TaxTMI 
TaxTMI 
2013 (10) TMI 542
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....tablished under the AP Housing Board Act, 1956. The assessee is engaged in the activity of purchase and sale of land, construction of houses and sale of the same and deriving rent from house property. For the assessment year under dispute, it filed return of income 30/09/2008 declaring loss of Rs. 63,15,98,329/-. The return filed by the assessee was originally processed u/s 143(1) of the IT Act. Subsequently, the assessee's case was selected for scrutiny assessment and in response to the notices issued u/s 142(1) and 143(2) of the Act, the assessee appeared before the Assessing Officer and submitted the details called for by the Assessing Officer. During the assessment proceeding, the Assessing Officer noted that under the head 'administrative expenditure' the assessee has debited infrastructure expenditure of Rs. 1180,00,00,000/-. Explaining the details of expenditure claimed in its letter dated 22/12/10, the assessee submitted that the Government of AP has formulated a scheme under the name 'Rajiv Gruhakalpa' (RGK) for providing housing to the urban poor falling in the salary income of Rs. 24,000-36,000 and the cost of the house was worked out at Rs. 82,500/- to the beneficiary. ....
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.... expenditure to be allowable under the provisions of the Act it should be revenue in nature and it must have a direct nexus with the business or activity of the assessee. 5. The Assessing Officer further came to the conclusion that if the assessee at all has to pay a certain amount to the Government as an obligation it could have done so from the profits derived by it after payment of taxes. On the basis of the above said conclusion, the Assessing Officer disallowed the claim of expenditure of Rs. 1180 crores and added the same to the returned income. 6. The Assessing Officer further found that the assessee had debited an amount of Rs. 3,86,18,879/- under the head 'pension'. When the Assessing Officer asked the Assessee to explain regarding the allowability of the expenditure claimed, the assessee stated that the employees of the Board are eligible for pension benefit as applicable to State Government employees and they are governed by pension code of 1980. The retired employees are paid monthly pension on the basis of total number of years rendered on the last pay drawn as certified by the Director, State Audit. It was submitted that no reserve fund has been provided by the ....
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....desh. It functions as an extended arm of the Government. It is to be considered as an attached office or department of the State Government. For this reason, it cannot be considered as an independent taxable entity and the amounts received by it in the course of its activities as its taxable income. b) The activities of the appellant are undertaken in systematic organized manner Income from such activities by a taxable person is normally taxable under the head 'income from business'. But there is no profit motive by the appellant while undertaking its activities for the purpose for which it exists. Statutorily it exercises sovereign and government functions. Therefore, income cannot be taxed under the head 'business income' or any other head. c) Even if the appellant is treated as an entity independent of the State Government and the income is arising from business activity, the appellant acts as an agent of the State Government. Therefore, the income accrues to its principal, the State Government. Such income cannot be taxed in the hands of the State Government under Article 289 of the Constitution." 11. The CIT(A) called for a remand report from....
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....ies. Undertakings without profit motive can very well be industries. He observed that any operation carried on in a manner analogous to trade or business may legitimately be a statutory industry. The absence of profit motive or gainful objective is irrelevant by the venture in the public joint, private or other sector. The CIT(A) referring to section 3(2) of the APHB Act, opined that the APHB is not Government but is a body corporate established by the Government of AP which is distinct from the Government of AP. Further referring to section 4 of the Act, the CIT(A) observed that the provision contained in subclause (m) providing for appointment of various members of the Board including members from the financial institutions which provide financial assistance to the Board clearly establishes the character of the Board as being a commercial body distinct from the Government. The CIT(A) referring to section 7 of the APHB Act, which provides for salary and remuneration to the employees, opined that this section itself clearly brings out the fundamental distinction between the Government and the assessee Board as the Board has separate fund and the salaries of the Board are to be paid....
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....claim that it only acts on behalf of the Government as an agent and therefore is not subject to taxation, it is required to understand the nature of assessee's relationship with the Government while carrying out the following Acts: 1. The level of control being exercised by the assessee and the Government over the property. 2. How are the amounts being remitted to the Government and in what manner. 3. Under the which account are the payments from property being deposited. 14. The CIT(A) on examining the sale deed executed by APHB found that it has been described in the sale deed as the owner. As per the sale deed it is the APHB which is said to have transferred the land to the purchaser. There is no reference to the state Government being the owner of the land and the assessee acting as its agent for the purpose of sale. The CIT(A) referring to section 13 of APHB Act observed that the said section clearly keeps the authority to the Board to enter into contract in its own capacity and not on behalf of the Government. The CIT(A) referring to various provisions of the APHB Act, inferred that APHB is competent to and makes and executes....
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....exemption is claimed ought to be the income of the state in terms of clause (1) of Article 289 and secondly, there must be a declaration by the Parliament in terms of clause (3) of the Article 289 of the Constitution, which is absent in the case of the assessee. The CIT(A) referring to various other judicial precedents finally came to hold that exemption claimed by the assessee in terms of Article 289 of the Constitution of India is not sustainable in law, which is also proved by assessee's own conduct when he filed the return of income. The CIT(A) held that the Government apart from implementing the mandate of constitution which is a sovereign function of the Government also conducts many commercial operations by creating different organization and public sector undertakings. Though these organizations function under the control of the Government, however, they do not perform any sovereign functions of the Government. Neither these type of organizations are extended arm of the Government nor their employees are state Government employees. With the aforesaid observations, the CIT(A) rejected the contentions of the assessee with regard to the additional grounds raised by it. 17. ....
