Maharashtra Airport Development Company Ltd. v. DCIT Circle 3(2)(1), Mumbai
[Citation -2019-LL-0823-27]

Citation 2019-LL-0823-27
Appellant Name Maharashtra Airport Development Company Ltd.
Respondent Name DCIT Circle 3(2)(1), Mumbai
Court ITAT-Mumbai
Relevant Act Income-tax
Date of Order 23/08/2019
Assessment Year 2010-11
Judgment View Judgment
Keyword Tags infrastructure development • memorandum of association • repairs and maintenance • commercial exploitation • imposition of penalty • commercial motive • consolidated fund
Bot Summary: The assessee has challenged the order of the CIT(A) in which the CIT(A) has treated the grant of Rs 1 crores of Government of Maharashtra and rental income of Rs.1,05,000/- as income from business of Assessee. The Ld. Representative of the assessee has argued that the Government has given the grant to its 100 undertaking of Government of Maharashtra the said grant is not liable to be treated as income of the assessee in view of the decision in the case of City and Industrial Development Corporation of Maharashtra Ltd. Vs. ACIT 138 ITD 381 and in the case of CIT Vs. Karnataka Urban Infrastructure Development Finance Corpn. 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 in such a case authority for performance of all activities lie somewhere else. In tune with these observations, read with sections 113 113A of MRTP Act along with Articles 289(1) 289(3) and holding that the assessee corporation is not doing any trade activity on its 6 ITA No.5735/Mum/2014 Maharashtra Airport Development Company Ltd., own accord, we hold, relying on the decision of the Hon ble Bombay High Court in the assessees own case, in the Writ Petition, following the decision Percival case, wherein it has been held, that CIDCO, the assessee herein, is an agent of the State Government of Maharashtra. We respectfully follow the Hon ble jurisdictional High Court of Bombay, as held in the case of Percival, 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. On appraisal of the facts and circumstances, we find that the assessee has been treated as agent of Government and the income of the assessee if any was treated as income of the Government which stand deposited in the consolidated fund of the State. In the said cases it is specifically held that the main business of assessee is commercial exploitation of the properties then the rental income of the assessee is not liable to be treated as income from house property.


IN INCOME TAX APPELLATE TRIBUNAL B , BENCH MUMBAI BEFORE SHRI MAHAVIR SINGH, JM & SHRI M.BALAGANESH, AM ITA No.5735/Mum/2014 (Assessment Year :2010-11) Maharashtra Airport Vs. DCIT Circle 3(2)(1) Development Company Ltd., Room No.608, 6 th Floor 08th Floor, World Trade Aayakar Bhavan Centre, Tower No.1 M.K.Road, Cuffe Parade, Mumbai 400 020 Mumbai 400 005 PAN/GIR No.AADCM9623M (Appellant) .. (Respondent) Assessee by Shri Sumit Lalchandani Revenue by Ms. N. Hemalatha Date of Hearing 21/08/2019 Date of Pronouncement 23/08/2019 ORDER PER M. BALAGANESH (A.M): This appeal in ITA No.5735/Mum/2014 for A.Y.2010-11 arises out of order by ld. Commissioner of Income Tax (Appeals)-4, Mumbai in appeal dated 15/07/2014 (ld. CIT(A) in short) in matter of imposition of penalty u/s.271(1)(c) r.w.s. 274 of Income Tax Act, 1961. 2. only issue to be adjudicated in this appeal is with regard to challenging action of ld. CIT(A) in confirming levy of penalty u/s.271(1)(c) of Act in respect of addition made in sum of 2 ITA No.5735/Mum/2014 Maharashtra Airport Development Company Ltd., Rs. 1,00,00,000/- received as repairs and maintenance grant from Government of Maharashtra and addition made in sum of Rs.1.05 lakhs received as rental income by assessee. We find that Co- ordinate Bench decision of this Tribunal in assessee s own case in quantum proceedings in ITA No.3072/Mum/2014 for A.Y.2010-11 dated 19/06/2019 had deleted aforesaid two additions. relevant operative portion is reproduced hereunder:- 18. Issue nos. 5 & 6 are inter connected, therefore, are being taken up together for adjudication. However, assessee has challenged order of CIT(A) in which CIT(A) has treated grant of Rs 1 crores of Government of Maharashtra and rental income of Rs.1,05,000/- as income from business of Assessee. main contention of assessee is that CIT(A) was not authorized to decide issue which was not before him and to raise addition in question. On appraisal of order passed by CIT(A), we noticed that CIT(A) has treated grant of Rs.1 crores of Government of Maharashtra on account of repairs and maintenance of airports as income of assessee and also treated rental income in sum of Rs.1,05,000/- as income from business. it is to be seen whether grant in sum of Rs.1 crores released by Government of Maharashtra to assessee on account of