The Commissioner Of Income Tax, Alwar v. Urban Improvment Trust, Bhagat Singh Circle, Alwar

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 643 / 2008 The Commissioner of Income Tax, Alwar. ----Appellant Versus Urban Improvment Trust, Bhagat Singh Circle, Alwar ----Respondent Connected With D.B. Income Tax Appeal No. 706 / 2008 The Commissioner of Income Tax, Alwar. ----Appellant Versus Urban Improvment Trust, Bhagat Singh Circle, Alwar ----Respondent D.B. Income Tax Appeal No. 294 / 2009 Urban Improvement Trust, Bhagat singh Circle, Alwar, through its Senior Accounts Officer, Jyoti Bhardwaj W/o Sh Arvind Vashishta, aged about 36 years. ----Appellant Versus The Income Tax Officer, Ward-1, Alwar ----Respondent D.B. Income Tax Appeal No. 326 / 2009 Commissioner of Income Tax, Alwar. ----Appellant Versus Urban Improvement Trust, Bhagat Singh Circle, Alwar. ----Respondent D.B. Income Tax Appeal No. 73 / 2011 Urban Improvement Trust, Kota, through its Accounts Officer, Tej Prakash Meena S/o Sh. Meetha Lal Meena, aged about 35 years residing at H. No.1, UIT Colony, Pratap Nagar, Dada Bari, Kota. ----Appellant Versus The Income Tax Officer, Ward-1(2), Kota ----Respondent D.B. Income Tax Appeal No. 357 / 2011 Urban Improvement Trust, Kota, through its Accounts Officer, Tej Prakash Meena S/o Sh. Meetha Lal Meena, aged about 35 years residing at H. No.1, UIT Colony, Pratap Nagar, Dada Bari, Kota. ----Appellant Versus The Income Tax Officer, Ward-1(2) Kota. ----Respondent D.B. Income Tax Appeal No. 392 / 2011 The Commissioner Of Income Tax, Ajmer. ----Appellant Versus Urban Improvement Trust, Civil, Lines, Todarmal Lane, Ajmer. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Sameer Jain with Ms. Mahi Yadav & Mr. Daksh Pareek (respondent in appeal no. 294/09, 73/11 & 357/11)Daksh Pareek (respondent in appeal no. 294/09, 73/11 & 357/11) For Respondent(s) : Mr. Sanjay Jhanwar with Mr. Prakhul Khurana& Ms. Archana (appellant in appeal no. 294/09, 73/11 & 357/11)& Ms. Archana (appellant in appeal no. 294/09, 73/11 & 357/11) _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Judgment 25/07/2017 In all these appeals common questions of law and facts areinvolved, hence, they are decided by this common judgment. 1.By way of these appeals, the assessee as well as thedepartment have assailed the judgment and order of the Tribunalwhereby the Tribunal has allowed the appeal preferred by thedepartment reversing the view taken by the CIT(A) and in someappeals the appeal of the department was dismissed. 2.This Court while admitting the matter has framed the following questions of law:- “D.B. ITA No. 643/2008 (i) Whether under the facts and circumstances ofthe case and in law the Tribunal was justified inholdingthattheexpenditureofRs.11,74,15,986/- incurred by the assessee is ofrevenue in nature ignoring that the expenditurewas incurred in bringing the inventories to thepresent location and condition as stipulated inthe Accounting Standard-2 of ICAI and thereforeare part of closing stock? (ii) Whether under the facts and circumstances ofthe case and in law the Tribunal was justified indeleting the disallowance made out ofdepreciation claimed even when it was notclaimed on written down value of the asset? (iii) Whether under the facts and circumstancesof the case and in law the Tribunal was justifiedin confirming the order of CIT(A) on the issuewherein the additions of Rs.18,31,68,938/- madein the value of closing stock was reducedarbitrarily to Rs.10,87,50,513/-thereby grantinga whopping relied Rs.7,44,18,425/- withoutappreciating that the value of opening stock hasto be taken as closing stock of preceding year?” (ii) Whether under the facts and circumstances ofthe case and in law the Tribunal was justified indeleting the disallowance made out ofdepreciation claimed even when it was notclaimed on written down value of the asset? (iii) Whether under the facts and circumstancesof the case and in law the Tribunal was justifiedin confirming the order of CIT(A) on the issuewherein the additions of Rs.18,31,68,938/- madein the value of closing stock was reducedarbitrarily to Rs.10,87,50,513/-thereby grantinga whopping relied Rs.7,44,18,425/- withoutappreciating that the value of opening stock hasto be taken as closing stock of preceding year?” D.B. ITA No. 73/2011 “Whether on the facts and circumstances of thecase and in law, the Ld. ITAT was right in