TMI Blog1993 (11) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... t of industrial plots. An integrated project for the development of an industrial area and an urban township was, therefore, prepared by the Government under a complex plan. In the first phase of the project, industrial area was intended to extend to 800 acres and township to spread over an area of 3200 acres. The Government of Punjab acquired about 475 acres of land for establishing there an industrial area. The Punjab Government after acquiring land, handed over the same to the assessee for development of first phase of the industrial complex. The land was transferred to the assessee at the cost price of Rs. 43,06,663. The assessee-corporation had to develop the land and sell industrial, residential and commercial plots, after providing infrastructural facilities. The assessee-corporation, under an agreement with the Government had to pay the cost of land, as aforesaid, with interest @ 5% per annum, in six annual instalments. In this way, Goindwal was acquired to be developed as an industrial township. 4. The ld. counsel for the assessee has contended that the Punjab Government established the assessee-corporation with the main object of developing an industrial township at Goi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id Act. Therefore, it will be difficult to hold that reference to the law enacted in connection with housing accommodation or for the purpose of planning, development or improvement of cities and villages, would include the Companies Act. The very purpose of clause (20A) appears to be to exempt income of such authority which is constituted under a special law enacted especially for dealing with housing accommodation or for the purpose of planning and development of a city or a village. Therefore, emphasis is not only on the constitution of an authority by or under a law but also on such law which is specially framed for dealing with housing accommodation or town planning. It will be thus clear that the second ingredient in clause (20A) also excludes the assessee-corporation from the benefit of the said clause. The assessee has not been constituted as an authority under any special law but as a company under the Companies Act. 6. The ld. counsel has vehemently argued that the primary object of the assessee-corporation is to prepare an integrated scheme for an industrial area and a township. His main plan of argument is that an integrated project is being implemented by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and supply arrangements for power and all such other infrastructural facilities as may be required to build and maintain an industrial or urban complex at Goindwal Sahib or elsewhere in the State of Punjab. 13. To provide or cause to be provided civic facilities like hospitals, dispensaries, markets, banks, post offices, fire stations, internal commuting services, schools, recreation facilities etc., in the industrial and urban estates at Goindwal Sahib, or elsewhere in the State of Punjab. 7. The ld. D.R. has, on the other hand, contended that the main object to be pursued by the company is to develop and promote an industrial complex at Sri Goindwal Sahib, Tehsil Tarn Taran, Distt. Amritsar. The assessee is also to carry on business of an investment company for providing finance to industrial enterprises. Its main function is as specified in clause III(A) of the Memorandum of Association, to promote, improve, establish, execute, manage and administer industries, projects or enterprises. Another main object for which the assessee has been established is said to be the development of industrial infrastructure in Punjab. So far as the other functions assigned to the assessee are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enities. It will be an integrated activity by which an area could develop. The Gujarat State Industrial Corporation was held to be not a corporation set up with the larger purpose of developing a particular city, town or village and, therefore, it was held to be not entitled to exemption u/s 10(20A) of the Act. The ld. counsel for the assessee has, however, pleaded that the Gujarat case made it very clear that since the corporation had no objective to develop a township, it was rightly held to be not entitled to exemption. The ld. counsel has attempted to draw support from the said case on the plea that, in the case of the present assessee, the objectives have been specified in the Memorandum of Association as well as the concept plan, which did include the housing accommodation as the object of the assessee-corporation. The ld. D.R. has in reply contended that the main object of the assessee has been very clearly specified, in the Memorandum of Association to be the development of industrial area. It is only by way of ancillary object that the development of a township, for the people engaged in the industries, has been specified. It is, therefore, contended by the ld. D.R. that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, as stock-in-trade. The Punjab Government acquired about 475 acres of land for development of the first phase of the industrial complex. That land stands transferred to the assessee, though formal conveyance deed or any other document has not so far been executed nor the assessee has made payment of the cost of land. It may be noted that the assessee, being a Government undertaking, has been given possession of land by the State Government and it is also found that the land measuring 268542 sq. yds. has been allotted by the assessee-corporation to various parties in the assessment year 1983-84 and land measuring 287542 sq. yds. is shown to have been allotted in the next assessment year. The primary question is not whether the title of land has vested in the assessee or not or whether a proper conveyance has been executed by the Government or not because those questions are altogether not relevant for determination of the point whether the assessee has commenced business or not. The assessee has received Rs. 42.15 lakhs as allotment money, land subsidy and earnest money for allotment of 58 industrial plots in the assessment year 1983-84. Besides, a sum of Rs. 34.12 lakhs has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance carried to the balance-sheet, with respect to the expenditure, for being capitalised. It has been submitted that since the expenditure has been carried to the balance-sheet for being capitalised, the assessee is bound by its own step/action and could not now take a different plea/stand that the expenditure was of a different nature. The ld. counsel has, in reply, submitted that the expenditure was in excess of income and, therefore, debit balance from the development expenditure account has been carried to the balance-sheet. This would, however, not mean that the assessee was not entitled to claim the expenditure as business expenditure. The ld. counsel has placed reliance on a decision of the Gujarat High Court in the case of CIT v. Saurashtra Cement Chemical Industries Ltd. [1973] 91 ITR 170, wherein it has been observed that 'business' connotes a continuous course of activities. All the activities which go to make up the business need not be started simultaneously in order that the business may commence. The business would commence when the activity which is first in point of time and which must necessarily precede all other activities is started. That was a case of a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of forfeiture of earnest as well as allotment money. The nature of income would suggest that the assessee has already started receiving earnest money on allotment of plots and since there was breach of agreement, certain allotments have been cancelled and earnest money forfeited. It does not show anything but that the assessee has already started doing substantive business. The assessee has already done development work. At para IV of the Directors' Report for the accounting year 1982-83, expenditure on works has been shown at Rs. 112.62 lakhs. In the next assessment year, expenditure on development works has been shown at Rs 51.75 lakhs. It would, therefore, be clear that the assessee is engaged in development of infrastructural facilities. 13. As regards expenditure shown at Rs. 20,86,552 in assessment year 1983-84, depreciation has been claimed therein. Details of other expenditures have also been given in the Schedules attached to the balance sheet for that year. In the financial expenses, the amount of interest to be paid to the Punjab Government has been shown as an expenditure. In assessment year 1983-84, amount of interest payable to Government has been shown at Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e land. The land is stock-in-trade in the hands of the assessee and its primary and only function is to develop the land by providing infrastructural facilities and then to allot that land. The assessee may be in a position to repay the cost, after collecting moneys from the allottees. Therefore, the interest payable to the Punjab Government cannot be said to be a claim which is not for business. Even if interest has not been actually paid, a provision can definitely be made on accrual basis. It is for the assessee to choose a method of accounting and if the assessee has found it practicable to provide for interest payable to the Government, it can legitimately claim deduction therefor. The ld D.R. has argued, in respect of interest income in the hands of the assessee, that it must be treated as income from other sources. In this respect, reliance has been placed on a decision of the Madras High Court in the case of CIT v. Seshasayee Paper Boards Ltd. [1985] 156 ITR 542, where the assessee was found to have not yet established the factory, though the company had been formed. The call deposits in the hands of the assessee-company were invested in bank pending utilisation for const ..... X X X X Extracts X X X X X X X X Extracts X X X X
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