 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. Section 23. The Corporation shall keep coordination with the State Government, Railway Authorities, local authorities and statutory bodies with a view to minimising the inconvenience likely to be caused by the submergence of railways, lands and roads and .....

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hydroelectrical energy, (d) recreation facilities, (e) use of lands, (f) resettlement of displaced persons ; and (g) other activities of the Corporation. (2) The Corporation shall also furnish to the State Government 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. (v) The aforesaid provisions of the VIDC Act clearl .....

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andem with Government agencies and bodies to ensure proper development of cities, towns and villages. The schedule appended to the VIDC Act consists of the number of projects added to the area of jurisdiction/work of the respondentassessee- Corporation. (vi) The question as regards the authorities covered for exemption under Section 10(20A) of the Act came up for consideration before the Hon ble Supreme Court in the case of Gujarat Industrial Development Corporation (supra). In its judgment, the .....

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public good. It was also held that the said provision if interpreted rigidly and narrowly, would result in the anomaly of bringing such public bodies within the tentacles of income-tax liability. (vii) In the case of Rajasthan Land Development Corporation (supra), similar liberal interpretation of the term development in Section 10(20A) of the Act was adopted by the Rajasthan High Court. It was held that the respondent- Corporation therein was entitled to the exemption under Section 10(20A) of t .....

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velopment of villages and this activity of the Corporation therein rendered it eligible for exemption under Section 10(20A) of the Act. (viii) In the instant case, the Tribunal has relied upon the aforesaid judgments of the Hon ble Supreme Court and the Rajasthan High Court while holding in favour of the respondent -assessee. The Tribunal has held that as per the law laid down in the context of Section 10(20A) of the Act, it is not necessary that a direct nexus is to be established with the purp .....

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ondent- assessee- Corporation is involved in activities of flood control and resettlement of displaced persons, thereby showing that there is a nexus with developmental activities. The Tribunal has analysed the provisions of the VIDC Act and rendered a finding that the respondent- assessee falls within the scope of Section 10(20A) of the Act. The said analysis of the Tribunal is found in paragraphs 70 to 81, which is in tune with the law laid down by the Hon ble Supreme Court in the context of S .....

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ot;local authority" under the General Clauses Act, 1897. Yet, the Tribunal has held in favour of the respondent- assessee by applying Section 10 (20A) of the Act. The judgment of the Hon ble Supreme Court in the case of Calcutta State Transport Corporation (supra) also concerns the same question and is, therefore, distinguishable. The reliance placed by the appellant- Revenue on the judgment in the case of Karnataka State Small Industries Development Corporation (supra) is also misplaced, b .....

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uthority constituted under a law, as contemplated under Section 10(20A) of the Act. Thus the judgments relied upon by the appellant-Revenue do not support its claim that the respondent-assessee is not entitled for exemption under Section 10(20A) of the Act. (xi) In view of the interpretation of Section 10(20A) of the Act in a wide sense, specifically laid down by the Hon ble Supreme Court in the case of Gujarat Industrial Development Corporation (supra), it is evident that the Tribunal was corre .....

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s letter dated 16.02.2001 that it had not commenced business. The High Court in its order dated 27.07.2004 passed in Income Tax Appeal No. 49/2003, while setting aside the earlier order dated 28.02.2003 of the Tribunal and restoring it to the Tibunal for fresh disposal gave specific direction to the Tribunal to dispose of the appeal on the basis of the factual aspects computing the real income, irrespective of the method of accounting adopted by the assessee and/or only on the basis of the lette .....

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