holdingthat the appellant is not a ‘local authority’ ascontemplated u/s 10(20) of the Income Tax Act,1961 and therefore, it was not exempt fromincome tax?” D.B. ITA No. 706/2008 (i) Whether under the facts and circumstances ofthe case and in law the Tribunal was justified inholdingthattheexpenditureofRs.11,74,15,986/- incurred by the assessee is of revenue in nature ignoring that the expenditurewas incurred in bringing the inventories to thepresent location and condition as stipulated inthe Accounting Standard-2 of ICAI and thereforeare part of closing stock? (ii) Whether under the facts and circumstances ofthe case and in law the Tribunal was justified indeleting the disallowance made out ofdepreciation claimed even when it was notclaimed on written down value of the asset? (iii) Whether under the facts and circumstancesof the case and in law the Tribunal was justifiedin confirming the order of CIT(A) on the issuewherein the additions of Rs.18,31,68,938/- madein the value of closing stock was reducedarbitrarily to Rs.10,87,50,513/-thereby grantinga whopping relied Rs.7,44,18,425/- withoutappreciating that the value of opening stock hasto be taken as closing stock of preceding year?” D.B. ITA No. 294/2009 “Whether on the facts and circumstances of thecase and in law, the Ld. ITAT was right in holdingthat the appellant is not a ‘local authority’ ascontemplated u/s 10(20) of the Income Tax Act,1961 and therefore, it was not exempt fromincome tax?” D.B. ITA No. 326/2009 “(1) Whether on the facts and in thecircumstances of the case, Hon’ble ITAT wasjustified in ignoring the para 6 of the AccountingStandard-2 of ICAI for valuation of inventories tobe inconsonance with section 145 of the IncomeTax Act, 1961? (2) Whether on the law and facts of the caseHon’ble ITAT was justified in deleting thedisallowance of the depreciation ignoring theExplanation 6 of Section 43(6) of I.T. Act, 1961inserted by the Finance Act, 2008 withretrospective effect from 1.4.2003?” D.B. ITA No.357/2011 “(1) Whether on the facts and circumstances ofthe case and in law, the Ld. ITAT was right inholding that, the appellant is not a ‘localauthority’ as contemplated u/s 10(20) of theIncome Tax Act, 1961 and therefore it was notexempt from income tax? (2) Whether on the facts and in circumstances ofthe case and in law, the Order passed by Ld. ITATwas not perverse, unjust, arbitrary and contrary to material on record? (3) Whether on the facts and circumstances ofthe case, the appellant is not a State as perArticle 12 of the constitution of India andtherefore exempt from income tax under Article289(1) of the Constitution of India? (4) Whether on the facts and circumstances ofthe case, the Ld. ITAT was correct in law inholding that the appellant is liable to tax underthe Income Tax Act, 1961?” D.B. ITA No. 392/2011 (1) Whether under the facts and circumstancesof the case, and in law the ld. Tribunal wasjustified in not upholding the order of the CIT (A)whereby the rental income of Rs.13,26,069 wastreated as “Income from house property” u/s 22as against “business income”? to material on record? (3) Whether on the facts and circumstances ofthe case, the appellant is not a State as perArticle 12 of the constitution of India andtherefore exempt from income tax under Article289(1) of the Constitution of India? (4) Whether on the facts and circumstances ofthe case, the Ld. ITAT was correct in law inholding that the appellant is liable to tax underthe Income Tax Act, 1961?” D.B. ITA No. 392/2011 (1) Whether under the facts and circumstancesof the case, and in law the ld. Tribunal wasjustified in not upholding the order of the CIT (A)whereby the rental income of Rs.13,26,069 wastreated as “Income from house property” u/s 22as against “business income”? (2) Whether under the facts and in thecircumstances of the case, and law the ld.Tribunal was justified in not holding that thedeficit of Rs.1,26,07,674/- on development workin progress being not allowable u/s 14A of theAct?” 3.Counsel for the appellant has taken us to the definition oflocal authority under the Income Tax Act and contended that inview of the proviso added to explanation of Section 10(20) of the Income Tax Act which reads as under:- “Explanation. For the purpose of this clause, theexpression “local authority” means (i) Panchayat as referred to in clause (d) ofarticle 243 of the constitution; or (ii) Municipality as referred to in clause (e) ofarticle 243P of the Constitution; or (iii) Municipal Committee and District Bioard,legally entitled to, or entrusted by theGovernment with, the control or management ofa Municipal or local fund; or (iv) Cantonment Board as defined in section 3 ofthe Cantonments Act, 1924 (2 of 1924).” 