CITY & INDUSTRIAL DEVELOPMENT CORPORATION OF MAHARASHTRA LTD.,MUMBAI vs. PR. CIT-15, MUMBAI, MUMBAI

Brief facts of the case are that the learned CIT in this case observed that the company claimed exemption u/s.10(20A) of the Act till A.Y. 2002-03. That Section 10C20A) of the Income Tax Act was omitted by the Finance Act w.e.f. 01.04.2003. That therefore, under income Tax Act, 1961, no exemption is available to the company. That following the omission of section 10(20A) of the I.T.Act, 1961, the income of the assessee is taxable as per the provisions of the I.T. Act under various heads. The order passed by the ITO-15(1)(3) u/s. 143(3) on 28.12.2017 is erroneous in so far as it is prejudicial to the interest of revenue, following the omission of section 10(20A) of the I.T. Act 1961, the income of the is taxable as per the provisions of the IT. Act under various heads. That the order by the ITO-15(1)(3) u/s. 143(3) on 28.12.2017 is erroneous in so far as it is prejudicial to the interest of revenue. Accordingly notice to assessee u/s. 263 was issued.

After receiving the response of the assessee learned CIT passed the following order :- “I have carefully considered the submission of the assessee that tax cannot be levied as the assessee is considered as an agent of the State. I find that by virtue of Article 289(1) of the Constitution, 4he property and income of the State is exempt from Union Taxation. Therefore, in my view, before concluding that the income of the is not taxable, it is necessary to arrive at the conclusion that the assesses is the surrogate of the State Government and surrogate is performing the tasks of the Government and, therefore, the surplus accruing to the State Government are not taxable as per the provisions of section 289(1) of the Constitution of India.

I have carefully considered the submissions of the but I am of the view that the is not an of the Government and, therefore, the tasks performed by the cannot be equated with the tasks performed by the State Government, Further, Article 289(2) of the Constitution of India levy of Union Taxation on Stats Government owned companies and, therefore, any income accruing to the must be to the provisions of the Income Tax Act, 1961, The is a company there is not dispute that the company is a person as per the provisions of section 2(31) of the income Tax Act, 1961. As per the provisions of section 4, the income of the previous year of every person is chargeable to income tax. As per the provisions of section 5, the total income of any previous year of a person who is resident will include all income from whatever sources derived which is received or to be received in India, accrues or arises or deemed to accrue or in India or accrues or arises to him outside India during the previous year. Taken into consideration together, it can be said that any income of a person who is in India received, accrues or arises in India, or India during the previous year is taxable as per the provisions of the income Tax Act, 1961. The incorporated as a Company on 19.03.1970 with which was wholly and exclusively subscribed by the Government of Maharashtra with the object of creation of New Town of Navi Mumbai, New Aurangabad, New Nasik etc. Therefore, In® is a company which is incorporated as a Company on 17.03.1970 with the subscribed by the Government of Maharashtra, But this fact riot prove that the tasks performed by this company are the of the Government, Even if the company is fully owned by the Government, it cannot be held that it is performing the tasks of the Government. Development of new towns during the contemporary India is not the exclusive task of the Government. It is the task which is being performed by the private with efficiency and competence. As per provisions of the Competition Act, 2002, no favourable treatment could be given even if the company is owned by the Government, it is the provisions of the Competition Act 2002, Once the company is incorporated by the Government, it will have to compete with other in the and the playground should be even and for this it is necessary that ail the conditions including taxability of income should be same without any discrimination with the companies owned by the Government or in private sector.

With due respect to the Tribunal and other Courts, as the decision are not considered applicable in the case of the appeal has been filed by the Department against the order of Hon'ble ITAT in A.Y, 2006-07 and 2007-08 before the Hon'ble Bombay High Court.

