2016 (7) TMI 1392 - HC - Income Tax

Company formed under Companies Act not eligible for tax exemption under Income Tax Act. Tribunal decision upheld.

The court held that UPSIDC, as a company incorporated under the Companies Act, 1956, and not an authority constituted by or under any enactment in India, ... UPSIDC treated as a 'local authority' under Section 10(20) of Act, 1961 - Held that:- The word 'development' under Section 10(20A) of Act, 1961 should be understood in its wide sense. There is no warrant to exclude all development programmes relating to an industry from purview of the word 'development' in the said sub-section. There is no indication in Act, 1961 that development envisaged should confine to non-industrial activities. Development of a place can be accelerated through varieties of schemes and establishment of an industry is one of the modes for developing an area. Court also observed that the purpose of granting exemption from income-tax to certain authorities under Section 10(20A) of Act, 1961 is to protect public bodies, created under law, for achieving the purpose of developing urban or rural areas, for public good. When object is such, an interpretation which would preserve it should be accepted even if the provision is capable of more than one interpretation. We answer all the questions against appellant- assessee and in favour of Revenue by holding that since UPSIDC is a company incorporated under Act, 1956 and not an authority constituted by or under any enactment in India, therefore, is not entitled for claiming exemption under Section 10(20A) of Act, 1961. Issues Involved:1. Status of UPSIDC as an 'Authority' under Section 10(20A) of the Income Tax Act, 1961.2. Requirement of a specific notification by the State Government for UPSIDC's creation.3. Interpretation of the U.P. Industrial Development Act, 1962 concerning UPSIDC's claim for exemption under Section 10(20A).Issue-wise Detailed Analysis:1. Status of UPSIDC as an 'Authority' under Section 10(20A) of the Income Tax Act, 1961:The primary issue was whether UPSIDC qualifies as an 'authority' under Section 10(20A) of the Income Tax Act, 1961, thus eligible for tax exemption. The court noted that UPSIDC is a company incorporated under the Companies Act, 1956, and is a State Government undertaking. The appellant argued that UPSIDC should be considered a 'local authority' under Section 10(20) of the Act, 1961. However, it was conceded that the term 'local authority' as defined under Section 3(31) of The General Clauses Act, 1897, does not apply to UPSIDC. Consequently, the argument was confined to Section 10(20A) of the Act, 1961.2. Requirement of a specific notification by the State Government for UPSIDC's creation:The court examined whether UPSIDC could be treated as an 'authority' constituted under the U.P. Industrial Development Act, 1962. It was admitted that there was no notification issued under Section 3 of the UPID Act, 1962, that resulted in the creation of UPSIDC. The court observed that UPSIDC was incorporated as a company under the Companies Act, 1956, on 29th March 1961, which predates the UPID Act, 1962. Therefore, the claim that UPSIDC was constituted under the UPID Act, 1962, was not supported by any material evidence.3. Interpretation of the U.P. Industrial Development Act, 1962 concerning UPSIDC's claim for exemption under Section 10(20A):The court referred to a previous decision where it was established that UPSIDC was incorporated under the Companies Act, 1956, and not under the UPID Act, 1962. The court reiterated that for an entity to qualify for exemption under Section 10(20A) of the Act, 1961, it must be an authority constituted by or under any law enacted in India. The court cited the Supreme Court's decision in Gujarat Industrial Development Corporation vs. CIT, which outlined the requirements for an authority to qualify for exemption under Section 10(20A). The court concluded that since UPSIDC was not constituted by or under any law enacted in India, it does not satisfy the first requirement of Section 10(20A), making it ineligible for the claimed exemption.Conclusion:The court held that UPSIDC, being a company incorporated under the Companies Act, 1956, and not an authority constituted by or under any enactment in India, is not entitled to exemption under Section 10(20A) of the Income Tax Act, 1961. The Tribunal's judgment denying the exemption was confirmed, and all appeals were dismissed with no costs.