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....the assessee would show that it is an ultra modern housing scheme wherein more than 2000 flats have been constructed in various categories along with duplex houses. The complex has modern facilities with regard to road, greenery and other amenities. All the flats and duplex houses have been sold in the open market through a commercial draw of lots and at market rates of the property. 19. The CIT(A) noted that huge amount of advances have been taken from customers even before the commencement of the work on the project. He further noted that not a single dwelling unit was constructed by the Housing Board for lower income group or poor persons under the scheme. He further noted that the state Government is the only authority which has a right on the revenues of the assessee. Negating the contention of the assessee to the effect that the objective of providing housing accommodation is not a commercial activity rather a charitable one with no business motive and with a mandate to provide development to the state through housing activity, the CIT(A) observed that providing housing does not change the character of the organization. On the other hand, the activity vis-à-vis the ....
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....ee is an application of income. The CIT(A) observed that there is absolutely no arrangement of sale and purchase of land between the State Government and the AP Housing Board. He further noted that the Government orders quoted by the assessee does not in any way state that any money is to be paid to the State Government in lieu of lands provided. The CIT(A) further held that the transfer of fund cannot also be said to be in the nature of compensatory payment as compensatory payment is essential to compensate for some loss. Compensatory payment can also be for a breach of contract. Since in case of the assessee no such event has happened as the assessee has not caused any loss to the Government for which any compensation has been demanded. 21. While dealing with the assessee's contention with regard to diversion of income by overriding title, the CIT(A) held that the said principle applies only in cases where the income never reaches the assessee as his income. Merely because the assessee has an obligation to apply certain amount out of its income for a particular purpose will not make it a case of diversion of income by overriding title. An obligation to apply the income accrued....
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....ng aggrieved of the aforesaid order, the assessee is in appeal before us on the following grounds: "1. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the appellant is an instrumentality and agency of the Government of Andhra Pradesh. It functions as an extended arm of the Government. It is and for this reason, it cannot be considered as an independent taxable entity. 2. The learned Commissioner of Income Tax (Appeals) failed to appreciate that there is no profit motive by the appellant while undertaking its activities for the purpose for which it exists. Statutorily it exercises soverign and government functions. Therefore. income cannot be taxed under the head "business income" or any other head. 3. The learned Commissioner of Income Tax (Appeals) failed to appreciate that even if the appellant is treated as an entity independent of the State Government and the income is arising from business activity. the appellant acts as an agent of the State Government. Therefore. the income accrues to its principal. the State Government. Such income cannot be taxed in the hands of the State Government under article 28....
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.... passed for the A. Y. 2006-07. which had since been set aside by the Hon'ble ITAT and remitted back to him for fresh consideration. In the process. the learned Commissioner of Income Tax (Appeals) has ignored the fresh submissions and recent rulings submitted by the appellant. 11. The learned Commissioner of Income Tax (Appeals) has failed to appreciate that payment of pension to the employees of the appellant is an admissible expenditure incurred wholly for its business. He has not considered the written submissions of the appellant and the rulings relied upon by it. 12. The learned Commissioner of Income Tax (Appeals) has erred in ignoring the directive of the Government of Andhra Pradesh to the appellant to treat the infrastructure expenditure incurred by it as an expense in its books of account which the Appellant under the law is bound to obey. Further, the learned Commissioner of Income Tax (Appeals) has erred in holding that the amendment to section 58 of the APHB Act. providing for transfer of the surplus net revenue after meeting its expenditure to the AP Government is ultra vires the construction. 13. The learned Commissione....
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....th statutory powers. It could acquire land from the local authorities, compulsorily acquire land under Land Acquisition Act, 1984. It has the statutory power to reconstitute land allotment and dispossess persons by awarding compensation for the purpose of housing schemes. The main plea of the appellant is that it is so pervasively controlled and supervised by the Government under the terms of the statute under which APHB was constituted, that it cannot be regarded as an independent and autonomous entity. It is the extended arm of the Government. The appellant had cited rulings in which the courts have laid down that in similar circumstances, the organisation involved was not considered an entity separate and independent of the Government. The appellant had argued that APHB is empowered with statutory powers to acquire land, evict any person from the premises, following the procedure laid down in the Act, and recover rent or damages from such persons. It can prosecute offenders for imprisonment/fine. Clothing of APHB with statutory powers is indicative of discharging sovereign functions. Such powers and privileges are inconsistent with profit making venture that can ....
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.... Pay Commission report applies to the officers of the Government as also of APHB. This is indicative of the fact that APHB is an extended arm of the Government. iii. The Accountant General of Andhra Pradesh has categorised APHB for civil audit and not for commercial audit. The fact that the Accountant General's office does not conduct commercial audit for APHB and APHB is categorized under the group for civil audit shows that APHB is not being considered as a commercial organization. The Accountant General conducts performance audit of the organizations selected for civil audit. iv. In Biharilalllobray vs. Roshan Lal Dohray (1984) 1 SCC 551 (SC), the Supreme Court held that, even though the incorporation of a body corporate may suggest that the statute intended it to be a statutory corporation independent of the Government it is not conclusive on the question whether it is really so independent. Sometimes the form may be that of a body corporate independent of the Government but in substance it may be just the alter ego of the Government itself. The true test of determination of the said question depend....