Other replies of the appearing on 8 to 11 are in respect of certain components of income mentioned in show notice u/s. 263 which are not considered relevant to take the decision as to whether the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of revenue. In the order by the Officer u/s. 143(3) on 28.12.2017 is considered as erroneous, in so far as it is prejudicial to the interest of revenue, in response to the notice u/s.283 dated 12.12.2018 then, suitable directions will be given in respect of these aspects also.

At last on 11, the assessee has cites the Judgement of Hon'ble Supreme Court of India in the case of India in the case of Malabar Industrial Company Ltd. Vs. Commissioner of Income Tax 243 ITR 81 and CIT vs Max India Ltd. 295 ITR 282. The judgements of the Hon'ble Supreme Court are full respect to the judgements, it is submitted that in the case of the assessee only one view is possible and that is the acts of the assessee company are not the acts of the State and, therefore, the income of the company must be subject to the provisions of the Income Tax Act, 1961 and income Tax Rules, 1962.

The company is stated to be appointed as a New Town Development Authority for developing the Navi Mumbai Area u/s. 113(3A) of the Maharashtra Regional and Town Planning Act of 1966 (i.e.MRTP Act) and as Special Planning Authority for other notified u/s.40(1)(b) with 113(3A) of MRTP Act for carrying out its as New Town Authority and Special Planning Authority as per the provision of 113(3A) 40(1)(b) r.w.s.113(3A) and various Government Resolutions (GRs) and Notification by the Government of Maharashtra. In for A ,Y 2007-08, it was mentioned that the Government Resolution 24.01.1972 and 11,01.1974 were passed appointing the company as the New Town Development Authority for Navi Mumbai, However, the Government Resolutions nowhere speak of appointing the company as an agent of the Government of Maharashtra. In the instant case, the company claiming exemption u/s,10(20A) of the Act till A.Y. 2002-03, With the deletion/omission of the said section, no exemption remained to the company Return of income have been filed by the company for A.Y, 2003-04 to 2008-07 either u/s.139 or in response to notice u/s,148 of the l.T.Act. It is only withdrawal of exemption u/s.10(20A) of the Act and further declaring income in its own hands in its return fifed for A.Y. 2003-04 to A.Y,2005-06 that assesses company has come out with a novel claim that its Income to the Government of Maharashtra and the assessee company was acting merely as an agent of the State Government. Thus it is the contention of being an agent is just an after-thought a ruse to escape the fax liability as per the provisions of the Income Tax Act, 1961. The company has gone with a claim of TDS credit in the return filed for A.Y. 2015-18. This further confirms that the corresponding income belongs to the Assesses Company itself and is, therefore, taxable in its hands only. The assessee company was in appeal for the similar in earlier assessment years. Thus matter was subjudice.

The Apex Court in the of APSRTC reported in (1984) 052 ITR 0524 (SC) holds that is not an arm of the Government and, its income cannot be considered as the income of the Government and thus the claim of the in DOT, Circle 1(1) Vs Andhra Pradesh (ITA No.360 & 417/Hyd/201S in December, 2016 that privilege fee by the petitioner to the Government would be taxable. Section 40(iib) of the income Tax Act has amended to provide any amount paid by way of fee, etc. shall not be allowed as deduction to such undertaking under the gains of the business.

The company is taking a that if is an Agent of the Government and that the remuneration of Rs.5,00,000/- is the only taxable income in its hands. This proposition is totally wrong as there is no exemption available under the income Tax Act for the to claim any sort of exemption of the income out of its operations, In fact, the assesses was duty bound to cast the balance sheet and profit and loss account so as to reflect the exact and true account of the incomes arising out of such invitees being performed by the assessee. The assessee has not adhered to the accounting standards and instead choose to show the entire income accrued as transferred to the State, The taxability of such an income in the hands of the before apportionment to the State Government is the precise issue which is the subject matter of the revision under 263.

Therefore, I consider the order by the Assessing Officer u/s.143(3) on 28.12,2017 as erroneous and in so far as it is prejudicial to the interest of revenue and, therefore, the order passed by the Assessing Officer is set with a direction to pass the order denovo after giving an opportunity of being heard before passing an order in determining the total income of the assessee under various heads of income. The Assessing Officer will not hold the task performed by the assessee as actions of the Government and, therefore, the provisions of Article 289(1) of the Constitution of India will not be applicable in this case. The order u/s.263 is passed accordingly.”

