1.These appeals have been filed by the assessee against the order of the Commissioner (Appeals), Belgarum. Shri Inamdar explained that although the assessee (if any) came into existence in 1965 through a statute, as the various points being canvassed now were not canvassed in the past, the matters have to be examined now for the first time.
For the year in question, the issues have been taken at the assessment and the appellate stage, for the assessment years 1974-75 to 1980-81.
2. As to facts, Shri Inamdar explained the background which impelled the Government of Goa to take steps for the rapid industrial development of the territory. Accordingly, it enacted a law named the Goa, Daman & Diu Industrial Development Act, 1965 (GIDA) on 11-11-1965.
The preamble stated : An Act to make special provision for securing the orderly establishment in industrial areas and industrial estates of industries in the Union territory of Goa, Daman & Diu 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.
The text of the said Act is at pages 1 to 19 of the assessee's paper book. The main features are : Section 3(2). The said Corporation shall be a body corporate with perpetual succession and a common seal, and may sue and be sued in its corporate name, and shall be competent to acquire, hold and dispose of property both movable and immovable, and to contract, and do all things necessary for the purpose of this Act.
Sections 4 to 11 of the GIDA deal with the administrative set up of members supervising the activities. Section 12 of the GIDA deals with appointment of chief executive officer and chief accounts officer and other employees who would be public servants. (Section 53 of the GIDA) (1) generally to promote and assist in the rapid and orderly establishment, growth and development of industries in the Union territory of Goa, Daman and Diu.
(ii) in particular, and without prejudice to the generality of Clause (i), to (a) establish and manage industrial estates at places selected by the State Government ; (b) develop industrial areas selected by the State Government for the purpose and make them available for undertakings to establish themselves ; (c) assist financially by loans to industries to move their factories into such estates or areas ; (d) undertake schemes or works, either jointly with other corporate bodies or institutions, or with the Government or local authorities, on an agency basis, in furtherance of the purposes for which the corporation is established and all matters connected there with.
Section 14 of the GIDA deals with general powers. Section 16 of the GIDA enables the State Government to issue directions as to policy.
Section 17 to 23 of the GIDA deal with finance, accounts, audit, etc., Section 27 of the GIDA clarifies that land may be acquired as if for a public purpose by invoking Land Acquisition Act, 1894. Section 28 of the GIDA deals with disposal of land. Section 29 of the GIDA enables the State Government to place its own land at the disposal of the assessee. Sections 30 to 36 of the GIDA deal with powers regarding construction, etc., but subject to overriding powers of the Government under Section 37 of the GIDA. Section 38 of the GIDA enables the Government to enforce recovery by the usual means and without prejudice as arrears of land revenue, if the assessee corporation makes such an application to the Government. Section 45 of the GIDA enables the Government to dissolve the corporation when it is satisfied that the purposes for which the corporation was established have been substantially achieved. On dissolution properties vest in the Government and liabilities are also taken over by the Government.
Section 50/51 of the GIDA further enables the Government to frame rules and regulations for the purposes of the GIDA.3. Shri Inamdar, on the basis of the above, made four alternative propositions, warranting the finding that no income is liable, viz., (i) The corporation is nothing but a branch of the Government and is, thus, immovable from taxation under article 288 of the Constitution : (ii) the assessee is an authority under Section 10(2OA) of the Income-tax Act, 1961 ('the Act') ; (iii) the assessee is a public charitable institution and is exempt under Sections 11 to 13 of the Act ; (iv) the income of the corporation arises directly from a revocable transfer of funds from the Government. In view of Section 63 of the Act the Government-transferor would be liable, if at all.
Certain subsidiary contentions regarding computation of income, etc., were also raised.
4 In support Shri Inamdar submitted that notwithstanding Section 3(2) of the GIDA providing corporate existence and permanent seal with, right to sue and be sued, in reality the corporation is nothing but the Government itself. The members are nominated by the Government. The employees are appointed by the Government and are public servants.
