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PETITIONER: GUJARAT INDUSTRIAL DEVELOPMENT CORPORATION

       Vs.

RESPONDENT: THE COMMISSIONER OF INCOME TAX

DATE OF JUDGMENT:       20/08/1997

BENCH: B. N. KIRPAL, K. T. THOMAS

ACT:

HEADNOTE:

JUDGMENT:              (With C.A Nos. 3482/90 & 2267/91)                       J U D G M E N T THOMAS, J      The  question  raised,  in  its  broad  parameters,  is whether industrial development could be enveloped within the expression "planning,  development or improvement of cities, towns and  villages or  for both"  in Section 10(20A) of the Income-tax Act, (for short ’the I.T. Act),      Appellant, Gujarat  Industrial Development Corporation, (for  short   ’the  Corporation’)   claimed  exemption  from taxation under  the I.T Act on two alternative premises, one under Article 289(1) of the Constitution and the other under clause (20A)  of Section 10 of the I.T. Act A Division Bench of High  Court of  Gujarat disallowed  the claim under both. Hence the  Corporation has  filed  this  appeal  by  special leave.      Corporation  has   been  created   under  the   Gujarat Industrial Development  Act, 1962,  (for short  ’the Gujarat Act’) with the right to hold properties and the right to sue and be  sued  in  its  own  name.  The  Income  tax  Officer concerned  repelled   the  claim   of  the  Corporation  for exemption from  tax  on  both  grounds,  but  the  Appellate Assistant Commissioner  (AAC) on  appeal, upheld their claim on both  counts. When  the  Revenue    challenged  the  said decision in second appeal the  Income Tax Appellate Tribunal reversed the  view taken  by the  AAC on  both  counts.  Two questions were  thereupon   formulated to be answered by the High  Court,   one  relating   to  Article   289(1)  of  the Constitution and  the other  relating to  Section 10(20A) of the I.T.  Act. Answers  were given  by the  High  Court,  as mentioned above, against the Corporation.      Learned counsel  for the  appellant Corporation stated, at the  outset, that  he does  not  press  the  claim  under question under  Article 289(1)  of the  Constitution.    His arguments were  confined entirely  to the  scope of  Section 10(20A) of the I.T. Act. Therefore, we need not vex our mind with the former question.      Section 10(20A) of the I.T. Act reads thus:      "Any   income   of   an   authority      constituted in  India by  or  under

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    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."      Any income falling within the ambit of said sub-section would automatically  slip out of exigibility under I.T. Act. The sub-section  pertains to  any  income  of  an  authority constituted by  or under any enacted law. This first limb of the sub-section  is squarely available to the Corporation as it has been constituted under the Gujarat Act.      The second  limb of  the sub-section  consists  of  law alternatives, of  which the  first  is  that  the  authority constituted by  law should  be for  dealing with the need to provide housing accommodation. That alternative is obviously not available  to the  appellant corporation as nobody has a case that  appellant Corporation has anything to do with the obligation to  provide  housing  accommodation.  It  is  the second alternative  in the sub-section under which appellant seeks shelter  to be  absolved from  the  liability  to  pay income tax.  As per  that alternative,  if the  Authority is constituted for  the purpose  of planning  or development or improvement of any city or town or village or combination of them, the income of such Authority is not exigible to income tax.      The Division  Bench of  the High  Court while  agreeing that "industrial  activity is  one of  the facets of general development" adopted  a reasoning  that since development of an area  would require  roads, buildings, sanitation, parks, sports, educational institutions and several other amenities "a city  or town  or village could be well developed without any industry".  The Division  Bench  posed  a  question  and answered it in the following manner:      "The   question,    therefore,   is      whether    when     a    particular      Corporation is  established for the      purpose    of     developing     or      establishing  industries   in   any      particular area,  can any  one  say      that  it  is  for  the  purpose  of      planning, developing or improving a      particular city,  town village or a      particular area?  One may establish      an industry  in a  given area. That      area for  the purpose  of  industry      may  develop.   But  it   does  not      necessarily mean   that  particular      area  develops   by  that  industry      alone. There  may be advantages and      disadvantages.  On  the  one  hand,      because   there    are   industrial      activities in  the area, some trade      and commerce  may  grow,  but  that      does not  necessarily mean  that it      would develop that particular area.      It may  also create  pollution  and      several other  problems. Apart from      that,   the   question   which   is      required to  be considered is as to      whether   the    purpose   of   the      Corporation or  the object  of  the      Corporation is to develop any city,      any town  or any  particular  area.