4.Taken into consideration local fund in view of the Section 61,62 63 & 64 where under the Chapter the finance authority hastotal control as statutory authority and they are carrying on theurban development work as foundation of the State Governmentand in view of Section 105 of the Act of Rajasthan UrbanImprovement Act 1959, it is very clear that ultimately its fund hasto be merged into local authority namely Municipal Corporation Board. 5.He has also pointed out in view of item 5 of State list whichreads as under:- “5.Local government, that is to say, theconstitution and powers of municipal corporations,improvement trusts, district boards,miningsettlement authorities and other local authorities-for the purpose of local selfgovernmentor villageadministration. 6.It clearly indicated that this authority will fall underexplanation 3 and the benefit of local self government is to begranted. This is supported by Article 243 read with Schedule 1,Schedule 12 Item (1) of the Constitution which clearly establishthat the urban planning including term plan is to be covered under the Chapter 243 and recently in view of amendment in Chapter 9. 7.He has also relied upon the decision of the Supreme Court inthe case of Union of India & Ors. vs. Shri R.C. Jain & Ors. reportedin AIR 1981 SC 951 wherein it has been held as under:- “3. Let us, therefore, concentrate and confine ourattention and enquiry to the definition of 'LocalAuthority' in Section 3(31) of the General ClausesAct. A proper and careful scrutiny of the languageof Section 3(31) suggests that an authority inattention and enquiry to the definition of 'LocalAuthority' in Section 3(31) of the General ClausesAct. A proper and careful scrutiny of the languageof Section 3(31) suggests that an authority in the Chapter 243 and recently in view of amendment in Chapter 9. 7.He has also relied upon the decision of the Supreme Court inthe case of Union of India & Ors. vs. Shri R.C. Jain & Ors. reportedin AIR 1981 SC 951 wherein it has been held as under:- “3. Let us, therefore, concentrate and confine ourattention and enquiry to the definition of 'LocalAuthority' in Section 3(31) of the General ClausesAct. A proper and careful scrutiny of the languageof Section 3(31) suggests that an authority inattention and enquiry to the definition of 'LocalAuthority' in Section 3(31) of the General ClausesAct. A proper and careful scrutiny of the languageof Section 3(31) suggests that an authority in order to be a local Authority, must be of likenature and character as a Municipal Committee,District Board or Body of Port Commissioners,possessing, therefore, many, if not all, of thedistinctive attributes and characteristics of aMunicipal Committee, District Board, or Body ofPort Commissioners, but, possessing one essentialfeature, namely, that it is legally entitled to orentrusted by the Government with, the control andmanagement of a municipal or local fund. Whatthen are the distinctive attributes andcharacteristics, all or many of which a MunicipalCommittee, District Board or Body of PortCommissioners shares with any other localauthority? First, the authorities must haveseparate legal existence as Corporate bodies. Theymust not be mere Governmental agencies butmust be legally independent entities. Next, theymust function in a defined area and mustordinarily, wholly or partly, directly or indirectly, beelected by the inhabitants of the area. Next, theymust enjoy a certain degree of autonomy, withfreedom to decide for themselves questions ofpolicy affecting the area administered by them.The autonomy may not be complete and thedegree of the dependence may vary considerablybut, an appreciable measure of autonomy theremust be. Next, they must be entrusted by Statutewith such Governmental functions and duties asare usually entrusted to municipal bodies, such asthose connected with providing amenities to theinhabitants of the locality, like health andeducation services, water and sewerage, townplanning and development, roads, markets,transportation, social welfare services etc. etc.Broadly we may say that they may be entrustedwith the performance of civic duties and functionswhich would otherwise be Governmental dutiesand functions. Finally, they must have the powerto raise funds for the furtherance of their activitiesand the fulfilment of their projects by levyingtaxes, rates, charges, or fees. This may be inaddition to moneys provided by Government orobtained by borrowing or otherwise. What isessential is that control or management of thefund must vest in the authority.” 