Sweeping powers of controlling the working of the corporation coupled with power to dissolve the corporation on the strength of an executive fiat recording its satisfaction that the purposes are substantially achieved leave no doubt that the corporation is nothing but an indivisible limb of the Governmentfurther confirmed by the provisions regarding acquisition of land by invoking the land Acquisition Act, handing over the Government lands, recovery of arrears though land recovery code, etc. The functions under Section 13 of the GIDA, powers to make rules and regulations, power to issue directions, etc., show clearly that the corporation is not a body corporate but only a branch of the Government. The authorities below have not appreciated the legal effects of the above statutory provisions and misdirected themselves in law and facts by relying on the return showing the status as a company.
5. Elaborating his arguments further, Shri Inamdar invited our attention to Shri Ramtanu Co-operative Housing Society Ltd. v. State of Maharashtra AIR 1970 SC 1771 at pp. 1775-1777. The Maharashtra counter part organised on similar lines was held to be limb or agency of the Government (paragraph 15). The action regarding acquisition of property, division of profits, etc., have been held by themselves as not constituting indicia or attributes of the trading character of the Maharashtra Development Corporation (MIDC) (paragraph 16). It is further held that MIDC is acting as a wing of the Government. Receipts arise not out of any business or trade but out of sole purpose of establishment, growth and development of industries.
In paragraph No. 17 it is held that if in the ultimate analysis there is excess of income, one should not conclude that this is a trading corporation.
In paragraph No. 18, it is observed that the powers of the corporation are like the warp and the weft of the fabric of development of industries by the State. Paragraph No. 20 again stresses the agency aspect. Paragraph No. 21 highlights the role of the corporation in arresting haphazard growth of industrial areas in all parts of the State.Ramana Dayaram Shetty v. International Airport Authority of India AIR 1979 SC 1628-1639, it is held that the Government can exercise its authority through the agency of a natural person or artificial juridical person. Paragraph 15 of this judgment further states that where extensive and unusual financial assistance is given and the purpose of the Government in giving such assistance coincides with the purpose of the corporation, the corporation would be an instrumentality or agency of the Government. Accordingly, it was submitted that the corporation is not liable to be taxed.
7. In reply, relying on the same clauses of the Statute, Shri Sathe submitted that the term, wing, agency, branch, etc., are misnomers for determining the true concept of the corporation. A Government company may often be given such epithets but the true nature does not change.
Section 3(1) and 3(2) of the GIDA creates an artificial juridical persons with its own capital, seal, and powers to sue and be sued.
Definition of Indian company under Section 2(26)(ia) of the 1961 Act includes corporation incorporated under a statute. Goa, Daman & Diu Industrial Development Corporation (GIDC) is, thus, no way different from unit trust, life insurance corporation or any of the public sector undertakings, which be as a controlling and supervisory power vested in the Government in no way different from those in the present case. Such supervisory powers should not be allowed to colour the issue regarding the existence of GIDC as a statutory corporation distinct the Government itself. If the Government desired to exercise the function directly it would not have enacted the statutory provisions providing for permanent seal and separate right to be sued. Similarly the provisions regarding public servants, acquisition for a public purpose, recovery at the instance of the company as due of the land revenue, etc., merely indicate the extent of interest shown by the Government in ensuring that the corporation functions smoothly. Section 29 is repugnant to the concept of branch of the Government. The accounts of the corporation show several classifications of finances provided by the Government (once again showing separate existence of GIDC) as below (all amounts except 4 shown as repayable to the Government).
4. Deposits received from the Government for specific schemes. It is true that there is no authorised and paid up capital divided into shares but that does not change the corporate character of the GIDC as the existence of fixed share capital divided into shares is not a sine qua non for the purpose. Section 2(26)(ia) is enacted to include corporations which might not have been registered under the main clause as company registered under the Companies Act, 1956.
