TaxTMI 
TaxTMI 
2017 (2) TMI 919
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.... impugned orders dated 19-03-2013 and 25-08-2014 passed by Ld. Assessing Officer and Ld. Appellate Authority below respectively, are against the law and facts of the case at hand. The same is therefore liable to be set aside on this score alone. B. That the Ld. Assessing Officer is not justified in treating the amount of collection made by the appellant as business income. C. That the Ld. Assessing Officer has failed to appreciate the fact that the appellant is a special area constituted to ensure planned development of the Baddi Barotiwala Nalagarh area by the Government of Himachal Pradesh, vide notification dated 21-07-2006. Subsequently exercising powers conferred in Section 67 of the Himachal Pradesh Town and Country Planning Act, 1977 vide notification dated 21-07-2006, Baddi-Barotiwala Nalagarh Development Authority was constituted as a special area Development Authority for Nalagarh, Baddi-Barotiwala Area. D. That the Ld. Assessing Officer has erred in law by treating the appellant as Association of Person and treating the revenue receipts of the appellant as business income. Taxing the same is illegal and contrary to the facts. Thus the assessment order dated 19-0....
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....t and was thus not entitled to claim exemption under the same. Further, the Ld. CIT (Appeals) held that by virtue of the Explanation inserted in section 2(31) the assessee could no longer claim that since it was not created for the purpose of earning profits it could not be termed as an 'AOP'. Thus all the grounds raised by the assessee were dismissed and the order of the Assessing Officer was upheld. 6. Aggrieved by the same, the assessee filed the present appeal before us. During the course of hearing before us, the learned counsel for the assessee stated that assessee represented the State and by virtue of Article 289 of the Constitution which exempted property and income of a State from union taxation, was not amenable to income tax. The learned counsel for the assessee stated that this ground was being taken up for the first time and requested that the same be admitted since it was a legal ground and could be adjudicated on the basis of facts on record. The assessee relied upon the decision of the Hon'ble Apex Court in the case of NTPC Vs. CIT, 229 ITR 383 (SC) in this regard. The Ld. counsel for the assessee theraeafter made lengthy arguments in support of his co....
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....come or for that matter the surplus generated in the course of carrying out its designated activities was, therefore, income of the State which by virtue of Article 289 of the Constitution was precluded from being subject to union taxation. The learned counsel for the assessee drew our attention to the following documents to support its contention that the assessee was the State only : i) The Himachal Pradesh Town & Country Planning Act placed at page 8 of the Paper Book to highlight the object/purpose of the Act. ii) Chapter-VIII of the Himachal Pradesh Town & Country Planning Act at pages 25 to 27 of the Paper Book. 13. The above two documents referred to by the learned counsel for the assessee was to point out that the assessee was formed under the provisions of the Himachal Pradesh Town & Country Planning Act, 1977, the purpose of which was planning and development and use of land for development and administration. The learned counsel for the assessee pointed out that the impugned Act was enacted by the Himachal Pradesh Legislative Assembly in 1977. Chapter-VIII of this Act was pointed out to show that under the provisions of this Act the State Government could designat....
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....cases 551, more specifically to the findings of the Hon'ble Apex Court at para 21 of the order wherein it was 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. Some times the form may be that of a body corporate independent of the Government but the substance it may be just the alter ego of the Government itself. True test of the determination of the said question depends upon the degree of control the Government has over it, the extent of control exercised by the several other bodies or committees over it and their composition, the degree of its dependence on Government for its financial needs and the functional aspect, etc. Thus, the learned counsel for the assessee stated that merely because it was constituted as a body corporate would not advert against the fact that it was still the State itself having been created, governed, administered and financed by the Government. The Ld. counsel for the assessee contended that in a sense, the assessee was the alter ego of the Government itself. 15. ....
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....ve and thus by virtue of Article 289, it was exempted from paying any tax. 16. Per contra, the learned D.R. stated that the claim of the assessee that it is covered by Article 289 of the Constitution is incorrect. The learned D.R. placed reliance on the decision of the Hon'ble Apex Court in the case of Adityapur Industrial Area Development Authority Vs. UOI, 283 ITR 97(SC), wherein it was held that considering all the aspects of the matter the assessee was not entitled to claim exemption from union taxation under Article 289 of the Constitution of India. 17. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The issue before us is relating to Article 289 of the Constitution. It is pertinent to reproduce Article 289 of the Constitution for a better understanding of the issue in hand : 289. Exemption of property and income of a State from Union taxation (1) The property and income of a State shall be exempt from Union taxation (2) Nothing in clause ( 1 ) shall prevent the Union from imposing, or authorising the imposition of, any tax to such extent, if any, as Parl....
