State development agent doctrine excludes receipts from business income where the corporation acts as an arm of government.

A development corporation functioning under the Maharashtra Regional and Town Planning Act and government resolutions was treated as an agent and arm of the State Government rather than an independent commercial enterprise. Applying Article 289 of the Constitution, the Tribunal distinguished State activity from a separate trade or business carried on for its own account and noted that the receipts were credited to the Consolidated Fund of the State. On that basis, the income arising from the development activities was not assessable as the corporation's business income, and the Revenue's appeal failed.

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Issues: Whether the assessee was acting as an agent of the State Government of Maharashtra and, on that basis, whether the income generated through its development activities could be assessed as the assessee's business income.

Analysis: The Tribunal relied on Article 289 of the Constitution of India to examine when income connected with State activity may be taxed, and distinguished between a trade or business carried on by the State and activities undertaken as an arm of the State without independent commercial motive. It noted that the statutory framework under sections 113 and 113A of the Maharashtra Regional and Town Planning Act, 1966, together with the government resolutions governing the assessee, showed that the assessee functioned under the control and supervision of the State Government as a development agent. The Tribunal also noted that the income generated was deposited in the Consolidated Fund of the State and that the Revenue had consistently accepted the same position in earlier years.

Conclusion: The assessee was held to be an agent of the State Government, and the impugned receipts were not taxable as the assessee's business income.

Final Conclusion: The Revenue's appeal failed and the relief granted by the first appellate authority was sustained.

Ratio Decidendi: Where a development corporation acts as an agent and arm of the State Government under the governing statutory scheme, with no independent trade or business carried on for its own account, the resulting income is treated as income of the State and cannot be assessed as the corporation's business income.

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