8.He contended that the view taken by the Tribunal is requiredto be reversed and the view taken by the Assessing Officer is required to be upheld. 9.However, counsel for the respondent-assessee Mr. Jhanwarcontended that in view of the definition of the person underSection 231 Sub-clause (iv) read with explanation, it is clear thatthe present local authority is included. 10.He has also taken us to the provisions of Section 10(20A)and Section 10(20) which was made effective from different datesand contended that in view of this the intention of legislation was very clear and Article 289 which reads as under:- “289. Exemption of property and income of aState from Union taxation (1)The property and income of a State shall beexempt from Union taxationexempt from Union taxation 8.He contended that the view taken by the Tribunal is requiredto be reversed and the view taken by the Assessing Officer is required to be upheld. 9.However, counsel for the respondent-assessee Mr. Jhanwarcontended that in view of the definition of the person underSection 231 Sub-clause (iv) read with explanation, it is clear thatthe present local authority is included. 10.He has also taken us to the provisions of Section 10(20A)and Section 10(20) which was made effective from different datesand contended that in view of this the intention of legislation was very clear and Article 289 which reads as under:- “289. Exemption of property and income of aState from Union taxation (1)The property and income of a State shall beexempt from Union taxationexempt from Union taxation (2)Nothing in clause ( 1 ) shall prevent the Unionfrom imposing, or authorising the imposition of,any tax to such extent, if any, as Parliament mayby law provide in respect of a trade or business ofany kind carried on by, or on behalf of, theGovernment of a State, or any operationsconnected therewith, or any property used oroccupied for the purposes of such trade orbusiness, or any income accruing or arising inconnection therewithfrom imposing, or authorising the imposition of,any tax to such extent, if any, as Parliament mayby law provide in respect of a trade or business ofany kind carried on by, or on behalf of, theGovernment of a State, or any operationsconnected therewith, or any property used oroccupied for the purposes of such trade orbusiness, or any income accruing or arising inconnection therewith (3)Nothing in clause ( 2 ) shall apply to any tradeor business, or to any class of trade or business,which Parliament may by law declare to beincidental to the ordinary functions ofgovernment”or business, or to any class of trade or business,which Parliament may by law declare to beincidental to the ordinary functions ofgovernment” 11.He contended that benefit of exemption or any benefit under the Income Tax Act cannot be granted to the local authority. Hehas also taken us to the Article 243 read with Schedule 12 andalso the order of the CIT(A) has observed as under:- “During the assessment proceedings the AO notedfrom the Income & Expenditure Account that the appellant had treated the land available with it asstock in trade for the year under reference. Hefurther found that opening stock of the land wasshown at 112.11 crore and closing stock at 107.06crore. He asked the appellant to provide thedetails of working out such valuation. In responsethereof the ld. AR informed that the appellant hadvalued the land according to reserves price of eachscheme determined in the Trust Meeting. It wasalso explained that during the relevant period nochange in reserve price was made. In this regardthe ld. AR submitted the copy of decision of themeeting of the trust held on 29-5-1999. However, the AR could not file the basis of suchreserve price as determined by the Trust. The AOfound that as per provision of Rule 6(2) ofRajasthan Improvement Trust (Disposal of UrbanLand) Rules, 1974, the reserve price was requiredto be worked out after adding the