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    The  answer   would   be   in   the      negative."      The Gujarat  Act was enacted "to make special provision for securing  the orderly  establishment  of  industries  in industrial areas  and industrial  estates in  the  State  of Gujarat, and to assist generally in the organisation thereof and for  that purpose to establish an Industrial Development Corporation, and  for purposes  connected with  the  matters aforesaid as can be discerned from the preamble thereof.      Section 2  (g) of  the Act defines "industrial area" as any area  declared to  be an  industrial area  by the  State Government by  notification in the Official Gazette which is to be developed and where industries are to be accommodated. Section  2(n)   defines  "industrial  estate"  as  any  site selected by  the  State  Government  where  the  Corporation builds  factories   and  other   buildings  and  makes  them available for any industries or class of industries. Section 13 of  the  Gujarat  Act  enumerate  the  functions  of  the Corporation and  they contain,  inter alia,  "to promote and assist in  the rapid  and orderly  establishment, growth and development of industries in the State of Gujarat."      We have  no doubt  that a proper planning is absolutely necessary for  creation of an industrial area. Inside roads, sub-roads buildings,  sanitation, parks  and other amenities have also to be provided in a planned industrial area as per the  modern   concept  of   any  industrial   complex.  Even educational institutions  may have  to be  provided in  such complex. Therefore,  development of  industrial  area  would have its  direct impact on the development or improvement of that part  of the city or town or village where such area is located.  Delinking   industrial  area  from  the  scope  of development of  any area  is, thus,  without  any  practical sense.      In this  context a  reference to Maharashtra Industrial Development Act,  1962, which  is almost  analogous  to  the Gujarat Act, is of some use. While examining issues relating to the  validity of  the Maharashtra Act a Division Bench of this court  has said  in Shri  Bamtanu Co-operative  Housing Society Ltd.  and another  vs. State  of Maharashtra Housing Society Ltd. and another vs. State of Maharashtra and others (1970 3 SCC 323):      "The functions  and powers  of  the      Corporation   indicate   that   the      Corporation      government      in      establishing industrial estates and      developing    industrial     areas,      acquiring   property    for   those      purposes, constructing property for      those    purposes,     constructing      building,    allotting    building,      factory sheds  to industrialists or      industrial  undertakings.   It   is      obvious that  the Corporation  will      receive  moneys   for  disposal  of      lands    buildings     and    other      properties  and   also   that   the      Corporation would receive rents and      profits   in   appropriate   cases.      Receipts of  these moneys arise not      out of  any business  or trade  but      out    of     sole    purpose    of      establishment         growth    and      development  of   industries.   The      Corporation    has    to    provide      amenities   and    facilities    in

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    industrial estates  and  industrial      areas.    Amenities     of    road,      electricity,  sewerage   and  other      facilities  in  industrial  estates      and industrial areas are within the      programme   of    work    of    the      Corporation."      The scheme to the Gujarat Act, as is seen from a survey of the relevant provisions referred to above, would indicate that the Corporation set up thereunder is to chalk out plans for development  of industrial area and industrial estate in different places  which may  locate in  cities or  towns  or villages. Such  schemes would  normally involve planning and development of such areas.      The word  "development" in  Section 10(20A) of the I.T. Act should  be understood  in its  wide sense.  There is  no warrant to  exclude all  development programmes  relating to any industry  from the  purview of the word "development" in the said sub-section. There is no indication in the Act that development  envisaged   therein  should   confine  to  non- industrial  activities.   Development  or  a  place  can  be accelerated through  verieties of  schemes and establishment of industries is one of the modes of developing an area.      One  of   the  reasons  for  incorporating  a  specific provision of  exemption from  income tax  such as subsection 10(20A) is  to protect  public bodies  created under law for achieving the purpose of developing urban or rural areas for public good.  When the  object is  such,  an  interpretation which would  preserve   it should  be accepted  even if  the provision is  capable of  more than one interpretation. That principle of  interpretation  is  very  much  applicable  to fiscal statutes  also. [vide  State of  Tamil Nadu vs. M. K. Kandaswami, 1976  (1) SCR 38]. This Court has reiterated the said principle  in Calcutta Jute manufacturing Co. & another vs. Commercial Tax Officer & Other [JT 1997 (5) SC 690]      The position  is,  therefore,  clear  that  authorities constituted by law for facilitating all kinds of development of cities,  towns and villages for public purposes shall not be subjected  to  the  liability  to  pay  income  tax.  The Division Bench  of the  High Court seems to have interpreted the exemption clause too rigidly and narrowly which resulted in  the  anomaly  of  bringing  authorities  like  appellant Corporation within  the tentacles  of income  tax  liability while the  authorities dealing  with housing  schemes  which provide houses  to private  individuals would  stand outside the taxing sphere.      In the  result, we  allow these  appeals, set aside the judgment under  challenge. The  answer to the question will, therefore, be  in favour  of the  assessee and  against  the Revenue.