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....old in plots for housing colony, it served public purpose. Similarly, the Supreme Court in State of Gujarat vs. SankalchandKhodidas Patel, (1977) 4 SCC 590, has held that the acquisition of land for housing facilities of a Cooperative Society was for public purpose. All the housing schemes of APHB are sanctioned by the Government. The activity undertaken by the APHB at the behest of the Government is a Governmental function carried on for public purpose. The observations of the Supreme Court in above rulings are supportive of the appellant's plea that the housing schemes implemented by APHB are for public purposes and not with any profit motive. vii. The CIT(A) has laid considerable emphasis on the Supreme Court's ruling in Andhra Pradesh State Road Transport Corporation vs. Income Tax Officer, (1964) 52 ITR 524 (SC) to argue that like APSRTC, APHB is a legal entity distinct from the State. In this case, the Supreme Court had held that the trading activity carried on by APSRTC was not carried on by the State Government nor through its agent. Accordingly, income of APSRTC does not qualify for exemption in terms of Article 289(1). In response, ....
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....llant. Accordingly, its activity cannot be regarded as a business. Had this ruling on a Housing Board been taken into account, the decision of the CIT(A) would have been otherwise. In W.B. Housing Board vs. Brijendra Prasad Gupta (1997) 6 SCC 207, the Supreme Court held that the public purpose is not lost, if the State or Housing Board earns any profit. In Gulam Mustafa vs. The State of Maharashtra (1976) 1 SCC 800, the Supreme Court held that the excess land acquired by the Municipal Committee, when sold in plots for housing colony, it served public purpose. Similarly, the Supreme Court in State of Gujarat vs. Sankalchand Khodidas Patel, (1977) 4 SCC 590, has held that the acquisition of land for housing facilities of a Cooperative Society was for public purpose. All the housing schemes of APHB are sanctioned by the Government. The activity undertaken by the APHB at the behest of the Government is a Governmental function carried on for public purpose. The Supreme Court in Bajirao T. Kote vs. State of Maharashtra (1995) 2 SCC 442, has held that satisfaction of the State Government regarding existence of public purpose is not open to judicial ....
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.... of the Supreme Court that surplus by itself does not tantamount to profit motive, the Revenue's conclusion should be rejected. The appellant has already explained that providing housing infrastructure in an orderly manner is a Governmental function and APHB is carrying out such schemes on behalf of the Government. Further, it has earlier explained that by virtue of the statutory provisions, the revenue generated by it is either spent for housing infrastructure or it vests in the consolidated fund of the State. Therefore, there is no profit motive in the activities undertaken by APHB. All its activities are driven by public purpose under the direction of the Government. The CIT(A) has considered a plea which the appellant has not made. He has held that income of APHB is not exempt from tax as its activities are not charitable. For this, he has noted that the housing schemes are not for the poor and that the houses are not sold at subsidised prices. But the appellant has not raised any plea that it is a charitable organisation. What it has argued is that its existence is not with profit motive and it is exemplified by the fact that it serves public purpose. &nbs....
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....Act suggest even greater degree of control by the State Government of APHB. The appellant had submitted a section wise comparison between APHB Act and those extracted and analysed by the Supreme Court of Haryana Housing Board Act before the CIT(A) (page 96 of Paper Book - I). After extracting the relevant provisions from the Haryana Housing Board Act, the Supreme Court has observed as under: 29. The above provisions clearly spell out that the Board which is basically and essentially a creation of the Act of State Legislature consists of persons appointed by the State Government on salary basis. The Board's personnel are not elected by the people and there is no element of people's choice being represented in any manner in the constitution of the Board. The Board functions strictly under the supervision and control of the State Government and does not hold or possess a "local fund". What constitutes the fund of the Board has already been specified above. 30. These functions as are indicated in a housing scheme are essentially performed by municipal boards or municipal council which, undoubtedly, are "loc....
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....d that it is doing so on behalf of the State. Law of agency recognises that an agent can deal with counter parties in his own name and without disclosing the identity of the principal. What is to be seen is whether the profit or loss arising in the course of the dealings of the agent accrues to the principal, and not to the agent. In the arrangement prescribed under APHB Act, all the works done by APHB is assigned to it when the housing schemes are sanctioned by the Government, and when directions are issued by it to APHB. All the expenditure on the administration of APHB is met by the Government. Therefore, APHB as an entity does not suffer any loss or enjoy any profit on its own account. The full accounts of the amounts spent and received are given to the Government. The appellant had earlier cited the Supreme Court' ruling in Housing Board of Haryana case (supra), wherein it has been held that the degree of control and supervision the State Government has over the Housing Board results in the Housing Board not having any semblance of independence. Therefore, the appellant herein (APHB) is acting as an agent in the capacity of executing agency of the State Government. Accordingly....
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....ning of "vest" and held that when the land was transferred from the Government to the Delhi Improvement Trust, it was not to vest in the Improvement Trust absolutely free from all encumbrances. The land did not vest in the Improvement Trust in title but merely in possession, so that the Improvement Trust can use the land for the purpose for which the land is transferred. Placing of the property at the disposal of the Trust does not signify that the Government had divested itself of its title to the property. Similar is the situation with the APHB. The Government has transferred land to APHB for use for its own purpose. It is entitled to require APHB to sell the land and transfer the sale proceeds to either its nominee (AP Housing Corporation) or to itself, for use of such fund for public purpose. There are a number of meetings in the chamber of the Chief Minister of Andhra Pradesh, in which APHB has been given directions for resource mobilisation for the State exchequer. Accordingly, APHB had sold land and transferred the amounts to APHC and the State Government from time to time. The State Government has issued orders directing APHB to treat such payments as expenditure in its acc....
