Karnataka High Court
M/S Karnataka State Small Industries vs The Assistant Commissioner Of Income ... on 3 September, 2012
Bench: K.Sreedhar Rao, B.Manohar
1
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 3RD DAY OF SEPTEMBER 2012
PRESENT
THE HON'BLE MR. JUSTICE K.SREEDHAR RAO
AND
THE HON'BLE MR. JUSTICE B.MANOHAR
ITA No.1281/2006
BETWEEN :
M/S KARNATAKA STATE SMALL INDUSTRIES
DEVELOPMENT CORPORATION LIMITED,
A.O.BUIDING,
INDUSTRIAL ESTATE,
RAJAJINAGAR,
BANGALORE - 560 044,
REPRESENTED BY ITS MANAGING
DIRECTOR SRI AZEEZULLA BAIG,
AGED ABOUT 59 YERAS,
S/O SRI DASTAGIR BAIG. ...APPELLANT
(BY SRI.S.PARTHASARATHI, ADV)
AND :
THE ASSISTANT COMMISSIONER OF
INCOME TAX,
RANGE -11(5)
NO.14/3, RASHTROTHANA BHAVAN,
NRUPATHUNGA ROAD,
BANGALORE - 560 001. ...RESPONDENT
(BY SRI.G.KAMALADHAR, ADV)
2
I.T.A. FILED U/S.260-A OF I.T.ACT, 1961 ARISING OUT
OF ORDER DATED 26-05-2006 PASSED IN ITAS NO.1015 &
1269/BANG/2003 & 1557/BANG/2004 FOR THE ASSESSMENT
YEARS 1998-1999, 1999-2000 & 2000-01, PRAYING TO
FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW
STATED THEREIN AND TO ALLOW THE APPEAL AND SET
ASIDE THE COMMON ORDER OF THE ITAT, BANGALORE
BENCH-B, BANGALORE DATED 26-05-2006 FOR THE
ASSESSMENT YEARS 1998-99, 1999-2000 & 2000-01 BEARING
ITA NOS.1015 & 1269/BANG/2003 AND 1557/BANG/2004, IN
THE INTEREST OF JUSTICE AND EQUITY.
THIS ITA COMING ON FOR HEARING THIS DAY,
B.MANOHAR J.,DELIVERED THE FOLLOWING:
JUDGMENT
The Karnataka State Small Industries Development Corporation has filed this appeal challenging the legality and correctness of the order dated 26.05.2006 made in ITA Nos.1015, 1269/Bang/2003 and No.1557/Bang/2004 passed by the Income Tax Appellate Tribunal confirming the order passed by the Appellate Authority and the Assessing Authority for the assessment years 1998-1999 to 2000-2001 insofar as the denial of exemption under Section 10(20A) of the Income Tax Act ('the Act' for short)
2. The appellant is a Public Limited Company incorporated under the provisions of Companies Act, 1956. It was set up for the purpose of development, granting financial assistance and marketing 3 products of small scale industries and also constructing and managing the industrial estates. It was fully controlled by the Government of Karnataka. The shareholders of the company belonged to the State Government in entirety.
3. The appellant filed return of income for the assessment years 1998-1999 to 2000-2001 declaring NIL income on the ground that it is eligible for exemption under Section 10(20A) of the Act. For the assessment years 2000-2001 returns were filed showing NIL income which was processed under Section 143(3) of the Act. The case was selected for the scrutiny, notice as required under Section 143(2) was issued for all the above said years. During the course of reassessment proceedings, the representative of the appellant claims that the appellant-company having specifically formed for rendering industrial estate activities which in fact, has effected development of villages and towns after setting up of industrial estates, is carrying out the activities under the instructions of the Government, whose entire operations is under the Government control. Hence they are eligible for exemption under Section 10(20A) of the Act. The Assessing Authority after considering the contention of the appellant declined to grant exemption under 4 Section 10(20A) of the Act. The Assessing Authority held that the appellant-company is not an authority constituted in India by or under any law and the appellant-company is a Corporation incorporated under the Companies Act. Further, the Assessing Authority held that the appellant has not fulfilled the provisions contained under Section 10(20A) of the Act to avail exemption and they are not dealing in housing accommodations for the purpose of planning, development and improvement of cities, towns, villages or both. Being aggrieved by the order passed by the Assessing Authority, the appellant preferred an appeal before the Commissioner of Income Tax (Appeals) {CIT (Appeals) for short}, Bangalore. The Appellate Authority also rejected the said appeal. Being aggrieved by the same, the assessee preferred appeals before the Income Tax Appellate Tribunal in ITA Nos.1015, 1269/Bang/2003 and 1557/Bang/2004. The Appellate Tribunal after considering the matter in detail and also considering the various judgments of the Hon'ble Supreme Court and other High Courts held that the appellant does not fall within the purview of Section 10(20A) of the Assistant Commissioner and. hence they are not entitled for any exemption under Section 10(20A) of the Act by its order dated 26-5-2006 dismissed the appeals. Being aggrieved by 5 the said order, the appellant has preferred this appeal.
