Tax exemption and business commencement must be judged by statutory scheme and real substance, not preamble or accounting form.

For claims under section 10(20A), the authority must be tested against the true object and full scheme of the governing statute, not the preamble alone; the Tribunal was required to examine whether it was constituted for housing or for planning, development or improvement of cities, towns and villages, so the exemption issue needed fresh consideration. On commencement of business, the real nature of the transferred projects, continued irrigation operations, water-sale receipts, and the substance of the transactions had to be examined rather than accounting entries or a single letter, so the finding that business had not commenced also required reconsideration.

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Issues: (i) Whether the assessee-corporation was entitled to exemption under section 10(20A) of the Income-tax Act, 1961 as an authority established for planning, development or improvement of cities, towns and villages; (ii) Whether the assessee had commenced business so that its income could be computed under section 28 of the Income-tax Act, 1961.

Issue (i): Whether the assessee-corporation was entitled to exemption under section 10(20A) of the Income-tax Act, 1961 as an authority established for planning, development or improvement of cities, towns and villages.

Analysis: The exemption under section 10(20A) depends upon the true object of the authority as disclosed by the governing enactment. The substantive provisions of the special statute, and not the preamble alone, must be examined to see whether the authority was constituted for housing accommodation or for planning, development or improvement of cities, towns and villages. The Tribunal had relied mainly on the preamble and had not examined the scheme of the special enactment and allied provisions in the manner required for a fiscal exemption claim.

Conclusion: The issue required reconsideration by the Tribunal, and the rejection of the exemption claim could not be sustained on the material then considered.

Issue (ii): Whether the assessee had commenced business so that its income could be computed under section 28 of the Income-tax Act, 1961.

Analysis: The question of commencement had to be determined from the true nature of the projects transferred, the continued operation of existing irrigation facilities, the receipts from sale of water, and the overall facts, rather than from the accounting entries or a single letter relied upon by the revenue authorities. The real taxable income must be assessed on the substance of the transaction and the true business position, not merely on the form of the books of account.

Conclusion: The finding that business had not commenced required fresh consideration by the Tribunal.

Final Conclusion: The appeal succeeded in part in that the Tribunal's order was set aside and the matter was remitted for fresh decision on the two substantive questions of law, while the additional proposed question was not entertained.

Ratio Decidendi: In deciding a claim to tax exemption or business commencement, the adjudicating authority must examine the substantive statutory scheme and the real nature of the activity and transactions, and cannot rest its conclusion solely on the preamble or on accounting form.

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