MAHARSHTRA AIRPORT DEVELOPMENT CO. LTD,MUMBAI vs. DCIT CIR 3(2), MUMBAI

The only issue to be adjudicated in this appeal is with regard to challenging the action of the ld. CIT(A) in confirming the levy of penalty u/s.271(1)(c) of the Act in respect of addition made in the sum of Maharashtra Airport Development Company Ltd., Rs. 1,00,00,000/- received as repairs and maintenance grant from the Government of Maharashtra and addition made in the sum of Rs.1.05 lakhs received as rental income by the assessee. We find that the Co- ordinate Bench decision of this Tribunal in assessee’s own case in the quantum proceedings in for A.Y.2010-11 dated 19/06/2019 had deleted the aforesaid two additions. The relevant operative portion is reproduced hereunder:-

“18. Issue nos. 5 & 6 are inter connected, therefore, are being taken up together for adjudication. However, 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 main contention of the assessee is that the CIT(A) was not authorized to decide the issue which was not before him and to raise the addition in question. On appraisal of the order passed by the CIT(A), we noticed that the CIT(A) has treated the grant of Rs.1 crores of Government of Maharashtra on account of repairs and maintenance of airports as income of the assessee and also treated the rental income in sum of Rs.1,05,000/- as income from business. it is to be seen whether the grant in sum of Rs.1 crores released by Government of Maharashtra to the assessee on account of repairs and maintenance of airports is liable to be treated as income of the assessee or not. So far as the grant of Rs.1 crores released by Government of Maharashtra on account of repairs and maintenance of airports is concerned, the CIT(A) has treated as income of the assessee. The Ld. Representative of the assessee has argued that the Government has given the grant to its 100% undertaking of Government of Maharashtra, therefore, 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 (2012) 138 ITD 381 (Mumbai) and in the case of CIT Vs. Karnataka Urban Infrastructure Development & Finance Corpn. (2006) 155 Taxman 228 (Kar.). However, on the other hand, the Ld. Representative of the Department has refuted the said contention. It is not in dispute that the assessee is 100% subsidiary of the Government of Maharashtra who received the grant in sum of Rs.1 crores on account of repairs and maintenance of airports. The assessee has relied upon the decision Hon‟ble ITAT in the case titled as City and Industrial Development Corporation of Maharashtra Ltd. Vs. ACIT (2012) 138 ITD 381 (Mumbai). The relevant finding is hereby reproduced as under.: -

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".

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

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

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.

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.

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 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 (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."

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. The assessee placed reliance upon the decision of Kolkata High Court in case of Prl. CIT Vs. The State Fisheries Development Corporation of 2017 with GA 413 of 2017 in which the grant has been treated has capital receipt. The similar view has been taken by the Delhi High Court in case titled as CIT Vs. Handicrafts and Handlooms Exports Corporation of India Limited cited as (2014)360 ITR 130 (Delhi). The instant case also Maharashtra Government release the grant in favour of assessee for the 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 the facts and circumstances and by relying upon the above mentioned law, we are of the view that the 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 the assessee being in the nature of capital receipt. Coming to the treatment of rental income in sum of Rs.1,05,000/- as business income. We noticed that the main object of the assessee is sale and leasing of land. This issue has been decided by CIT(A) in favour of the assessee for the A.Y.2011-12 & 2012-13. The CIT(A) has given the finding which is reproduced as under: - "5.5 This ground relates to considering the income from lease rental of appellant as "income from other sources" and denying deduction u/s 80- IAS. The 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 the aLe2ants business and hence treated it as "income from other sources".

The Ground No.5 raised by the assessee is only on an alternative plea and had become academic in nature in view of our aforesaid observations.

The Ground Nos.6 to 12 raised by the assessee are general in nature and do not require any specific adjudication.

In the result, appeal of the assessee is allowed.