repairs and maintenance of airports is liable to be treated as income of assessee or not. So far as grant of Rs.1 crores released by Government of Maharashtra on account of repairs and maintenance of airports is concerned, CIT(A) has treated as income of assessee. Ld. Representative of assessee has argued that Government has given grant to its 100% undertaking of Government of Maharashtra, therefore, said grant is not liable to be treated as income of assessee in view of decision in case of City and Industrial Development Corporation of Maharashtra Ltd. Vs. ACIT (2012) 138 ITD 381 (Mumbai) and in case of CIT Vs. Karnataka Urban Infrastructure Development & Finance Corpn. (2006) 155 Taxman 228 (Kar.). However, on other hand, Ld. Representative of Department has refuted said contention. It is not in dispute that assessee is 100% subsidiary of Government of Maharashtra who received grant in sum of Rs.1 crores on account of repairs and maintenance of airports. assessee has relied upon decision Hon ble ITAT in case titled as City and Industrial Development Corporation of Maharashtra Ltd. Vs. ACIT (2012) 138 ITD 381 (Mumbai). relevant finding is hereby reproduced as under.: - 3 ITA No.5735/Mum/2014 Maharashtra Airport Development Company Ltd., "37. We have heard arguments advanced from either side at length and have also perused material brought and placed before us for consideration. 38. Coming to arguments of Senior Counsel that assessee must be treated as Government or surrogate or agent, has to be considered and adjudicated at first. To consider taxation point of view, we have to refer to Article 289 of Constitution, wherein Article 289(1) says, "The property and income of State shall be exempt from Union Taxation". Article 289(2) reads, "Nothing in clause (1) shall prevent Union from imposing or authorizing imposition of, any tax to such extent, if any, as Parliament by Law provide in respect of trade or business of any kind carried on by, or on behalf of Government or State, or any operation connected therewith, or any property used or occupied for 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 ordinary functions of Government". 39. To our mind, entire case of assessee in instant case, hinges on clause (2) or clause (3) of Article 289 of Constitution of India. basic purport of Article 289(2) is to neutralize clause (1), but with rider that, if there is any "trade or business" , done on behalf of Government or any operations connected therewith or any property issued or occupied for 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 vendor. This is in line with decision of Hon ble Supreme Court of India in case of APSRTC (supra), relied upon by DR, wherein Hon ble Supreme Court had observed, "the facts that trading activity carried on by appellant may be covered by article 289(2) of Constitution does not really assist appellant's case. Even if trading activity falls under clause (2) of article 289 of Constitution, it can sustain claim for exemption from Union taxation only if it is shown that income derived from said trading activity is income of State". Therefore, whenever, there is activity in nature of trade or business, clause (2) shall come to life, which according to clause, shall be applicable towards State i.e. if activity which is in nature of trade or business, conducted by State itself, liability for tax shall emerge, typical example is that of service tax collected 4 ITA No.5735/Mum/2014 Maharashtra Airport Development Company Ltd., by State on events being conducted by vendors, have to be deposited by State, in Government exchequer, making State assessee under service tax as held by Hon'ble Supreme Court in case of Rashtriya Ispat Nigam Ltd. vs Dewan Chand Ram Saran (CA No. 3905 of 2012). This is only possible where there is activity of "trade or business", but, if, confined towards development, either of new township or betterment of functions of local authority, 289(2) shall remain in oblivion and shall not come into play. In this context when in case of APRTC, reported in 52 ITR 524 (SC), Advocate General sought to include activities in clause (2) in clause (1), Hon ble Apex Court negated same by saying "no exception can be taken". Therefore, functions and / or activity has to be seen primarily. Hon ble Supreme Court, thus observes, "Reading three clauses together, one consideration emerges beyond all doubt and that is that property as well as income in respect of which exemption is claimed under clause (1) must be property and income of State, and so, same question faces us again : is income derived by appellant from its transport activities income of State ? If trade or business is carried on by State departmentally and income is derived from it, there would be no difficulty in holding that said income is income of State. It may be that statute under which notification has been issued constituting appellant corporation may provide expressly or by necessary implication that income derived by corporation from its trading activity would be income of State". This observation read together with section 113(3A) of MR&TP Act, 1966, shall emerge that activity so performed by assessee is nothing but act of State without any profit or commercial motive attached with it. 