Manish Pitale, J. -Income Tax Appeal No.50 of 2008 was on board. At that time the counsel for the parties mentioned that the impugned order of the Tribunal in appeal No.50 of 2008 merely follows its earlier order dated 22.07.2017 on an identical issue. As the earlier order dated 22.07.2005 is a subject matter of challenge in this appeal, at the request of the parties this appeal being the lead appeal, was taken up for consideration.
2. By the instant appeal under Section 260-A of the Income Tax Act, 1961 (“the Act”), the appellant-Revenue has challenged order dated 22.07.2005 passed by the Income Tax Appellate Tribunal ( “Tribunal”) in ITA No.5/Nag/02. This appeal concerns assessment year 1998-1999.
3. On 29.03.2007 the instant appeal was admitted on the following substantial questions of law:-
"1. Whether, on the facts and in the circumstances of the case, the ITAT was correct in holding that the assessee is a development authority eligible for exemption u/s 10(20A) of the Income Tax Act?
2. Whether on the facts and circumstances of the case, the Tribunal was correct in holding that the business of the assessee commenced?”
4. The facts leading up to the instant appeal are that the respondent- assessee- Vidarbha Irrigation Development Corporation, a statutory Corporation set up by the Vidarbha Irrigation Development Corporation Act, 1997 (“ VIDC Act”) , claimed exemption from taxation under Section 10(20A) of the Act, on the ground that it was an authority constituted by law for the purpose of planning, development, improvement of cities, towns and villages and that, therefore, it was exempted from being brought to tax. However, the Assessing Officer by an assessment order on 9.3.2001 not only rejected the claim for exemption under Section 10(20A) of the Act but also held that the appellant had not commenced its business for its income to be taxed as business income under Section 28 of the Act. Thus holding the respondent- assessee- Corporation was liable to pay tax along with interest of Rs. 5,05,83,200/-.
5. Being aggrieved, the respondent-assessee filed an appeal before the Commissioner of Income Tax (Appeals)-I, Nagpur (CIT (Appeals)). By order dated 11.12.2001 the CIT (Appeals) dismissed the appeal of the respondent-assessee on both the issues i.e. Section 10(20A) of the Act and commencement of business for purpose of Section 28 of the Act, thereby confirming the liability of tax as imposed by the assessment order dated 9.3.2001.
6. Aggrieved by the order dated 11.10.2001 of CIT (Appeals), the respondent- assessee filed an appeal before the Tribunal. By an order dated 28.02.2003, the Tribunal dismissed the appeal of the respondent- assessee, confirming the liability of tax imposed on it.
7. The order dated 28.02.2003 of the Tribunal was challenged by the respondent-assessee by filing Income Tax Appeal No.49/2003, before this Court. It was urged on behalf of the respondent- assessee before this Court that the provisions of VIDC Act were not considered in the proper perspective by the Tribunal and that a proper analysis of the true nature of functions performed by the respondentassessee would demonstrate that it was indeed entitled for the benefit under Section 10 (20A) of the Act. It was also urged that the issue of commencement of business was not considered in the light of the facts which would substantiate that the business had already commenced. This Court by its judgment and order dated 28.07.2004, allowed the appeal of the respondent-assessee, set aside the order dated 28.02.2003 passed by the Tribunal and remanded the matter back to the Tribunal for fresh consideration on both the issues in the light of the observations made in the judgment.
8. It is in consequence of the above remand proceedings that the Tribunal has passed the impugned order dated 22.07.2005. By the said order, the Tribunal has allowed the appeal of the respondent- assessee and it has held that the respondent- assessee is entitled to the benefit of Section 10 (20A) of the Act. Aggrieved by the same, the Revenue is in appeal before this Court.
9. As regards Question No.1:
(i) Mr. Parchure, learned counsel appearing for the appellant- revenue submitted that the impugned order of the Tribunal is unsustainable because the respondent-assessee is not an authority dealing with and satisfying the need of housing accommodation and that it is not involved in the planning, development or improvement of cities, towns and villages, as required under Section 10 (20A ) of the Act. According to him, since the nature of duties and functions performed by the respondent-assessee under the VIDC Act had nothing to do with the aforesaid functions of an authority contemplated under Section 10 (20A) of the Act, the Tribunal was not justified in setting aside the concurrent orders of the authorities below. According to Mr. Parchure, the crucial words in Section 10(20A) of the Act were “satisfying the need for housing accommodation” and “planning, development or improvement of cities, towns and villages”. These were the key words in the said provision with which the respondentassessee had no nexus and that therefore, the impugned order of the Tribunal was unsustainable. Mr. Parchure relied upon judgments of the Hon’ble Supreme Court in the cases of CIT .vs. U.P. Forest Corporation – 230 ITR 945, Calcutta State Transport Corporation .vs. CIT – 219 ITR 515, the judgment of the Karnataka High Court in Karnataka State Small Industries Development Corporation Ltd. .vs. Assistant Commissioner of Income Tax – 220 Taxman 4 (Karnataka) and the judgment of the Madras High Court in CIT .vs. State Industries Promotion Corporation of Tamil Nadu Ltd. – 311 ITR 197 (Madras).