Against this order assessee is in appeal before us.

We have heard both the counsel and perused the records. Learned Counsel of the assessee Shri Madur Agarwal submitted that in identical 263 order passed in the case of the same assessee for A.Y. 2014-15 this Tribunal has set aside the order of learned CIT dated 16.10.2019.

Per contra, learned CIT-Departmental Representative Shri A. Mohan could not dispute the proposition submitted by learned AR.

From the order passed by Pr. CIT u/s 263, we noticed that he intends to correct the assessments made by the AO u/s 143(3) by observing that the case of the assessee fall under Article 289(1) and presumed that assessee is claiming the exemption under Article 289(1), whereas all these years, assessee has filed the return of income and declared income earned from the Govt. of Maharashtra as an agent. As per the resolution passed by the Govt. of Maharashtra, the remuneration fixed at Rs. 5 lakhs per annum and the same was declared by the assessee over the years and the department has accepted the stand taken by the assessee from AY 2003-04 to 2013-14 other than AY 2006-07 and 2007- 08 in which department is in appeal before High Court. When the AO accepted the assessee is an agent and completed the assessment u/s 143(3) over the years, it means that the AO completed the assessment with one particular view, whereas Pr. CIT intends to correct the above view and presumed that the case of assessee falls under Article 289(1) and come to a conclusion that assessee is not comes under Article 289 and subjected to tax under Income Tax Act, therefore, in our view, this is another view in the case of assessee. Therefore, Pr. CIT cannot invoke the provision of section 263 of the Act when two views are possible as held in the case of CIT vrs. Max India Ltd, wherein it was held as under:-

In our view at the relevant time two views were possible on the word "profits" in the proviso to Section 80HHC(3). It is true that vide the 2005 amendment the law has been clarified with retrospective effect by insertion of the word "loss" in the new proviso. We express no opinion on the scope of the said amendment of 2005. Suffice it to state that in this particular case when the order of the Commissioner was passed under Section 263 of the Income Tax Act, 1961, two views on the said word "profits" existed. In our view the matter is squarely covered by the judgment of this Court in the case of Malabar Industrial Co. Ltd. v. CIT reported in (2000) 243 ITR 83; as also by the judgment of the Calcutta High Court in the case of Russell Properties P. Ltd. v. A. Chowdhury, Addl. CIT.

At this stage we may clarify that under paragraph 10 of the judgment in the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 this Court has taken the view that the phrase "prejudicial to the interests of the revenue " under Section 263 has to be read in conjunction with the expression "erroneous" order passed by the assessing officer. Every loss of revenue as a consequence of an order of the assessing officer cannot be treated as prejudicial to the interests of the revenue. For example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue ; or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue , unless the view taken by the Income Tax Officer is unsustainable in law…….

Respectfully, following the above decision, in our considered view that Pr. CIT has adopted one possible view in the present case and the order passed by Pr. CIT u/s 263 of the Act is accordingly dismissed as assessment order may be prejudicial but not erroneous. Further, the main dispute arouse due to whether assessee is an agent or not. In the civil appeal, Hon’ble high court held that assessee is an agent as per Section 113(3A) of MRTP Act. PCIT refused to consider this decision as it is not adjudicated under Income Tax Act. We cannot neglect the Hon’ble high court findings, we have to accept the definition/meanings by higher court and most of the time, meanings and definitions are adopted from other law or from wisdoms of higher courts in Income Tax proceedings. PCIT has taken a strange stand not to follow the Judicial precedents in order to defend his proceedings u/s 263. Accordingly order u/s 263 is set aside.

In the result, assessee’s appeal is allowed. Order pronounced under Rule 34(4) of the ITAT Rules on 28.9.2020.