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....e one of the welfare activities of the State, the question is whether by constituting the petitioner board under the Madhya Pradesh Housing Board Act, 1950, a separate legal entity has been established undertaking the various activities on its own or whether the entity established is either a Department of the State Government or an agent of the State Government acting on behalf of the State Government, for, it is obvious that if the activity undertaken is being performed by the petitioner board directly as the Department of the State Government or as an agent acting on behalf of the State Government, it would be clear that the property and income of the board would be the property and income of the State Government, but if that be not the case and if the board under the relevant provisions of the Act is a separate legal entity discharging functions enjoined 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 Art. 289(1) of the Constitution would not be available to it. In our view, with the possible exception of the provision contained in s. 32A, none of the other features pointed out by Mr. ....
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....e several provisions in the Act which support Mr. Manohar's contention for the 1st respondent. 11. In the first place, as we have stated in the earlier part of the judgment, the very constitution of the board under s. 3 of the Act clearly shows that the board on its incorporation shall be a body corporate having perpetual succession and common seal. This provision clearly shows that prima facie the board is a statutory entity distinct from the State Government. Even the constitution of the board which has been provided for by s. 4 clearly shows that some members of the board could be nominated by the Speaker of the legislative assembly and by the State Government. The provision contained in s. 12 of the Act would be a clear pointer to the 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 beh....
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.... liable for all the liabilities created by the board. These provisions, in our view, run counter to the contention urged by Mr. Thakar before us that the petitioner-board, when it undertook the activities enjoined upon it by the Act, did so either as a department of the State Government or as an agent of the State Government acting on behalf of the State Government. On the other hand, these provisions clearly show that the petitioner-board is a separate statutory body distinct from the State Government and it has been undertaking the activities enjoined on it not as an agent of the State Government but on its own. If that be the position which really emerges from examination of the several provisions of the Act, it seems to 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 Art. 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. 12. In this context it would not be out of place to refer to the ....
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....tinguishing features which were pointed out by Mr. Thakar could not be regarded as having any bearing on the question which is required to be considered in this case by us ; for example, it was pointed out by Mr. Thakar that whereas under the Road Transport Corporations Act, 1950, there was provision for raising a share capital which could be subscribed by private individuals, there was no such provision for raising any share capital for the petitioner- housing board, under the Madhya Pradesh Housing Board Act, 1950 ; 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 a feature which app....
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....t, 1977, under which the assessee authority was formed, would show that the assessee's case is identical to that in Vidarbha Housing Board (supra) : **68.(1) Every Special Area Development Authority shall be a body corporate with perpetual succession and a common seal unless abolished and shall have power to acquire, hold and dispose of property, both moveable and immoveable to contract and sue and be sued by the name specified in the notification under sub-section (1) of section 66. (1) The State Government may by notification in the official Gazette abolish the Special Area Development Authority constituted under section-67of the Act from such date as may be specified therein and the authority shall stand abolished accordingly. (2) The State Government may by notification in the official Gazette abolish the Special Area Development Authority constituted under section-67of the Act from such date as may be specified therein and the authority shall stand abolished accordingly. (3) On and with effect from the date of abolition of the authority all properties, assets, liabilities, funds, dues and staff which are realizable and vested by the authority shall vest in or be....
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.... such terms and conditions as may be prescribed. This provision is again clear pointer of the fact that the assessee Authority is a separate entity possessing its own property, assets and funds and undertaking various activities on its own accounts. 23. Clause 78 of the Act indicates as to what should happen to the property and assets of the assessee authority upon its dissolution being made by the State Government. Under the said clause, it is provided that all properties, funds and other dues which are vested in or realizable by the authority shall vest in or be realizable by the State Government. It further provides that all liabilities enforceable against the authority shall be enforceable against the State Government. The Hon'ble High Court of Bombay in the case of Vidarbha Housing Board (supra) read an identical clause in that case and found it to be of a clinching character to show that the assessee was distinct from the State. The High Court stated in that case that if the Board was acting as a department of the State Government or was merely an agent undertaking the activities for and on behalf of the State Government, it was utterly unnecessary to make the provision ....
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....manner of doubt that the income of the appellant/Authority constituted under the said Act is its own income and that the appellant/Authority manages its own funds. It has its own assets and liabilities. It can sue or be sued in its own name. Even though, it does not carry on any trade or business within the contemplation of cl. (2) of Art. 289, it still is an Authority constituted under an Act of the legislature of the State having a distinct legal personality, being a body corporate, as distinct from the State. Sec. 17 of the Act further clarifies that only upon its dissolution its assets, funds and liabilities devolve upon the State Government. Necessarily therefore, before its dissolution, its assets, funds and liabilities are its own. It is, therefore, futile to contend that the income of the appellant/Authority is the income of State Government, even though the Authority is constituted under an Act enacted by the State legislature by issuance of a notification by the Government thereunder." (underline supplied by us) 26. The Apex Court further held that the exemption otherwise specifically provided to the assessee authority under section 10(20A)/10(20) having been express....