(ii) Per contra, Mr. K.P. Dewani, learned counsel appearing for the respondent-assessee submitted that the impugned order passed by the Tribunal was in terms of the law laid down by the Hon’ble Supreme Court and that it was based on correct analysis of the provisions of the VIDC Act. Mr. Dewani relied upon the provisions of the VIDC Act, particularly those pertaining to the functions of the respondent-assessee- Corporation, to demonstrate that the functions performed by the respondent-assessee had a clear nexus with the planning, development or improvement of cities, towns and villages and that it was an authority constituted under law for the purposes of achieving the said objects. Mr. Dewani relied upon judgment of the Hon’ble Supreme Court in the case of Gujarat Industrial Development Corporation .vs. CIT – 227 ITR 0414; judgment of the Rajasthan High Court in the case of CIT .vs. Rajasthan Land Development Corporation- 255 ITR 199.
(iii) In order to decide the above mentioned question on which the instant appeal was admitted, it would be necessary to peruse Section 10 (20A) of the Act, which reads as under:-
“Section 10 – In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-
(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,”
(iv) The said provision would have to be applied to the respondent-assessee by examining the provisions of the VIDC Act under which it has been constituted and wherein the functions and the purpose of setting up of the respondent- assessee have been specified. In this regard, it would be necessary to peruse the following relevant provisions of the VIDC Act:-
“Section 18. The functions of the Corporation shall be,-
(a) to promote and operate,-
(i) some irrigation projects mentioned in the Schedule and command area development including flood control; and
(ii) some schemes for the generation of hydro-electrical energy;
(b) to plan, investigate, design, construct and manage those irrigation projects and their command area development;
(c) to plan, investigate, design, construct and manage the schemes of the generation of hydro-electrical energy;
(d) to enter into contracts in respect of the works and any other matters transferred to the Corporation along with assets and liabilities under this Act;
(e) to invite tenders, bids, offers and enter into contracts for the purposes of all the activities of the Corporation ;
(f) to promote participation of any person or body or association of individuals, whether incorporated or not, in planning, investigation, designing, construction and management of irrigation projects, and command area development and Hydro-Electric Power Projects including flood control ;
(g) to undertake schemes or works, either jointly with other corporate bodies, or institutions, or with Government or local authorities, or on agency basis in furtherance of the purposes for which the Corporation is established and all matters connected therewith ;
(h) to promote irrigation related activities such as fisheries, pisciculture, floriculture, horticulture, sericulture, tissueculture, etc.;
(i) to promote tourism, water sports and other related activities on and around the irrigation and Hydro-Electric Projects ;
(j) to develop the land around or nearby lake and in other suitable locations with irrigation facilities and other infrastructure facilities and lease part or whole of such developed properties to the interested parties ;
(k) to prepare annual plan and five year working development plan ;
(l) to prepare annual budget ;
(m) to undertake any other project and other activities entrusted by the State Government in furtherance of the objectives for which the Corporation is established.
Section 19.
(1) The Corporation shall have the power to accord technical sanction, acceptance of all tenders, sanctioning budget and making financial provisions, settling dispute arising out of contracts and any other thing which may be necessary or expedient for the purpose of carrying out its functions under this Act.
(2) Without prejudice to the generality of the foregoing provision, such power shall include power, -
(a) to acquire and hold property, both movable and immovable as the Corporation may deem necessary for the performance of any of its functions, duties, activities and to lease, sell, exchange or otherwise transfer any property held by it on such conditions as may be deemed proper by the Corporation ;
(b) to construct or cause to be constructed such dams, barrages, reservoirs, power houses, power structures, electrical transmission lines and sub-stations, navigation works, irrigation, flood control and drainage canals and such other works and structures as may be required ;
(c) to make measures to prevent pollution of any water under its control and to take all measures deemed necessary to prevent discharges into such water of effluents which are harmful to water supply, irrigation, public health or fish life ;
(d) to stock its reservoirs or water courses with fish and to sell fish or fishing rights and prohibit taking out fish from the water under its control ;
(e) to assist in the establishment of water users association and other organisation formed under the Maharashtra Cooperative Societies Act, 1961 for the better use of facilities made available by the Corporation ;
(f) to lease right for water sports, other recreational activities related to the use of reservoirs and its surroundings and reservoir water ;
(g) to establish, maintain and operate laboratories, experimental and research stations and farms for conducting experiments and research for -
(i) utilising the water, electrical energy, and other resources in the most economical manner for the development of the Godavari and Tapi River Valley in Vidarbha region ;
(ii) determining the effect of its operations on the flow conditions in the Godavari and Tapi River and its tributaries in Vidarbha region ;
(iii) providing navigation conditions in the Godavari and Tapi River and its tributaries in Vidarbha region ;
(h) to engage suitable qualified consultant or person having special knowledge or skill to assist the Corporation in the performance of its functions ; (i) to do all such other things including making interest bearing monetary advances to the contractors executing works on the projects of the Corporation and perform such acts as may be necessary for, or incidental or conducive to any matters which are necessary for furtherance of the objectives for which the Corporation is established.