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....nctions of the State Government nor the Union Government as declared by law under clause (3) of Article 289 of the Constitution. Hence, the Article 289 does not apply to APHB. 28. It is submitted by relying upon the decision of the Hon'ble Supreme Court in the case of APSRTC, 52 ITR 524 and of the Hon'ble AP High Court in the case AP State Civil Supplies Corporation Ltd., 149 ITR 497 based on certain principles which are as under: 1) Corporation has a personality which is distinct from the State and, hence, normal income of a corporation cannot be treated as income of State. 2) The corporation is its own master and is answerable as fully as any other person or corporation. It is not the crown and has none of the profits or privileges of the crown. Its services are not civil services and its property is not crowned property. It is as much bound by the Act of Parliament as any other subject of the Kind and corporation constituted through a State Act is of course a public authority and its purposes no doubt are public purposes but it is not a Government department nor do its powers fall within the provisions of the Government and trading activity car....
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....bsp; ii) If the functions of the corporation are of public importance and closely related to the governmental functions it would be relevant factor on classifying the corporation as an instrumentality or an agency of the Government. iii) Specifically if a department of government is transferred to a corporation it would be a strong factor supportive of the inferences of the corporation being an instrumentality or agency of the government. iv) Even if a Corporation meets all the tests to be termed as instrumentality of the state in such case also it is held that an instrumentality is different from the state and its income cannot be equated to that of the state. 29. It is further submitted that company as defined in section 2(17) of the Act includes any Indian company, any body corporate incorporated by or under the laws of a country and any institution, association or body whether incorporated or not. A State undertaking incorporated under the companies Act is not outside the definition of company. 'Person' defined u/s 2(31) includes a company. In....
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....ed that APHB is a distinct legal entity and it is not a state Government per se. It is submitted that all the Directors of the APHB are nominated by the Government of Andhra Pradesh, therefore, it is convenient on their part to influence the Government of AP to pass a legislation in the AP Housing Board Act by introducing the provision of sub-section (7) of section 58 retrospectively with a clear intent to circumvent the provisions of IT Act, 1961 and to make sure that the surplus of the assessee is given the colour of being exempt from taxation. It is submitted that such amendment brought into the APHB Act is clearly repugnant to Article 73 read with Article 254 of the Constitution of India. It is submitted that the repugnancy becomes more apparent from the fact that the APHB had filed return of income claiming deduction u/s 80-IB. It prepares its own income and expenditure account and balance sheet which is duly certified by Chartered Accountant and filed along with returns of income. It furnishes a tax audit report u/s 44AB of the IT Act. It is submitted that APHB is a distinct legal entity being a body corporate and is not an instrumentality of the Government of AP or an extend....
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.... Act. It is submitted that irrespective of the retrospective amendment effected to the APHB Act, assessee's liability under income-tax Act would not change because the assessee itself filed return of income declaring taxable income and claimed deduction u/s 80-IB. It is submitted that having filed its return of income the only way the assessee can claim that its income is not taxable is by way of filing revised return of income u/s 139(5) of the Act. Since the assessee has not filed any revised return claiming exemption from tax the claim of the assessee on legal grounds as well as on fact cannot be accepted. 32. The learned Departmental Representative finally submitted that in an identical case decided by the Hon'ble Bombay High Court in case of Vidharbha Housing Board V/s. ITO, 92 ITR 430, the Bombay High Court after relying upon the decision of the Hon'ble Supreme Court in case of APSRTC V/s. ITO (supra) held that the income and property of the board could not be regarded as income and property of the state Government, hence, the immunity claimed under Article 289(1) of the Constitution will not be available. It is submitted that the asesssee's case clearly fits in to the afo....
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....he APHB Act by introduction of sub-section (7) of section 58. The additional grounds having been raised for the first time before the Tribunal, it remanded the matters back to the CIT(A) for consideration of additional grounds as well as the other grounds. In the meanwhile, assessment for the AY 2007-08 and 2008-09 were also completed and the assessee's appeal against the assessment orders were pending before the CIT(A). It will be pertinent to mention here that for the AY 2007-08 and 2008-09 also the assessee had filed its return of income declaring income under the head 'income from house property' and 'income from other sources' and for the assessment year 2007-08 claimed deduction u/s 80-IB of the IT Act. After the retrospective amendment effected in the year 2010 to the APHB Act by introduction of sub-section (7) of section 58 of the APHB Act, the assessee claimed that the income earned by it is the income of the State. 36. From the aforesaid narration of fact, it is very much clear that, but, for the amendment to the APHB Act made by the state legislature in the year 2010 the assessee all along had been voluntarily filing its return of income by recognizing its income. It ....