followingamounts:- (i) Cost of undeveloped land this would be subjectto change to the extent of final cost ofcompensation determined by the competent court,(ii) Cost of development based on the prevailingPWD Schedule of rates for the area, (iii) 30% of the items (i) and (ii), to coveradministrative and establishment charges, and (iv) 20% of the items (i), (ii) and (iii), to covermaintenance cost for a period upto five years. The appellant failed to provide the basis on whichthe reserves prices were fixed. Further it alsofailed to show that it had adhered to the provisionof Rajasthan Improvement Trust (Disposal ofUrban Land) Rules, 1974, the AO rejected thebooks of accounts by invoking provisions ofSection 145(3) of the Act. (i) Cost of undeveloped land this would be subjectto change to the extent of final cost ofcompensation determined by the competent court,(ii) Cost of development based on the prevailingPWD Schedule of rates for the area, (iii) 30% of the items (i) and (ii), to coveradministrative and establishment charges, and (iv) 20% of the items (i), (ii) and (iii), to covermaintenance cost for a period upto five years. The appellant failed to provide the basis on whichthe reserves prices were fixed. Further it alsofailed to show that it had adhered to the provisionof Rajasthan Improvement Trust (Disposal ofUrban Land) Rules, 1974, the AO rejected thebooks of accounts by invoking provisions ofSection 145(3) of the Act. The AO noted that the appellant during therelevant period had sold land worth Rs. 5,04 crorefor an amount of Rs. 12.48 crore. He accordinglyconcluded that the rise in fair market price was at147.62% of the value of stock disclosed by theappellant. He also added further amount as perthe Rule 6(2) of Rajasthan Improvement Trust(Disposal of Urban Land) Rules, 1974 as referredto above. He worked out the total value of openingstock at Rs.432,98,69,111 and closing stock atRs.446,26,09,367/-. He accordingly made anaddition of Rs.18,31,68,398/- in the income of theappellant. 5.1 During the appellate proceedings the AR of the appellant objected to the aforesaid action of theAO and made the following submissions:- From the above it can be noted that the disputeis in respect of the following:- (i) Whether the AO has correctly calculated theclosing stock even as per his method. (ii) Whether administrative, establishment andmaintenance cost is to be included in the valuationof stock in trade. (iii) Whether closing stock is to be furtherincreased by the addition of Rs.11,74,15,986/-during the year. (iv) Whether the increase in the value of openingand closing stock by 147% is justified. The assessee has taken the value of openingstock of lands at Rs.1,12,11,12,783/-. The AOhave increased the value of the opening stock by147.57% and further made addition of 30% foradministration & establishment charges and 20%to cover maintenance cost. Thus value of openingstock is recalculated at Rs.4,32,98,69,111/-. Thus the value of opening stock is increased byRs.3,20,87,56,328/-(4,32,98,69,111-1,12,11,12,783). On the above basis the AO have reworked out thevalue of closing stock at Rs.4,46,26,09,367/- Thus the value of closing stock is increased byRs.3,39,19,25,266/-(4,46,26,09,367-1,07,06,84,101) The above calculation made contains an error evenas per method adopted by AO i.e. increase in thevalue of the opening stock at Rs.3,20,87,56,328/-is included in closing stock without consideringthat, part of the land was sold during the year. Thecorrect calculation of the value of closing stock byapplying method adopted by AO would be at4,31,82,76,563/- Thus amount to be increased for value of openingstockremaininginclosingstockisRs.3,06,44,23,524/- & not of Rs.3,20,87,56,328/-.The value of closing stock accordingly, works outtoRs.4,31,82,76,563/-asagainstRs.4,46,26,09,367/- worked out by the AOresulted in the year valuation of closing stock byRs.14,43,32,804/- (4462609367-4318276563).(i)SimilarlywhenopeningstockofRs.1,12,12,783/-isrevaluedatRs.4,32,98,69,111/- i.e. increased by 286.21%the closing stock of Rs.1,07,06,84,101/- also needs to be increased by same percentage whichworks out to Rs.3,06,44,23,524/- as against Rs.3,20,87,56,328/- considered by the AO. TheclosingstockisthusovervaluedbyRs.14,43,32,804/-(3,20,87,56,328-3,06,44,23,524). Thus amount to be increased for value of openingstockremaininginclosingstockisRs.3,06,44,23,524/- & not of Rs.3,20,87,56,328/-.The value of closing stock accordingly, works outtoRs.4,31,82,76,563/-asagainstRs.4,46,26,09,367/- worked out by the AOresulted in the year valuation of closing stock byRs.14,43,32,804/- (4462609367-4318276563).