4. Sri.S.Parthasarathi, learned counsel appearing for the appellant contended that the order passed by the Income Tax Appellate Tribunal confirming the order passed by the Assessing Authority as well as the CIT (Appeals) is contrary to law. The appellant-company was promoted by the Government of Karnataka in the year 1960. It is a Public Limited Company. The entire share capital is held by the State Government. It is a non-profit making organization established for developing small scale industries, constructing and managing industrial estates and granting financial assistance and marketing the products of the Small Industries. The appellant has effected development of villages and towns after setting up of industrial estates and carrying out the objects for its incorporation. It is a local authority within the meaning of article 12 of the Constitution of India and entitled for exemption under Section 10(20A) of the Act. Further the learned counsel contended that the Hon'ble Supreme Court in (1997) 227 ITR 414(SC) (GUJARATH INDUSTRIAL DEVELOPMENT CORPORATION v/s CIT), the Hon'ble Supreme Court held that the Gujarath Industrial Development Corporation is entitled for benefit under Section 10(20A) of the Act. He submits that the appellant- 6 corporation is also standing on the similar footing and sought for extending the similar reliefs by allowing the appeal setting aside the order passed by the authorities below.
5. On the other hand, Sri.G.Kamaladhar, the learned counsel appearing for the Revenue argued in support of the order passed by the Income Tax Appellate Tribunal and contended that though the appellant-company is a Government undertaking, it will not come under the purview of Section 10(20A) of the Act. The main purpose of incorporation of the appellant is for formation of the industrial layouts, granting assistance to the Small Scale Industries and marketing their products. To claim exemption under Section 10(20A) of the Act, the authority should be constituted in India by or under 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, town and villages or for both. Hence, the incorporation of the appellant is for some other purpose and they are not entitled to exemption under Section 10(20A) of the Act. He also relied upon the judgment made in the case of COMMISSIONER OF INCOME TAX v/s. STATE INDUSTRIAL PROMOTION CORPORATION OF TAMIL NADU 7 LIMITED reported in (2009)311 ITR 197 and contended that the appellant is a State Government undertaking engaged in the promotion of industrial activities and making provisions for infrastructure to industries, hence it is not entitled for exemption under Section 10(20A) of the Act and sought for dismissal of the appeal.
6. The appeal was admitted for considering the following substantial questions of the law:
i) Whether the appellant which is a company incorporated under the Companies Act, 1956 and a Government Company as defined in Section 617 of the Companies Act, having 100% shareholding in the Corporation, falls within the definition of "authority" as per Section 10(20A) of the Income Tax Act?
ii) Whether the Tribunal having accepted that the appellant was an authority, can deny the benefit u/s.10(20A) of the Act only on the ground that it was not constituted under an enactment and whether for the purpose of Section 10(20A), a constitution under the provisions of Companies Act was not sufficient to satisfy the constitution under an enactment when the requirement of Section 10(20A) is Constitution by or under any law?
iii) Whether the decision of Apex Court in the case of Mysore Paper Mills Ltd., a Government of Karnataka Undertaking registered under the Companies Act 1956 (a general law) holding 8 the company as "an authority" within the meaning of Article 12 of the Constitution of India and under company is nothing but a instrumentality and agency of the State Government and physical form of a company is merely a cloak or cover for the Government equally applies to the appellant which is a 100% Government Undertaking incorporated under the Companies Act, 1956?