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....or housing infrastructure or it vests in the consolidated fund of the state. 8. APHB has been created under a statute to work as an executing agency of the state Government. All the ingredients relationship between principal and agent are present in the statutory arrangement between the state Government and APHB. The funds and land are provided by the Government and any surplus over the expenditure is incurred for the purposes of the Act vests in the consolidated fund of the state. Though APHB enters into contract in its own name but in effect it is doing so on behalf of the state. In law of agency what is to be seen is whether the profit or loss arising in the course of the dealing of the agent accrues to the principal and not to the agent. 37. The learned counsel for the assessee taking us through various provisions of the APHB Act,1956 had submitted that the State Government exercises pervasive control over the Board. To emphasize such contention he referred to the transfer order of one Shri G. Sai Prasad and appointment of law officer. He submitted that the Board cannot take any decision on its own but every action of the Board has to be with the approval of ....
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....wn account, there would be no difficulty in holding that the income made from such trade or business is the income of the State. But difficulties arise when we are dealing with trade or business carried on by a corporation established by a State by using a notification under the relevant provisions of the Act. The corporation, though statutory, has a personality of its own and this personality is distinct from that of the State or other shareholders. It cannot be said that a shareholder owns the property of the corporation or carries on the business with which the corporation is concerned. The doctrine that a corporation has a separate legal entity of its own is so firmly rooted in our notions derived from common law that it is hardly necessary to deal with it elaborately; and so, prima facie, the income derived by the appellant from its trading activity cannot be claimed by the State which is one of the shareholders of the corporation." 39. The Hon'ble Supreme Court after analyzing the different clauses of Article 289(1) in the context of the claim made by the assessee held as under: "The main point which we are examining at this stage: is the income derived by ....
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....mes a part of the general revenue of the State. It is income which is impressed with an obligation and which can be utilized by the State Government only for the specific purpose for which it is entrusted to it. Therefore, we are satisfied that the income derived by the appellant from its trading activity cannot be said to be the income of the State under article 289(1), and if that is so, the facts that the trading activity carried on by the appellant may be covered by article 289(2) does not really assist the appellant's case. Even if a trading activity falls under clause (2) of article 289, it can sustain a claim for exemption from Union taxation only if it is shown that the income derived from the said trading activity is the income of the State. That is how ultimately, the crux of the problem is to determine whether the income in question is the income of the State, and on this vital test, the appellant fails." 40. Even though the learned AR has tried to impress upon us that the Assessee Board is nothing but an extended arm of the Government or part of the Government, but, in our view, it is not so. Sub-section (2) of Section 3 of the APHB Act, 1956 reads as under:  ....
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....m equivalent to the administrative expenses of the Board. Section 58(4) provides that all moneys received by the Board, all proceeds of land or any other kind of property sold by the Board, all rents, betterment charges and all interest, profits and other moneys accruing to the Board shall constitute the fund of the Board. An amendment was made to section 58 by Act No. 12 of 2010 by introducing subsection (7) with retrospective effect from 01/04/2002. The newly introduced sub-section (7) provides that the surplus net revenue after meeting the expenditure of the Board shall vest in consolidated fund of the State of Andhra Pradesh. Section 59 of the Act as it stood earlier provided that all property, the Board fund and all other assets vesting in the Board shall be held and applied by it, subject to the provisions and for the purposes of the Act. However, the earlier section 59 was substituted by a new section 59 by Act No. 12 of 2010 with retrospective effect from 01/04/2002. The amended section 59 reads as under: "59. Application of the fund: subject to the provisions contained in sub-section (7) of section 58 all property, the Board fund and all other assets vestin....
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....nder relevant provisions of the Act is a separate legal entity discharging functions enjoyed upon it on its own and not as an agent or department of the State Government, then clearly the immunity claimed by the petitioner board under article 289(1) of the Constitution would not be available to it. In our view, with the possible exception of the provision contained in section 32A, none of the other features pointed out by Mr. Thakar shows at all that the board is a department of the State Government or is its agent and even the provisions of section 32A dones not indicate that. Under that section all moneys recoverable by the board under the Act or under any agreement are declared to be recoverable as arrears of land revenue and Mr. Thakar urged that this provision showed that the board will have to be regarded as recoveries of the State Government, otherwise these would not have been made recoverable as arrears of land revenue. In our view, it is not possible to accept this submission of Mr. Thakar, for, all that section 32A provides for is merely indicate a mode a recovery and simply because a particular mode of recovery which is generally available to the State Government for ma....
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....board being a separate entity distinct from the State Government. Under that section the board shall have its own fund and such fund is to get augmented by acceptance of grants, subventions, donations or gifts as well as loans from the Central or the State Governments and obviously the board would be paying interest on such loans. Now, if the board were the department of the Government or an agent undertaking various activities for and on behalf of the Government, no provision would have been made enabling the board to borrow loans from the State Government or to pay interest thereon to the State Government, for, it is inconceivable that a party would by interest to itself. This provision, in our view, is a clear pointer to the fact that the Board is a distinct entity apart from the State Government and not department or an agent of the State Government. On the other hand, this provision clearly suggests that the board is a separate entity, possesses its own property, assets or funds and undertakes the various activities on its own account. The other provision which, in our view, is of a clinching character is the one to be found in section 40(2) of the Act. That provision indicate....
