ACIT Vs M/s. City and Industrial Development Corporation of Maharashtra Ltd. (ITAT Mumbai)
ITAT held that the CIDCO is an agent of the State Government of Maharashtra and the assessee is not doing any trade activity of its own and the entire income of the assessee gets deposited in the consolidated fund of the State and therefore the Revenue Authorities were in error in assessing business income in the hands of the assessee.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
1. This appeal is filed by the Revenue against the order of the Ld.CIT(A) – 24 Mumbai dated 17.12.2015 for the Assessment Year 2007-08. The Revenue has raised the following grounds: –
“1. On the facts and circumstances of the case in law, the Ld.CIT(A) erred in holding that the assessee is an agent of the Government of Maharashtra, without appreciating the facts that there is no evidence/documents substantiating that the Principal-Agent-Relationship exists between the assessee and the government of Maharashtra.
2. The appellant prays that the order of the Ld.CIT(A) on the above ground be set-aside and that of the Assessing Officer be restored.
3. The appellant craves leave to add, amend or alter any grounds or add a new ground which may be necessary.”
2. The Ld. Counsel for the assessee at the outset submits that the issue in appeal is squarely covered by the Coordinate Bench of the Tribunal in assessee’s own case for the immediately preceding Assessment Year i.e. 2006-07 in ITA.No. 2985/MUM/2012 dated 08.08.2012. Referring to the said order Ld. Counsel for the assessee submits that the Coordinate Bench held that the assessee is an agent of the State Government of Maharashtra and the assessee is not doing any trade activity of its own and the entire income of the assessee gets deposited in the consolidated fund of the State and therefore the Revenue Authorities were in error in assessing business income in the hands of the assessee.
3. Counsel for the assessee submits that following the order of the Coordinate Bench for the Assessment Year 2006-07 similar view has been taken for the Assessment Years 2003-04, 2004-05 and 2005-06 in DCIT v. M/s. CIDCO Ltd. in ITA.Nos. 4378, 4379 and 4383/MUM/2013 dated 18.12.2014. Ld. Counsel for the assessee further submits that this position has been accepted by the Revenue in the subsequent Assessment Years.
4. The Ld.DR fairly submits that issue has been decided in favour of the assessee by the Coordinate Bench in assessee’s own case for the Assessment Year 2006-07. However, he supports the order of the Assessing Officer.
5. We have heard the rival submissions, perused the orders of the authorities below and the Coordinate Bench decision in assessee’s own case for the immediately preceding Assessment Year. The Coordinate Bench considered the issue of whether the assessee is an agent to the State Government of Maharashtra and whether the income generated and earned by the principle i.e. the State Government of Maharashtra is liable to be taxed in the hands of the CIDCO as its business income and the Coordinate Bench held as under: –
“37. We have heard the arguments advanced from either side at length and have also perused the material brought and placed before us for consideration.
38. Coming to the arguments of the Senior Counsel that the assessee must be treated as Government or surrogate or an agent, has to be considered and adjudicated at first. To consider the taxation point of view, we have to refer to Article 289 of the Constitution, wherein Article 289(1) says, “The property and income of a State shall be exempt from Union Taxation”. Article 289(2) reads, “Nothing in clause (1) shall prevent the Union from imposing or authorizing the imposition of, any tax to such extent, if any, as Parliament by Law provide in respect of a trade or business of any kind carried on by, or on behalf of the Government or State, or any operation connected therewith, or any property used or occupied for the purpose of such trade or business, or any income accruing or arising in connection therewith” and Article 289(3) reads, “Nothing in clause.(2) shall apply to any trade or business, or to any class of trade or business, which Parliament may by Law declare to be incidental the ordinary functions of Government”.
39. To our mind, the entire case of the assessee in the instant case, hinges on clause (2) or clause (3) of Article 289 of the Constitution of India. The basic purport of Article 289(2) is to neutralize clause (1), but with a rider that, if there is any “trade or business” , done on behalf of the Government or any operations connected therewith or any property issued or occupied for the purposes of such trade or business, or any income accruing or arising in connection therewith. To make this clause effective, even for Government / State, conduct of “trade or business” is necessary, which simply means involvement of commercial and profit motive for the vendor. This is in line with the decision of Hon’ble Supreme Court of India in the case of APSRTC (supra), relied upon by the DR, wherein the Hon’ble Supreme Court had observed,
“….the facts that the trading activity carried on by the appellant may be covered by article 289(2) of the Constitution does not really assist the appellant’s case. Even if a trading activity falls under clause (2) of article 289 of the Constitution, 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”.
