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Issues: (i) Whether the assessee, a statutory corporation constituted under the Vidarbha Irrigation Development Corporation Act, 1997, was entitled to exemption under section 10(20A) of the Income-tax Act, 1961; (ii) Whether the assessee had commenced business so that its income could be assessed as business income under section 28 of the Income-tax Act, 1961.
Issue (i): Whether the assessee, a statutory corporation constituted under the Vidarbha Irrigation Development Corporation Act, 1997, was entitled to exemption under section 10(20A) of the Income-tax Act, 1961.
Analysis: The exemption applies to an authority constituted by law for housing accommodation or for planning, development or improvement of cities, towns and villages. The functions of the assessee under the special statute included irrigation projects, hydro-electric projects, flood control, water management, resettlement and allied development activities. Those functions were treated as having a developmental nexus with cities, towns and villages. The provision was applied in a wide sense, consistent with the view that direct nexus is not essential where the activities materially further development.
Conclusion: The assessee was entitled to exemption under section 10(20A) of the Income-tax Act, 1961, and the finding was in favour of the assessee.
Issue (ii): Whether the assessee had commenced business so that its income could be assessed as business income under section 28 of the Income-tax Act, 1961.
Analysis: Commencement of business depended on the factual matrix. The assessee had taken over irrigation projects, portions of canals were already operative, water had been supplied, water charges were being collected, and sale of water had occurred during the relevant year. These circumstances showed that the corporation had moved beyond preparatory activity and had begun its business operations. The finding was not shown to be perverse.
Conclusion: The assessee had commenced business, and the finding was in favour of the assessee.
Final Conclusion: Both substantial questions were answered against the Revenue, the Tribunal's view was upheld, and the appeal failed.
Ratio Decidendi: A statutory development corporation whose functions substantially further planning and development-related public objects can fall within section 10(20A) on a wide, purposive construction, and commencement of business is a factual determination based on operational activity rather than formal accounting treatment alone.
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