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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.