(i)SimilarlywhenopeningstockofRs.1,12,12,783/-isrevaluedatRs.4,32,98,69,111/- i.e. increased by 286.21%the closing stock of Rs.1,07,06,84,101/- also needs to be increased by same percentage whichworks out to Rs.3,06,44,23,524/- as against Rs.3,20,87,56,328/- considered by the AO. TheclosingstockisthusovervaluedbyRs.14,43,32,804/-(3,20,87,56,328-3,06,44,23,524). (ii) As per the generally accepted accountingprinciples and Accounting standard the stock is tobe valued at cost or marker price which ever isless.Administrative,establishmentandmaintenance cost should not form part of thevaluation of the inventories. The AO without anybasis increased the valuation of the stock byRs.6,57,52,952/- (3,52,24,706+3,05,25,156) onaccount of administrative and maintenanceexpenses. The valuation of the above closing stock isincorrect. (i) The valuation of the stock is governed byAccounting Standard provides the following basisfor valuation of inventories:- Para 5 – Inventories should be valued at the lowerof cost and net realizable value. Para 6 – The cost of inventories should compriseall costs of purchase, cost of conversion and othercosts incurred in bringing the inventories to theirpresent location and condition. Para 13 – In determining the cost of inventories inaccordance with Para 6, it is appropriate toexclude certain costs and recognize them asexpenses in the period in which they are incurred.Examples of such costs are: (a) Abnormal amounts of wasted materials, labouror other production costs. (b) Storage cost, unless those costs are necessaryin the productions process prior to a furtherproduction stage. (c) Administrative overheads that do notcontribute to bringing the inventories to theirpresent location and condition. (d) Selling & distribution costs. From the above it is clear that the administrative,establishment and maintenance cost does notform part of the closing stock. The same has to becharged to profit & loss account in the year inwhich it is incurred. Therefore the addition ofRs.6,57,52,952/-(3,52,24,796+3,05,28,156)made by the AO in the valuation of closing stock intradeaswellasRs.1,48,43,97,609/- (79,52,13,005+68,91,84,604) in opening stock isincorrect and be deleted. In the regard the ld. AR placed reliance on thefollowing decisions:- A.L.A. Firmv. CIT 189 ITR 285 (SC) Sanjeev Woolen Mills v. CIT [2005] 149 Taxman431/279 ITR 434(SC) Investment Ltd. v. CIT 77ITR 533(SC)” 12.He contended that the CIT(A) has seriously committed anerror in passing the order and the department has taken acontrary stand to what has been taken before Assessing Officer.He has also strongly relied upon the decision of the SupremeCourt in the case of Adityapur Industrial Area DevelopmentAuthority vs. Union of India & Ors. reported in 2006 (5) SCC 100wherein it has been held as under:- (79,52,13,005+68,91,84,604) in opening stock isincorrect and be deleted. In the regard the ld. AR placed reliance on thefollowing decisions:- A.L.A. Firmv. CIT 189 ITR 285 (SC) Sanjeev Woolen Mills v. CIT [2005] 149 Taxman431/279 ITR 434(SC) Investment Ltd. v. CIT 77ITR 533(SC)” 12.He contended that the CIT(A) has seriously committed anerror in passing the order and the department has taken acontrary stand to what has been taken before Assessing Officer.He has also strongly relied upon the decision of the SupremeCourt in the case of Adityapur Industrial Area DevelopmentAuthority vs. Union of India & Ors. reported in 2006 (5) SCC 100wherein it has been held as under:- “Similarly, the decision in New Delhi MunicipalCouncil v. State of Punjab and Ors. (supra) doesnot advance the case of the appellant. It was heldthat the property/ municipal taxes levied by theNew Delhi Municipal Council under the relevant Actconstituted Union taxation within the meaning ofClause (1) of Article 289 of the Constitution ofIndia. The levy of property taxes under theaforesaid enactments on lands or buildingsbelonging to the State Government was invalidand incompetent by virtue of the mandatecontained in Clause (1) of Article 289. However, ifany land or building is used or occupied for thepurpose of any trade or business, meaning therebya trade or business carried on with profit