Section 23. The Corporation shall keep coordination with the State Government, Railway Authorities, local authorities and statutory bodies with a view to minimising the inconvenience likely to be caused by the submergence of railways, lands and roads and communications and shall bear the cost of any re-alignment thereof or resettlement of any population rendered necessary by such submergence.
Section 49. (1) The Corporation shall prepare and submit to the State Government, in such form as may be prescribed, an annual report within six months after the end of every financial year of its activities during the previous financial year, with particular reference to, -
(a) irrigation, command area development and flood control,
(b) water supply,
(c) hydroelectrical energy,
(d) recreation facilities,
(e) use of lands,
(f) resettlement of displaced persons ; and
(g) other activities of the Corporation.
(2) The Corporation shall also furnish to the State Government such returns, statistics, reports, accounts and other information with respect to its conduct of affairs, properties or activities or in regard to any proposed work or scheme as the State Government may, from time to time, require.”
(v) The aforesaid provisions of the VIDC Act clearly bring out the role performed by the respondent-assessee- Corporation. It is evident that the respondent-assessee – Corporation is actively involved in irrigation projects, hydroelectric projects, projects involving prevention of pollution of water as also prevention of discharge of harmful effluents into the water supply and irrigation systems, having a direct nexus to public health. It is also clear from the said provisions that the respondent-assessee –Corporation performs its functions in tandem with Government agencies and bodies to ensure proper development of cities, towns and villages. The schedule appended to the VIDC Act consists of the number of projects added to the area of jurisdiction/work of the respondentassessee- Corporation.
(vi) The question as regards the authorities covered for exemption under Section 10(20A) of the Act came up for consideration before the Hon’ble Supreme Court in the case of Gujarat Industrial Development Corporation (supra). In its judgment, the Hon’ble Supreme Court held that the word “development” in Section 10(20A) of the Act should be understood in its wide sense and that schemes establishing industries help in accelerating development and that, therefore, in the said case the appellant- Corporation was held as being entitled to the exemption. It was also held by the Hon’ble Supreme Court that Section 10(20A) of the Act was meant for protection of public bodies created under law for the purpose of developing urban or rural areas for public good. It was also held that the said provision if interpreted rigidly and narrowly, would result in the anomaly of bringing such public bodies within the tentacles of income-tax liability.
(vii) In the case of Rajasthan Land Development Corporation (supra), similar liberal interpretation of the term “development” in Section 10(20A) of the Act was adopted by the Rajasthan High Court. It was held that the respondent- Corporation therein was entitled to the exemption under Section 10(20A) of the Act, even though the predominant function of the said Corporation was development of land, which included land leveling, shaping, re-alignment of field boundaries, growing of trees, developing permanent and temporary pastures and farm forestry and commercial afforestation amongst others. The Rajashan High Court relied upon the judgment of the Hon’ble Supreme Court in Gujarat Industrial Development Corporation (supra) to hold that development of agricultural land cannot be isolated from the development of villages and this activity of the Corporation therein rendered it eligible for exemption under Section 10(20A) of the Act.
(viii) In the instant case, the Tribunal has relied upon the aforesaid judgments of the Hon’ble Supreme Court and the Rajasthan High Court while holding in favour of the respondent –assessee. The Tribunal has held that as per the law laid down in the context of Section 10(20A) of the Act, it is not necessary that a direct nexus is to be established with the purpose of satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages and that an indirect nexus would suffice.