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....o us very clear that the income and property of the board could not be regarded as income and property of the State Government, with the result that the immunity claimed by the petitioner-board under article 289(1) of the Constitution is clearly not available to the petitioner-board. In our view, therefore, on an examination of the provisions of the Act, the contention raised by Mr. Thakar must fail." 43. The Hon'ble Bombay High Court while coming to such conclusion also followed the ratio laid down by the Hon'ble Supreme Court in case of APSRTC V/s. ITO (supra) and held as under: 15. In this context it would not be out of place to refer to the judgment of the Supreme Court in the case of Andhra Pradesh State Road Transport Corporation v. Income-tax Officer. In that case a similar question based on the provisions of the article 289(1) of the Constitution was raised and immunity from Union taxation thereunder was claimed by the Andhra Pradesh State Road Transport Corporation, and on an examination of the relevant provisions of the Road Transport Corporation Act, 1950, under which the Andhra Pradesh State Road Transport Corporation was constituted the court came to....
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....950; it was also pointed out that there was a glaring difference between the nature of activity undertaken by the Andhra Pradesh State Road Transport Corporation and the nature of activity undertaken by the petitioner-board, as, for instance, the activity undertaken by the former entity was in the nature of trading activity, while the activity undertaken by the petitioner-board could not be regarded as any trading activity in any sense of the term; further, it was pointed out that since profit motive was absent in the instant case before us, there was no question of making any provision for making over surplus receipts to the State Government which was feature which appeared clear under section 30 of the Road Transport Corporations Act, 1950. In the first place, in spite of the aforesaid peculiar features which obtained under the Road Transport Corporations Act, 1950, the Supreme Court took the view that the A. P. State Road Transport Corporation was distinct entity. Secondly, as stated earlier, the distinguishing features mentioned by Mr. Thakar may be relevant on the point of attracting the exemption under section 4(3)(i) and not on the issue which has been raised. The principal ....
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.... Board and not of the state Government. Furthermore, in case of a principal and agent relationship, the agent is entitled for certain commission for the services rendered by it. In the present case, there is no such consideration for which the APHB acts as an agent of the state Government for carrying out the housing schemes of the state Government. Only because sub-section (7) to section 58 was brought into the APHB Act by way of an amendment in 2010 giving retrospective effect from 2002, which provided for vesting of the surplus fund in consolidated fund of the state Government it cannot be said that the income earned by the assessee is actually the income of the state Government. In fact a similar provision u/s 30 of the APSRTC Act, provided for vesting of the surplus fund with the State Govt. In spite of such provision, the Hon'ble Supreme Court held that APSRTC is a distinct statutory corporation and the property and income of APSRTC is not the income of the State. 45. The chargeability of the income to tax is as per the charging section contained u/s 4 of the IT Act, 1961. The retrospective amendment made to the APHB Act by Act 12 of 2010 cannot dilute the effect of the pr....
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.... the State. On the contrary, what sub-section (7) of section 58 says that after meeting all expenditures, the surplus revenue shall vest with the consolidated fund of the State Government, but, that does not make the income of the Board the income of the State Government. The learned AR has relied upon a number of decisions of the Apex Court in his submissions. However, in none of the decisions, the ratio laid down is in the context of chargeability of income under the Income-tax Act vis-à-vis Article 289(1) of the Constitution of India. Therefore, though there is no dispute with regard to the ratio laid down in those decisions, however, they are not applicable to the facts of the case of the assessee. It will be pertinent to mention here that the learned AR placed strong reliance upon the judgment of Hon'ble Supreme Court in case of Housing Board of Haryana Vs. Haryana Housing Board Employees Union and Others [1996] 1 SCC 95. In this context, the learned AR drawing a parallel between the provisions of Haryana Housing Board Act, 1971 and APHB Act, 1956 submitted that the Hon'ble Supreme Court on considering the provisions of Haryana Housing Board Act has held that the contro....
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....e CIT(A) has completely overlooked the following rulings cited by the appellant in the rejoinder and written submission on the original grounds. In CIT vs. Sitaldas'Iirathdas (1961) 41 ITR 367 (SC) and MotiLal ChhadamiLal Jain v. CIT [1991J 190 ITR 1 (SC), the Supreme Court has held that where the obligation is not self-imposed or gratuitous, and it flows out of an antecedent and independent title, it will constitute diversion of income by overriding title. In CIT vs. Nizam Sugar Factory Ltd. (2002) 253 ITR 68 (AP), under Molasses Control Order, 1972, one third of the sale price of molasses was required to be set apart from construction of storage tanks. The amount was claimed by the assessee as not taxable having been diverted by overriding title under the authority of the law. The High Court found that the assessee had no control over the fund, and the same was diverted from the source and did not reach it. Therefore, it was not taxable. Similar view was taken in the following cases: * Somaiya Orgeno-Chemicals Ltd. vs. CIT (1995) 216 ITR 291 * CIT vs. New Horizon Sugar Mills (P) Ltd. (2003) 128 Taxman 300 (Mad) : (2000) 244 ITR 738 (Mad) Commission....
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....vernment of Andhra Pradesh into such account on quarterly basis, as the State Government from time to time instruct or advice the Board in this behalf. As amended by Act No. 12 of 2010 and provisions shall be deemed to have come into force with effect from 1st April, 2002." 51. A reading of the aforesaid provision would make it clear that only after accrual of income to the assessee and after meeting all its expenditure the surplus net revenue shall vest in consolidated fund of the Government. It further provides that such surplus revenue shall be transferred to the state Government of AP on quarterly basis as per the instruction or advice of the Government. Therefore, so far as the accrual of income is concerned, there is no dispute to the fact that the income has already accrued to the assessee. Only after the accrual of income to the assessee the surplus has been diverted to the Government account. The Hon'ble Supreme Court in case of CIT V/s. Sri Sitaldas Tirathdas, 41 ITR 367 (SC) held as follows: "There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to....