motive,by or on behalf of the State Government, suchland or building shall be subject to the levy of theproperty taxes levied by the said enactments. Inother words, State property exempted underClause (1) means such property as is used for thepurpose of the Government and not for thepurpose of trade or business. That was a casewhere the question arose in relation to the levy ofproperty tax on lands and buildings owned by theState Governments which was "property of theState Government". In the instant case, we are concernedwiththeincomeoftheappellant/Authority and the same principles apply.The exemption can be claimed only if the incomecan be said to be the income of the StateGovernment. In the facts of this case, it is notpossible to hold that the income of theappellant/Authority is the income of the StateGovernment. Learned counsel for the Union of India also reliedupon two decisions reported in : AIR1999SC2573Food Corporation of India v. Municipal Committee,Jalalabad and Anr. and MANU/SC/0416/1999 :AIR1999SC2552 Board of Trustees for theVisakhapatnam Port Trust v. State of A.P. and Ors.and submitted that this Court has consistentlytaken the view that a Corporation having theattributes of a Company must be held to bedistinct from the Central Government, and noteligible for exemption from taxation under Article285. The High Court also in its impugnedjudgment and order has referred to severaldecisions of this Court wherein this Court dealingwith cases arising under Article 285 of theConstitution of India, which exempts properties ofthe Union from State taxation, took a similar view.We may usefully refer to the cases reported in: :AIR1999SC2573 Food Corporation of India v.Municipal Committee, Jalalabad and Anr., :(1995)5SCC251 Municipal Commissioner of DumDum Municipality and Ors. v. Indian TourismDevelopmentCorporationandOrs.,MANU/SC/1179/1994CentralWarehousingCorporation v. Municipal Corporation and :[1982]2SCR1 Western Coalfields Ltd. v. SpecialArea Development Authority, Korba and Anr. andBharat Aluminium Company Ltd. v. Special AreaDevelopment Authority, Korba and Ors.MANU/MP/0056/1978 Having considered all aspects of the matter wehold that the High Court is right in concluding thatthe appellant/Authority could not claim exemptionfrom Union taxation under Article 289(1) of theConstitution of India. The impugned notice issuedby the Income Tax Authorities was, therefore, validand legal and could not be successfully challengedin the writ petition. Accordingly, this appeal isdismissed but without any order as to costs.” 13.Therefore, he contended that the exemption cannot beclaimed only in the income of the State Government. 14.Taking into consideration he has also taken us to thedifferent part of the judgment and contention raised by the partiesand ultimately that the issue is squarely covered against theassessee. He has also relied upon the decision of the Tribunal inM/s Jammu Development Authority, Jammu vs. Commissioner ofIncome Tax ITA No. 30 (Asr)/2011 decided on 14[th] June, 2012.wherein it has been held as under:- “It would thus be seen that the income of a localAuthority chargeable under the head “incomefrom house property”, “Capital gains” or “Incomefrom other sources” or from a trade or businesscarried on by it was earlier excluded in computingthe total income of the Authority of a previousyear. However, in view of the amendment witheffect from April 1, 2003, the Explanation “LocalAuthority” was defined to include only theAuthorities enumerated in the Explanation, whichdoes not include an Authority such as the JammuDevelopment Authority. At the same time section10(20A) which related to income of an Authorityconstituted in India by or under any law enactedfor the purpose of dealing with and satisfying theneed for housing accommodation or for thepurposeofplanning,developmentorimprovement of cities, towns and villages, whichbefore the amendment was not included incomputing the total income, was omitted.Consequently, the benefit conferred by clause(20A) on such an Authority was taken away. Thus,in view of the fact that section 10(20A) wasomitted and an Explanation was added to section10(20A) of the Act, enumerating the “LocalAuthorities” contemplated by section 10(20A), theassessee i.e. Jammu Development Authority couldnot claim any benefit under those provisions afterApril 1, 203. The benefit conferred by section10(20A) of