Statutory board income not immune under Article 289; surplus transfer is application of income, not overriding title.

A statutory housing board with separate legal personality was held not to be the State Government for Article 289 purposes, so its income was taxable and not immune as government income. Statutory transfer of surplus after accrual was treated as application of income, not diversion by overriding title. A remittance for infrastructure facilities was disallowed as revenue expenditure because no sufficient business nexus was shown. Pension payments were allowed as revenue expenditure where the service liability was established. Estimation of profit from the Singapore project on a presumptive basis was rejected in the absence of rejection of regular books, and the matter, including section 80-IB consideration, was remitted for fresh adjudication.

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Issues: (i) Whether the income of the Housing Board was the income of the State Government and exempt under Article 289 of the Constitution of India, or whether the Board was merely an agent of the State; (ii) Whether the statutory transfer of surplus under section 58(7) of the Andhra Pradesh Housing Board Act, 1956 amounted to diversion of income by overriding title; (iii) Whether the amount remitted for infrastructure facilities was allowable as revenue expenditure; (iv) Whether pension payments to employees were allowable as business expenditure; and (v) Whether profit from the Singapore project could be estimated on a presumptive basis without rejecting the books of account.

Issue (i): Whether the income of the Housing Board was the income of the State Government and exempt under Article 289 of the Constitution of India, or whether the Board was merely an agent of the State.

Analysis: The Board was held to be a statutory body corporate with a separate legal personality, its own fund, power to acquire and hold property, and authority to contract in its own name. The provisions of the Housing Board Act showed supervision and control by the Government, but not identity with the Government. The transfer of surplus to the State did not convert the Board's income into the State's income. The relationship of principal and agent was also not established on the record.

Conclusion: The income was not the income of the State Government and no exemption under Article 289 was available; the issue was decided against the assessee.

Issue (ii): Whether the statutory transfer of surplus under section 58(7) of the Andhra Pradesh Housing Board Act, 1956 amounted to diversion of income by overriding title.

Analysis: The income first accrued to the Board under section 58(4), and only thereafter did the surplus vest in the State's consolidated fund under section 58(7). An obligation to apply income after it has accrued is an application of income and not a diversion before accrual. The statutory arrangement did not show that the amount never reached the assessee as its income.

Conclusion: The transfer was only an application of income and not diversion by overriding title; the issue was decided against the assessee.

Issue (iii): Whether the amount remitted for infrastructure facilities was allowable as revenue expenditure.

Analysis: The amount of Rs. 1180 crores was transferred to the State Housing Corporation pursuant to Government directions, but the payment was not shown to have been laid out wholly and exclusively for the assessee's business. No direct nexus with the assessee's own business operations or profit-making apparatus was established, and the cases cited on business expediency were found factually distinguishable. The amount was therefore treated as an appropriation/application of income rather than deductible expenditure.

Conclusion: The disallowance was upheld and the issue was decided against the assessee.

Issue (iv): Whether pension payments to employees were allowable as business expenditure.

Analysis: The pension liability was a service-related obligation payable under the employment conditions. The lower authorities did not dispute the actual payment of pension, and the objection that it was not routed through a separate pension fund was not sufficient to deny deduction where the liability was otherwise established. On the facts, the expenditure was revenue in character and allowable.

Conclusion: The addition was directed to be deleted and the issue was decided in favour of the assessee.

Issue (v): Whether profit from the Singapore project could be estimated on a presumptive basis without rejecting the books of account.

Analysis: The assessee maintained regular books of account, which were not rejected for specific defects or discrepancies. Estimation at 8% by resort to section 44AD was held inappropriate, as that provision did not apply to the assessee's facts. The matter required verification of the books and relevant evidence, and the issue of deduction under section 80-IB was also directed to be considered afresh.

Conclusion: The issue was remitted to the Assessing Officer for fresh decision and is partly in favour of the assessee.

Final Conclusion: The core claim that the Board's income was immune from tax failed, the infrastructure payment was disallowed, pension expenditure was allowed, and the estimated-profit matter was sent back for fresh adjudication, resulting in a mixed outcome with the assessee succeeding only on limited issues and remand-related relief.

Ratio Decidendi: A statutory board having a separate legal identity and its own fund is not the State for Article 289 purposes, and surplus transferred after accrual is only an application of income unless the statute shows that the income never reached the assessee as its own.

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