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....government organization and it is to obey the dictates of its master. The purpose of the expenditure is within the mandate of the appellant. Unless it carries out the orders of its sole owner, the State Government, its business will be in jeopardy. The appellant is not a commercial organization but developmental organization. Its structure and function are like that of the government though given a separate shape. Generation of some surplus in course of its operation does not necessarily make this wholly owned government body an organization with profit motive. This aspect has also been explained in detail in the rejoinder on the remand report of A.O. with supportive case laws. Funding of the infrastructure created by the A.P. State Housing Corporation at the behest of State Government is incidental to the main activity of the appellant. It did directly benefit from this expenditure as such infrastructure was meant for the houses sold by it. Its existence and purpose are served as long as it plays direct or indirect role in dealing with and satisfying the need of housing accommodation in the State. The expenditure in question is in course of its normal business operation which, tho....
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.... the Supreme Court held that it is no doubt true that the advantage secured for the business was of a long duration, but it was not an advantage in the capital field, because no tangible or intangible asset was acquired by the assessee, nor there was any addition to or expansion of the profit making apparatus of the assessee. In CIT vs. Coats Viyella India Ltd. (2002) 253 ITR 667 (Mad.), the assessee had made payment to the Government for construction of new bridge, providing access to the assessee's factory for its workmen and movement of goods. The High Court held that the assessee did not acquire any ownership over the bridge and there was no addition to the value of the assets owned by it. Therefore, the payment made to the Government was revenue expenditure. In Navsari Cotton and Silk Mills Ltd. (1982) 135 ITR 546 (Guj.), the assessee discharged an effluent causing health hazard, which was protested by the citizens of the area. Apprehending a spate of suits therefrom, and in view of the Municipality being unable to remedy the situation, and prevent litigation, the assessee made contribution to the Municipality for providing underground pipeline through the muni....
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.... these housing regulations have to be considered as mandatory in character, having binding statutory force. We are, therefore unable to agree with T.U. Mehta, J's conclusion that Disposal of Property Regulations framed by the Housing Board in exercise of its statutory power under S.74(b) are not statutory in character. We hold that they are, of necessity, to be treated as statutory in character for the reasons aforesaid. However, that does not advance the case of the learned Advocate for the petitioners an inch further. Even though' regulation 33 of the Regulations is statutory in character, the directions issued by the State of Gujarat in exercise of its statutory powers under S.82 cannot be said to be in any way inconsistent with this regulation. The second reason is that under S.82 of the Act, the State of Gujarat is entitled to give directions to the Housing Board for the purposes of the Act and if these directions are not found to be arbitrary or illegal, they are binding on the Housing Board and they would supersede any of the earlier contrary decisions of the Housing Board and impose a special obligation on the Housing Board to comply ....
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.... law. The A.O. has also not submitted any remand report for these years as also for the A.Y. 2008-09 for which the CIT(A) has passed the appeal order. In this situation, the CIT(A) should not have relied upon verbatim reproduction of the part of the earlier order for the A. Y. 2006-07 in his order for A.Y. 2008-09. The appellant finds that the language of paragraphs 6.14 to 6.20 of the present order has been copied from the paragraphs 6.13 to 6.17 of the earlier appellate order for the A.Y. 2006-07, which has been remanded. Observations and conclusions in the earlier order passed on 30.10.2009 of the CIT(A) cannot be expected to take into account the submissions made and rulings relied upon by the appellant in the present proceeding. In this process, some errors have crept into the appeal order: i. At paragraph 6.17 of the appeal order for A.Y.2008-09, the CIT(A) has, mentioned that Government orders quoted by the appellant does not in any way indicate that any money is to be paid to the State Government in lieu of lands provided. But the CIT(A) has missed out the content of the letter dated 23.12.2005 from the Government of Andhra Pradesh, extracted by him at page ....
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....ct, and at paragraph 5.7.10 he has stated that APHB is fully competent to enter into contracts in its own capacity and has referred to section 14 to state that the Vice Chairman shall make every contract on behalf of APHB. However, he has not referred to several other provisions which are important to decide the extent of autonomy enjoyed by APHB. The proviso to section 14 mandates that no contract involving expenditure of Rupees more than the limitation as may be fixed by the Government shall be made without the previous sanction of the Government. This amount was mentioned in this proviso as Rs.3,0001- till the amendment of the Act in 2010. The CIT(A) has given the finding that APHB is controlling its own affairs and is independent in entering into contracts and taking loans. Therefore, in paragraph 5.8.1 and 5.8.2, he has argued that APHB is not functioning as an agent of the State Government. He has not referred to section 21 of the APHB Act, which clearly states that subject to the control of the Government, Board may incur expenditure and undertake works for framing and execution of housing schemes. Section 60 allows APHB the freedom to incur expenditure not exceeding Rs.10,0....