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 ordinary functions of Government". Here, in instant case, we have to read "Parliament" as "State Government" because in instant case, it is State Government which has authorized assessee to perform development projects at Navi Mumbai, VasaiVirar, Waluj and such other places. 40. We cannot agree with argument of DR that there is no document which has drawn out Agent-Principal relationship, because very first Resolution dated 18th March, 1970 mention in para no. 2 that "............... which would act as "agent" of Government for development of areas with view to secure above objective", and in para no. 3 of this Resolution clearly 5 ITA No.5735/Mum/2014 Maharashtra Airport Development Company Ltd., say, "The subsidiary company will work under control and supervision of State Government in General Administrative Department". In our opinion, first Resolution itself makes it clear that assessee is to be agent, but functions as arm of State Government, because, if assessee can only work under control and supervision of State Government, meaning thereby that assessee cannot make / take any decisions suo moto, then, in such case authority for performance of all activities lie somewhere else. In any case, as per this Resolution, it clearly makes assessee "agent" of State. 41. When we look into financial functions of assessee, we find that all dealings have to be routed through authorizations by Government and all funds receivable shall be in compliance and with intimations to : To Managing Director, State Industrial and Investment Corporation of Maharashtra Ltd. Bombay. Industries Commissioner, Bombay Accountant General, Maharashtra, Bombay Pay & Accounts Officer, Bombay Resident Audit Officer, Pay and Accounts Officer, Bombay Senior Deputy Accountant General, Nagpur All Departments of Secretariat Divisional Commissioner, Bombay Division, Bombay Budget Branch, Industries & Labour Department, Bombay Director of Publicity, Bombay. 42. We find that according to MR&TP Act, 1966, 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 assessee as Development Authority for development to new townships and Local Authorities for streamlining functions of already existing towns like Aurangabad, Nashik, Nagpur etc. This, itself shows that assessee is acting totally on behalf of Government. Another distinguishing feature that can be seen in that as soon as "Project" is complete, project gets handed back to State, i.e. when there is development project, as per phases, and in case of local authority, as and when authorizing committee is satisfied, reins are transferred to municipal boards, from whom, 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 assessee corporation is not doing any trade activity on its 6 ITA No.5735/Mum/2014 Maharashtra Airport Development Company Ltd., own accord, we hold, relying on decision of Hon ble Bombay High Court in assessees own case, in Writ Petition, following decision Percival case (supra), wherein it has been held, that CIDCO, assessee herein, is agent of State Government of Maharashtra. We, therefore, respectfully follow Hon ble jurisdictional High Court of Bombay, as held in case of Percival (supra), and hold, assessee to be "agent" of State Government of Maharashtra, read with entire overwhelming documents, suggesting that there is no income to assessee as such, and whatever is, generated, it gets deposited in Consolidated Fund of State. We also cannot ignore fact that department has been assessing assessee as State Government undertaking for last three years, therefore, even this cannot be called as afterthought and applying rule of consistency , we hold that department cannot be allowed to take distinctive approach in current year." 19. On appraisal of facts and circumstances, we find that assessee has been treated as agent of Government and income of assessee if any was treated as income of Government which stand deposited in consolidated fund of State. assessee placed reliance upon decision of Kolkata High Court in case of Prl. CIT Vs. State Fisheries Development Corporation ITA No. 19 of 2017 with GA 413 of 2017 in which grant has been treated has capital receipt. similar view has been taken by Delhi High Court in case titled as CIT Vs. Handicrafts and Handlooms