7. We have carefully considered the arguments addressed by the learned counsel for the parties and perused the orders passed by the authorities below.
8. The records clearly disclose that the appellant-company was promoted by the Government of Karnataka. It was fully owned and controlled by the Government. It was incorporated for the following purposes:
a) Developing small scale industries;
b) Constructing and managing industrial estates;
c) Granting financial assistance to small scale industrialists;
d) Marketing products of small scale industries.
9. The appellant-company consisting of seven Directors of whom three are the non-official Directors and four are the officials 9 of the Government. The non-official Directors to be nominated by the Government. The functions of the appellant-corporation are as follows:
1.Taking over the construction of Industrial Estates and their management and development;
2.Purchase of equipment required by the Government schemes of the Small Scale Industries Department and their development;
3.Development of Emporia for the sale of small scale industries products as also products of craft cooperative Societies and of those entrepreneurs who wish to avail themselves of the services of the Emporia;
4.Receive and account for the block loans sanctioned to the State by the Centre and for issue of loans to small scale industries to the extent of Rs.10,000/- and place sums as are necessary for purposes of loans about Rs.10,000/- with the State Finance Corporation for assistance to small industries;
5.Run and operate raw materials depots and generally perform duties of acquisition of indigenous and imported raw materials which are required by the small scale industries in the State and to receive moneys from the Government of Mysore as deposit with or without interest, for operating the raw materials depots;
6.To undertake organization of exhibitions and display of the articles of small scale industries in permanent places inside and outside the State;
7.To conduct publicity on behalf of small scale industries; and 10
8.Other activities to be developed within the Memorandum and Article of Association as and when necessary.
10. Sri.S.Parthasarathi, learned counsel appearing for the appellant contended that, the appellant has fulfilled the requirements of Section 10(20A) of the Act. The appellant is an authority within the meaning of article 12 of the Constitution of India and it is established by or under the law enacted by the State Government. It was established for the purpose of developing small scale industries, constructing and managing industrial sheds. The object of the appellant is non-profit making business, hence, they are entitled for exemption under Section 10(20A) of the Act.
11. Section 10 of the Act provides that income which do not form part of the total income in computing the total income of a previous year of any person, any income falling under any of the following clauses shall not be included. Sub-Section 20A provides that -
"Any income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of 11 planning, development or improvement of cities, towns and villages, or for both"
12. The reading of the above said provision makes it very clear that to claim exemption, the aforesaid clause has to be satisfied. The person must be an authority and the said authority should be constituted in India by order under any law, such law should be 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. In the instant case, the object and function of incorporating the appellant-company is totally for different purpose. The appellant was incorporated pursuant to the resolution of the Government of Karnataka, but not constituted under any law. It was incorporated for the purpose of achieving certain objects and cannot be equated with the authority constituted in India by or under any law enacted. Looking at the object of the appellant-company, it cannot be treated as an authority under article 12 of the Constitution of India. Since they are not discharging the functions of housing accommodation and for the purpose of planning and development of the Cities, towns and villages, the appellant does not fall under the purview of Section 10(20A) of the Act. Hence, they are not entitled 12 to claim exemption. We find that the judgments relied upon by Sri.Kamaladhar in the case of COMMISSIONER OF INCOME TAX v/s STATE INDUSTRIAL PROMOTION CORPORATION OF TAMILNADU, would squarely applies to this case, wherein the Tamil Nadu high Court held that -
"It was admitted that the assessee was not an authority constituted in India by or under 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. It was also admitted that the assessee had been incorporated under the provisions of the Companies Act, 1956. Hence, the assessee could not claim the benefit under Section 10(20A)"
12. Hence, we are in agreement with the law laid down by the Tamil Nadu High Court. The Tamil Nadu High court considering the judgment of the Hon'ble Supreme Court passed the orders. The Appellate Tribunal, First Appellate Authority and the Assessing Authority after considering the matter in detail have concurrently passed the orders impugned. The appellant has not made out a case 13 to interfere with the same. Hence, the substantial questions of law framed in this appeal are held against the appellant and in favour of the revenue. Accordingly, the appeal is dismissed.
Sd/-
JUDGE Sd/-
JUDGE mpk/-*