TaxTMI 
TaxTMI 
2006 (5) TMI 61
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....th the provisions and deduct tax at source and report compliance. The High Court of Jharkhand at Ranchi in the aforesaid writ petition pronounced its judgment on May 8, 2003 dismissing the writ petition holding that in view of the amended provisions of the Income-tax Act, the notice was valid and legal. The appellant/authority has impugned the judgment and order of the High Court in this appeal by special leave. The appellant/authority has been constituted under the Bihar Industrial Area Development Authority Act, 1974 to provide for planned development of industrial area, for promotion of industries and matters appurtenant thereto. The appellant/authority is a body corporate having perpetual succession and a common seal with power to acquire, hold and dispose of properties, both movable and immovable, to contract, and by the said name sue or be sued. The authority consists of a chairman, a managing director and five other directors appointed by the State Government. The authority is responsible for the planned development of the industrial area including preparation of the master plan of the area and promotion of industries in the area and other amenities incidental thereto. The ....
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....any income falling within any of the following clauses shall not be included:- (20) the income of a local authority which is chargeable under the head 'Income from house property', 'Capital gains', or 'Income from other sources' or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service (not being water or electricity) within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area; (20A) any income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both." By the Finance Act, 2002 with effect from April 1, 2003 an Explanation was added to section 10(20) and section 10(20A) was omitted. The Explanation added to section 10(20) is as follows: "Explanation.- For the purposes of this clause, the expression 'local authority' means- (i) Panchayat as referred to in clause (d) of article 243 of the Constitution; or (ii) Municipality as referred to in clause (e) of article 243P of....
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....mpted from Union taxation, the properties and income of a State. Referring to clause (2) of article 289, he submitted that it contemplates a trade or business being carried on by or on behalf of the Government of a State. That brings in the concept of agency under the Contract Act. Therefore, by necessary implication, an agency of the State, not carrying on trade or business, is not covered by clause (2) of article 289 and, therefore, the exemption must extend to such an agency of the State Government. He also relied on some decisions of this court. He also submitted that the amendment referred to above in section 10 of the Income-tax Act is not made by reference to article 289 of the Constitution of India and that was perhaps not present to the mind of the Legislature. He commended a public policy approach in such matters. Mr. T.S. Doabia, learned senior counsel appearing on behalf of the Union of India, repelled the submissions urged on behalf of the appellants by contending that unless the income generated by an agency or instrumentality of the State went to the coffers of the State directly and remained the income of the State, the agency, whether corporation, company or an au....
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....the nature of a proviso. Clause (2) empowers the Union to impose any tax to such extent as Parliament may by law provide, in respect of a trade or business of any kind carried on by, or on behalf of, the Government of a State, or any operation connected therewith. Thus, even the income of the State within the meaning of clause (1) of article 289 may be taxed by law made by Parliament, if such income is derived from a trade or business of any kind carried on by or on behalf of the Government of a State or any operations connected therewith. Clause (1) of article 289, therefore empowers Parliament to frame law imposing a tax on income of a State which is earned by means of trade or business of any kind carried on by or on behalf of the State Government. It is true, as submitted by Sri Venugopal, that clause (2) of article 289 empowers Parliament to make a law, imposing a tax on income earned only from trade or business of any kind carried on by or on behalf of the State. It does not authorize Parliament to impose a tax on the income of a State if such income is not earned in the manner contemplated by clause (2) of article 289. This, to our mind, does not answer the question which a....
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....power to tax any income other than agricultural income. Under the Constitution, power to tax "income" is vested only in the Union. Therefore, while any property of the Union is immune from State taxation under article 285(1), income derived by the State from business, as distinguished from governmental purposes, shall not have exemption from Union taxation unless Parliament declares such trade or business as incidental to the ordinary functions of Government of the State (see article 289(3)). Applying the above test to the facts of the present case it is clear that the benefit conferred by section 10(20A) of the Income-tax Act, 1961 on the assessee herein, has been expressly taken away. Moreover, the Explanation added to section 10(20) enumerates the "local authorities" which do not cover the assessee herein. Therefore, we do not find any merit in the submission advanced on behalf of the assessee. In Andhra Pradesh State Road Transport Corporation v. ITO [1964] 7 15 SCR 17; [1964] 52 ITR 524 (SC), the question arose as to whether the income derived from trading activity by the Andhra Pradesh Road Transport Corporation established under the Road Transport Corporations Act, 1950 wa....
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....hese three clauses together this court held that the property as well as the income in respect of which exemption is claimed under clause (1) must be the property and income of the State, and thus the crucial question to be answered is: "Is the income derived by the State from its transport activities the income of the State?" It was observed that if a trade or business is carried on by a State departmentally or through its agents appointed exclusively for that purpose, there would be no difficulty in holding that the income made from such trade or business is the income of the State. Difficulties arise when one is dealing with trade or business carried on by a corporation established by a State by issuing a notification under the relevant provisions of the Act. In this context, the court observed: "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 noti....
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.... in question is the income of the State, and on this vital test, the appellant fails." Considerable reliance was placed on the principles laid down in the aforesaid decision by learned counsel appearing for the Union of India. He submitted that having regard to the provisions of the Act under which the appellant/authority is established, the same conclusion may be reached. In particular, emphasizing the fact that as in Andhra Pradesh State Road Transport Corporation's case [1964] 52 ITR 524 (SC), so in the instant case as well, section 17 of the Act provides that upon dissolution of the appellant/authority, the properties, funds and dues realizable by the authority along with its liabilities shall devolve upon the State Government. Impliedly, therefore, such properties, funds and dues vest in the authority till its dissolution, and only thereafter it vests in the State Government. He also referred to various other provisions of the Act and submitted that there was nothing in the Act which attempted to lift the veil from the face of the corporation. Even though the authority was created under an Act of the Legislature, it was still an authority which had a distinct personality of i....
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....ent and growth of industrial towns by establishing and developing industrial estates and industrial areas. It, therefore, negatived the argument that the corporation being a trading one, the impugned legislation fell within entry 43 of List I of the Seventh Schedule. This decision does not help the appellant because even if it is held that the appellant/authority is not a trading authority, yet that does not answer the question whether the income of the authority is the income of the State so as to attract clause (1) of article 289. Similarly, the decision in New Delhi Municipal Council v. State of Punjab [1997] 7 SCC 339 does not advance the case of the appellant. It was held that the property/municipal taxes levied by the New Delhi Municipal Council under the relevant Act constituted Union taxation within the meaning of clause (1) of article 289 of the Constitution of India. The levy of property taxes under the aforesaid enactments on lands or buildings belonging to the State Government was invalid and incompetent by virtue of the mandate contained in clause (1) of article 289. However, if any land or building is used or occupied for the purpose of any trade or business, meanin....