the Act on the assessee upto the A.Y.2002-03 has been expressly taken away and theexplanation added to section 10(20) enumeratesthe “Local Authority” which do not cover the Authority. The assessee i.e. Jammu DevelopmentAuthority subsequently claimed that its objectsfalls under the provisions of section 2(15) of theAct and has complied with all the eligibility criteriafor grant of registration u/s 12A of the Act, whichwas allowed vide property which make theAuthority a commercial organization. Therefore,the objects pursued by the Authority cannot besaid to be charitable in view of the fact that theauthority being a commercial organization with norestriction as to the application of the assets ondissolution or winding up of for charitablepurposes. In order to find out whetherorganization is a charitable one, tests have beenlaid down by the B Hon'ble Supreme Court in thecase of CIT vs. Surat Art Silk Cloth ManufacturersAssociation (1997) 121 ITR and CIT vs. AndhraPradesh State Road Transport Corp. (1986) 159ITR 1. In the case of Surat Art Silk ClothManufacturers Association, it was held as under:- “Since the income and property of the assesseewere liable to be applied solely and exclusively forthe promotion of the objects set out in theMemorandum and no part of such income orproperty could be distributed amongst theMembers in any form or utilized for their benefiteither during its operational existence or on itswinding up or dissolution as such the object was acharitable one.” “Since the income and property of the assesseewere liable to be applied solely and exclusively forthe promotion of the objects set out in theMemorandum and no part of such income orproperty could be distributed amongst theMembers in any form or utilized for their benefiteither during its operational existence or on itswinding up or dissolution as such the object was acharitable one.” 15.It is true that the functions which are carried out by theassessee are statutory functions and carry on for the benefit ofthe State Government for urban development therefore, in ourconsidered opinion, the functions carried out by the authority is asupreme function and fall within the activity of the StateGovernment. 16.In that view of the matter, the judgments which are stronglyrelied upon by counsel for the department are of no help in thefacts of the case as the case relied upon by the department was inrespect of industrial corporation which was under the statute for the purpose of making profit. The fees and other charges whichare covered are statutorily for the development of the urban area.In that view of the matter, the judgment which sought to be reliedupon by the counsel for the respondents, in our consideredopinion, would be of importance and the functions which arecarried out by the assessee is statutory function. In ourconsidered opinion, under clause-10 (20) & Sub-cluase (3)Municipal Committee and District Board are legal entity entrustedby the function of the Government within the control ormanagement of the municipal or local authority and will try to helpthe assessee. 17.In that view of the matter, the reliance placed by counsel forthe department regarding 10(20) and explanation A will not makeany difference. Taking into consideration income of authority isunder constitution of India vide order enacted either for thepurpose of dealing with or setting up the housing scheme for thepurpose of planning and development of the improvement of thecities, town and villages or both for which the authority arecreated to carry out the function of State which are sovereignwhereas the urban development and calculation of developmentcharges will fall under the development charges. 18.In that view of the matter, deletion of 20A will not makedifference in case of assessee. In our considered opinion, Clause-3will come in the help of the assessee. In that view of the matter,we are considered opinion, that the authority assessee is a localauthority for the purpose of carrying out of the improvement and development function of the State. 19.In that view of the matter, the issue is required to beanswered in favour of the assessee against the department. Inview of the answer, other issues are become academic, therefore,we are not deciding those issue. 20.The appeals filed by the department are dismissed and that of assessee are allowed. (INDERJEET SINGH),J. (K.S. JHAVERI),J. A.Sharma/15-21