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....re which is exclusively laid out for the purpose of business is a revenue expenditure and, therefore, allowable. On appreciation of the facts on record, it is quite evident that the amount of Rs. 1180 crores was not spent by the assessee board for the purpose of its business. The said amount was transferred to AP State Housing Corporation at the directive of the Government for implementing certain housing projects. The assessee is no way connected with implementing the project. This cannot be said to be an expenditure laid out wholly and exclusively for the purpose of business. The decisions relied upon by the learned AR are factually distinguishable as in those cases there was nexus between the expenditure incurred and the business of the assessee. Therefore, in our view the revenue authorities were correct in disallowing such expenditure. 57. In ground No. 11, the assessee has raised the issue of disallowance on account of payment of pension to employees. In this regard, the following submissions have been made by the assessee: "On allowablity of payment of pension to employees as deduction for computing taxable income, the CIT(A) has reproduced paragraph 15 - ....
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.... CIT(A), we are of the view that the CIT(A) has not gone into the depth of the issue and has confirmed the disallowance in a mechanical manner. It is not forthcoming what are the details asked for by the AO and on failure on the part of the assessee to furnish such details, the disallowance was made. The lower authorities have not disputed the fact that pension amount has been paid. It is also a fact that Pension is payable as per the service conditions. That being the case it is an allowable deduction. The decisions cited by the learned AR also support such view. Accordingly, we direct the Assessing Officer to delete the addition made. 60. The next issue relates to estimation of income from Singapore project. This issue arises in appeals being ITA Nos. 1216, 1217 & 1218/H/12 for the assessment years 2004-05, 2005-06 and 2006-07. 61. In course of assessment proceedings, the AO on examining the income and expenditure statement filed with the return noticed that the assessee though had shown income and expenditure towards sale of flat at Singapore project (Pocharam) but actually as per assessee's own admission the same represent the advance received from the prospective buyers ....
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....the rulings of ITAT in ITA No.1143/Hyd.l2006 dated 13.07.2007 in Madhava Constructions Pvt. Ltd. vs. CIT. In that, the ITAT had held that, though prescription for estimating contract income at 8% in section 44AD is applicable where the gross receipts of the contractor is up to Rs.40 lacs, the same percentage can be applied for estimating income for turnover exceeding Rs.40 lacs. The CIT(A) was clearly wrong in applying the prescription meant for contractor to the appellant who is not a contractor. Further, this percentage is applied to gross receipts and not to expenditure incurred during the year. Further, it does not prevent an assessee from claiming that the actual profit from the business is lower than what is ascertained on the basis of estimating at 8% of the turnover. In Pyarelal Mittal vs. Assistant Commissioner of Income-tax, (2007) 291 ITR 214 (Gau.), it was held that income has to be deduced from the books of account and other documents furnished and there is no scope for any conjectures and surmises. Similarly, in M. Durai Raj vs. CIT, (1972) 83 ITR 484 (Ker), the High Court has held that the A.O. was not correct in ignoring the book entries and estimating the income. ....
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....ting out defect or discrepancy in the books of account maintained by the assessee estimation of income cannot be resorted to. That besides section 44AD of the Act is applicable only in a case of contractors where the turnover is less than Rs. 40 lakhs. In the present case, neither the assessee is a contractor nor its receipts are less than Rs. 40 lakhs. Therefore, estimation of income by applying the rate of 8% that too on the expenditure by invoking the provisions of section 44AD is not justified. If the department is of the view that there is a profit element which has not been disclosed by the assessee, it has to be determined after properly verifying the books of account and other evidences and not merely on presumption and guess work. We, therefore, remit this issue to the file of the Assessing Officer who shall decide the same in accordance with law after affording reasonable opportunity of being heard to the assessee. We also direct the assessee to cooperate with the Assessing Officer by producing all its books of account and other relevant documents for verification. If the assessee will not produce its books of account the Assessing Officer will be at liberty to complete t....
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....be valid unless a Constitutional Court of competent jurisdiction strikes down the statute or any part thereof. (C). The legislation can be struck down only if: (i). It is beyond legislative power of the legislating body examined on the touchstone of Schedule VII to the Constitution of India, or different classes of people are discriminated while legislating thereby offending Article 14 of the Constitution of India, or the legislation is contrary to any of the Fundamental Rights guaranteed by the Constitution of India. (ii). In the present case, there is not even a challenge to the Act as amended, and fullest and widest meaning should be given to section 58(7) of the Act. By this amending provision it is made explicit that the surplus after incurring expenditure vests in the Government of Andhra Pradesh. The limited right of the Appellant Board is only to apply the income and that too as a trustee of the Government of Andhra Pradesh for incurring expenditure. There is a statutory divestment of the income at source. The following judgments show that upon such legal right in a third party the income does n....
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....branches to spend and between the actual expenditure made by the various branches. The expenditure is incurred by the various branches after the head office issues letters of credit (LOC) to the branches. Though, the assessee submitted its reply to the query made by the Assessing Officer, the Assessing Officer rejected the explanation of the assessee and added the amount by observing that the discrepancies pointed out were not reconciled by the assessee. In course of the proceeding before the first appellate authority, the assessee contended that the Board disbursed the amounts to various divisions or branches for expenditure in accordance with the indents received from the divisions which are termed as LOC. The amounts transferred to various divisions enable them to incur the expenditure. Thereafter, the accounts statements are sent to the Head office which reconciles the same under various heads. It was further submitted that the reconciled amounts can be verified from the bank balances. The CIT(A) called for a remand from the Assessing Officer on the submissions made by the assessee. The Assessing Officer in the remand report stated that the assessee could not produce details du....