Exports Corporation of India Limited cited as (2014)360 ITR 130 (Delhi). instant case also Maharashtra Government release grant in favour of assessee for repairs and maintenance of airports . It is if any capital in nature and is not liable to be considered as revenue in nature. Taking into account all facts and circumstances and by relying upon above mentioned law, we are of view that grant in sum of Rs.1 crores released by Government of Maharashtra on account of repairs and maintenance of airports is not liable to be treated as income of assessee being in nature of capital receipt. Coming to treatment of rental income in sum of Rs.1,05,000/- as business income. We noticed that main object of assessee is sale and leasing of land. This issue has been decided by CIT(A) in favour of assessee for A.Y.2011-12 & 2012-13. CIT(A) has given finding which is reproduced as under: - "5.5 This ground relates to considering income from lease rental of appellant as "income from other sources" and denying deduction u/s 80- IAS. assessing officer has discussed this at para 5.7 of his order. He has held that income from rent of building and lease premium of land located in SEZ has no nexus with aLe2ants business and hence treated it as "income from other sources". 7 ITA No.5735/Mum/2014 Maharashtra Airport Development Company Ltd., 5.5.2 It is not in dispute that appellant is Government company. MADC has been formed to play lead role in planning and implementation of Multi-modal National Hub Airport at Nagpur (MIHAN) project. main objects of appellant company as per clause Ill (A) of Memorandum of Association is to design, plan, construct, erect, build, remodel, repair, execute, develop, operate, sale, lease, rent, improve, administer, manage control, maintain and demolish airport, air-traffic equipment, traffic terminals, roads, railways, highways, expressways, bridges, tunnels, railroads, urban transport systems, alleys, township schemes, industrial, docks, shipyards, canal, wells, ports, reservoirs, embankments, dams, r-cation works, reclamations, improvements, sanitary systems, water works, water gas or any other structural or architectural work and Special Economic Zones. It is most essential business activity of appellant to operate SEZ and income from leasing out parts of it to eligible persons for eligible activities, with It approval of Govt. of India and inconformity with SEZ policy. 5.5.3 assessing officer has failed to explain why this essential component of appellant's business does not have nexus with its stated business activity as approved by Govt. of India. considerable amount of public money in form of Government grant has been invested in company to generate infrastructure to promote eligible industries. If income from this activity is not considered as business income then it is beyond comprehension what other part would constitute its business Therefore, this ground of appeal is allowed. assessing officer is directed to treat lease/rent of Rs.2,04,90,596/- as business income and eligible for purpose of deduction u/s 80-IAB." 20. On basis of above mentioned finding, CIT(A) has also decided issue in favour of assessee. At time of arguments Ld. Representative of assessee has also placed reliance of case titled as Shreeji Exhibitors Vs. ACIT (2015) 42 ITR (T) 596 and Chennai Properties & Investment Vs. CIT (2015) 373 ITR 673. In said cases it is specifically held that main business of assessee is commercial exploitation of properties then rental income of assessee is not liable to be treated as income from house property. Taking into account all facts and circumstances, we are of view that rental income to tune of Rs.1,05,000/- is liable to be treated as income business. Accordingly, we decide this issue in favour of assessee against revenue. 8 ITA No.5735/Mum/2014 Maharashtra Airport Development Company Ltd., 2.1. We hold that once quantum is deleted, penalty will have no legs to stand. Accordingly, we direct ld. AO to delete penalty levied in case of assessee in respect of these two additions. 3. Ground No.5 raised by assessee is only on alternative plea and had become academic in nature in view of our aforesaid observations. 4. Ground Nos.6 to 12 raised by assessee are general in nature and do not require any specific adjudication. 5. In result, appeal of assessee is allowed. Order pronounced in open court on this 23/08/2019 Sd/- Sd/- (MAHAVIR SINGH) (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 23/08/2019 KARUNA, sr.ps 9 ITA No.5735/Mum/2014 Maharashtra Airport Development Company Ltd., Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER, (Asstt. Registrar) ITAT, Mumbai Maharashtra Airport Development Company Ltd. v. DCIT Circle 3(2)(1), Mumbai
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