(ix) On this basis, the Tribunal has found that the functions performed by the respondent- assessee under the VIDC Act result in facilitating the “development” of cities, towns and villages because its actions make available drinking water as also electricity through hydro-electric projects. Apart from this, the respondent- assessee- Corporation is involved in activities of flood control and resettlement of displaced persons, thereby showing that there is a nexus with developmental activities. The Tribunal has analysed the provisions of the VIDC Act and rendered a finding that the respondent- assessee falls within the scope of Section 10(20A) of the Act. The said analysis of the Tribunal is found in paragraphs 70 to 81, which is in tune with the law laid down by the Hon’ble Supreme Court in the context of Section 10(20A) of the Act. We are in agreement with the said findings of the Tribunal.
(x) The judgments relied upon by the appellant-Revenue are clearly distinguishable. The judgment of the Hon’ble Suspreme Court in the case of U.P. Forest Corporation (supra) concerns the expression “local authority”, which is not a subject matter of dispute in the present appeal. Even otherwise, the Tribunal has agreed with the finding of the Assessing Officer that respondent-assessee – Corporation is not a "local authority" under the General Clauses Act, 1897. Yet, the Tribunal has held in favour of the respondent- assessee by applying Section 10 (20A) of the Act. The judgment of the Hon’ble Supreme Court in the case of Calcutta State Transport Corporation (supra) also concerns the same question and is, therefore, distinguishable. The reliance placed by the appellant- Revenue on the judgment in the case of Karnataka State Small Industries Development Corporation (supra) is also misplaced, because the Corporation therein was not constituted under any law as required under Section 10(20A) of the Act and it was set up pursuant to a resolution of the Government of Karnataka. The respondent -assessee-Corporation in the instant caseis a statutory Corporation established under the VIDC Act. The judgment in the case of State Industries Promotion Corporation of Tamil Nadu (supra) is also inapplicable because the assessee therein was incorporated under the Companies Act and it was not an authority constituted under a law, as contemplated under Section 10(20A) of the Act. Thus the judgments relied upon by the appellant-Revenue do not support its claim that the respondent-assessee is not entitled for exemption under Section 10(20A) of the Act.
(xi) In view of the interpretation of Section 10(20A) of the Act in a wide sense, specifically laid down by the Hon’ble Supreme Court in the case of Gujarat Industrial Development Corporation (supra), it is evident that the Tribunal was correct in holding in favour of the respondent- assessee, as regards question No.1.
10. As regards question No.2 :
(i) The Assessing Officer as well as the CIT (Appeals) had both rejected the respondent-assessee's claim that it had commenced business. Thus, holding its income could not be computed under Section 28 of the Act as business income. This resulted in also capitalizing of expenditure. This was essentially on the basis of the method of accounting adopted by the respondent-assessee and its letter dated 16.02.2001 that it had not commenced business. The High Court in its order dated 27.07.2004 passed in Income Tax Appeal No. 49/2003, while setting aside the earlier order dated 28.02.2003 of the Tribunal and restoring it to the Tibunal for fresh disposal gave specific direction to the Tribunal to dispose of the appeal on the basis of the factual aspects computing the real income, irrespective of the method of accounting adopted by the assessee and/or only on the basis of the letter dated 16.02.2001 filed by the assessee.
(ii) Before the Tribunal, the revenue relied upon the letter dated 16.02.2001 and the method/system of accounting followed by the Assessee, to contend that the assessee had not commenced business, notwithstanding the direction of this Court in its order dated 27.07.2004 passed in Income Tax Appeal No.49/2003.
(iii) The Tribunal on fresh consideration of the facts in the impugned order found that the respondent-assessee- Corporation, upon it being set up under the VIDC Act, took over the projects concerning irrigation development in the State. It further found that even before the projects were taken over by the assessee, some portion of the canals were completed and water supplied to various fields and water charges were being collected. In fact it is the assessee's case before the Tribunal that it had received consideration of Rs. 1.12 lakhs on sale of water during the subject assessment year. In fact, the object of the assessee is to promote irrigation projects, supply of water by canal etc. as can be seen from Section 18 of the VIDC Act. This itself is the business of the respondent-assessee. The fact that existing canal networks and other activities for taking forward the irrigation projects were carried out by the respondent-assessee in the subject assessment year, would not detract from the fact that the assessee had already commenced its business. It has been found on facts by the Tribunal that the respondent -assessee- Corporation had commenced business.
(iv) The question as to when an assessee can be said to have commenced business is a question of fact and no universal test can be laid down. The impugned order is not shown to be perverse. Therefore, we do not find any reason to interfere with the said finding of fact of the Tribunal. Nor has the revenue produced any material before us which would justify taking a view different from that taken by the Tribunal. Thus, the Tribunal was correct in holding in favour of the respondent-assessee, as regards Question No.2.
11. In view of the above, both the substantial questions of law raised in the appeal are answered in the affirmative i.e. against the appellant-Revenue and in favour of the respondent-assessee- Corporation.
12. Hence appeal dismissed. No order as to costs.