Therefore, whenever, there is an activity in the nature of trade or business, clause (2) shall come to life, which according to clause, shall be applicable towards the State i.e. if an activity which is in the nature of trade or business, conducted by the State itself, the liability for tax shall emerge, a typical example is that of service tax collected by the State on events being conducted by the vendors, have to be deposited by the State, in the Government exchequer, making the State an assessee under service tax as held by the Hon’ble Supreme Court in the case of Rashtriya Ispat Nigam Ltd. vs Dewan Chand Ram Saran (CA No. 3905 of 2012). This is only possible where there is an activity of “trade or business”, but, if, confined towards development, either of a new township or betterment of the functions of the local authority, 289(2) shall remain in the oblivion and shall not come into play. In this context when in the case of APRTC, reported in 52 ITR 524 (SC), the Advocate General sought to include activities in clause (2) in clause (1), the Hon’ble Apex Court negated the same by saying “no exception can be taken”. Therefore, the functions and / or activity has to be seen primarily. The Hon’ble Supreme Court, thus observes,
“Reading the three clauses together, one consideration emerges beyond all doubt and that is 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 so, the same question faces us again: is the income derived by the appellant from its transport activities the income of the State? If a trade or business is carried on by the State departmentally and income is derived from it, there would be no difficulty in holding that the said income is the income of the State. It may be that the statute under which a notification has been issued constituting the appellant corporation may provide expressly or by necessary implication that the income derived by the corporation from its trading activity would be the income of the State”.
This observation read together with section 113(3A) of MR&TP Act, 1966, shall emerge that the activity so performed by the assessee is nothing but an act of State without any profit or commercial motive attached with it. The only clause left for our consideration then would be clause (3), which shall come into play once clause (2) is disbanded and as soon as it become disbanded, clause (3) come to life, which operates only if, “Parliament may by Law declare to be incidental to the ordinary functions of Government”. Here, in the instant case, we have to read “Parliament” as “State Government” because in the instant case, it is the State Government which has authorized the assessee to perform the development projects at Navi Mumbai, Vasai, Virar, Waluj and such other places.
40. We cannot agree with the argument of the DR that there is no document which has drawn out the Agent-Principal relationship, because the very first Resolution dated 18th March, 1970 mention in para no. 2 that “……………………………. which would act as an “agent” of Government for the development of the areas with a view to secure the above objective”, and in para no. 3 of this Resolution clearly say, “The subsidiary company will work under the control and supervision of the State Government in the General Administrative Department”. In our opinion, the first Resolution itself makes it clear that the assessee is to be an agent, but functions as an arm of the State Government, because, if the assessee can only work under the control and supervision of the State Government, meaning thereby that the assessee cannot make / take any decisions suo moto, then, in such a case authority for performance of all activities lie somewhere else. In any case, as per this Resolution, it clearly makes the assessee an “agent” of the State.
41. When we look into the financial functions of the assessee, we find that all dealings have to be routed through authorizations by the Government and all funds receivable shall be in compliance and with intimations to :
To The Managing Director,
State Industrial and Investment Corporation of Maharashtra Ltd. Bombay.
The Industries Commissioner, Bombay
The Accountant General, Maharashtra, Bombay
The Pay & Accounts Officer, Bombay
The Resident Audit Officer, Pay and Accounts Officer, Bombay
The Senior Deputy Accountant General, Nagpur
All Departments of Secretariat
The Divisional Commissioner, Bombay Division, Bombay
The Budget Branch, Industries & Labour Department, Bombay
The Director of Publicity, Bombay
42. We find that according to MR&TP Act, 1966, the machinery sections, i.e. sections 113 & 113A talk of appointment of Development Authority and Local Authority and accordingly, through various Resolutions, in compliance of these sections, MR&TP Act has appointed the assessee as the Development Authority for development to new townships and Local Authorities for streamlining the functions of already existing towns like Aurangabad, Nashik, Nagpur etc. This, itself shows that the assessee is acting totally on behalf of the Government. Another distinguishing feature that can be seen in that as soon as the “Project” is complete, the project gets handed back to the State, i.e. when there is a development project, as per phases, and in the case of local authority, as and when the authorizing committee is satisfied, the reins are transferred to the municipal boards, from whom, the project was taken over, as we have seen from Resolution no. 10375 dated 06/08/2010.
43. In tune with these observations, read with sections 113 & 113A of MR&TP Act along with Articles 289(1) & 289(3) and holding that the assessee corporation is not doing any trade activity on its own accord, we hold, relying on the decision of the Hon’ble Bombay High Court in the assessee’s own case, in the Writ Petition, following the decision Percival case (supra), wherein it has been held, that CIDCO, the assessee herein, is an agent of the State Government of Maharashtra. We, therefore, respectfully follow the Hon’ble jurisdictional High Court of Bombay, as held in the case of Percival (supra), and hold, the assessee to be the “agent” of the State Government of Maharashtra, read with the entire overwhelming documents, suggesting that there is no income to the assessee as such, and whatever is, generated, it gets deposited in the Consolidated Fund of the State. We also cannot ignore the fact that the department has been assessing the assessee as a State Government undertaking for the last three years, therefore, even this cannot be called as an afterthought and applying the ‘rule of consistency’, we hold that the department cannot be allowed to take a distinctive approach in the current year
44. The revenue authorities were thus, clearly in error, in assessing the business income in the hands of the assessee at Rs. 63,786.58 lacs. We delete this income, as not belonging to the assessee. “
6. As there are no changes in facts and circumstances, respectfully following the above decision we affirm the order of the Ld.CIT(A) and reject the grounds raised by the Revenue.
7. In the result, appeal of the Revenue is dismissed.
Order pronounced in the open court on the 04th January, 2018.