8. Regarding the powers of dissolution, Shri Sathe contended that although the decision may be taken through executive fiat, it is not an unguided discretion and is not immune from challenge through legislative or judicial process. Again the clothing of the employees as public servant, or securing recovery through land revenue recovery method (only at the instance of the corporation) merely indicate the intimate connection between the Government and GIDC but not a total fusion into one indivisible entity. Shri Sathe referred in Valjibhai Muljibhai Soneji v. State of Bombay AIR  SC 1890 paragraph No.10(2d) and showed how the corporation gets separate existence when its funds do not become automatically parts of public revenue. Shri Sathe then referred in Andhra Pradesh State Road Transport Corpn. v. ITO  52 ITR 524 at p. 531 (SC) regarding the scope of article 289 of the "Constitution. The corporation, though statutory has personality of its own and is distinct from the State deposits taken by the corporation from the public do not ipso facto became deposits with the Government.
9. The provisions of the Andhra Pradesh State Road Transport Corporation Act, 1950 (APSRTCA) are, thus, in pan materia with the provisions of the GIDA. The provisions authorising the Government [Section 23(3) of the APSRTCA] to provide for division of capital in such a manner as it thinks fit is not present in the case, but nothing turns on this as a corporation need not have authorised or paid up capital. The Andhra Pradesh State Road Transport Corporation (APSRTC) as mentioned at p. 535 was fully controlled by the Government. Their lordships observed : ...There is also no doubt that the corporation is a State controlled corporation in the same sense that at all material stages and in all material particulars, the activity of the corporation is controlled by the State....
Shri Sathe admitted that in APSRTC there was a provision for contribution of capital by the citizens also but this is not quite relevant. The real issue is the corporate existence.
10. Regarding the case law relied upon by Shri Inamdar, Shri Sathe highlighted the context in which the judgments were given. In Shri Ramtanu Co-operative Housing Society Ltd.'s case (supra) the challenge was to the constitutional validity of the Act and not for establishing 100 per cent identity between the Government and the corporation. It was held that the State had the power to constitute the corporation for the declared purpose of developing and regulating indusrrial growth of the State. There are doubtless some observations regarding close identity and the promotion of the powers under the Seventh Schedule of the Constitution but there are no observations indicating 100 per cent identity with the Government (unfortunately the treatment given to MIDC for income-tax purpose is not known to either party before us).
Similarly regarding Ramana Dayaram Shetty's case (supra) Shri Sathe pointed out that the question involved was under Chapter III of the Constitution (article 14) vis-a-vis International Airport Authority.
Summing up Shri Sathe submitted that Section 3(2) providing for corporate existence, perpetual succession and right to sue and be sued independently of the Government, leave no doubt about the trure nature of the assessee-corporation.
11. We have examined the facts and the arguments. Section 2(26)(ia) may not automatically rope in (for being treated as company) all corporations merely because they are established under the State law.
The intention of the State is to be gathered from the relevant provisions. Section 3(2) leaves no doubt about the intention of the Legislature. The intention was clearly to establish a body separate from the Government with the own independent legal existence to sue and be sued. The close control and supervision as also the sweeping powers to wind up GIDC under the certain circumstances indicate only the desire of the Government to ensure that the objects are achieved. Such powers strictly vested in the Government do not destroy the legal effect of Section 3(2). The case law relied upon by Shri Inamdar has been correctly distinguished by Shri Sathe. The words wing, branch, unit, etc., are often used in a loose sense and are not to be taken as authority for 100 per cent identity between the two. The case law dealt with constitutional validity of the institution under fundamental rights and legislative competence and do not show that their Lordships have held the institution to be actually parts of the Government. The conclusion of the authorities below are accordingly upheld. We are fortified in this view by the Gujarat High Court judgment in Gujarat Industrial Development Corpn. v. CIT  21 Taxman 250.
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 planning, development or improvement of cities, towns and villages, or for both ; Analysing the above, Shri Inamdar submitted that GIDC has been clothed with powers of regulating and developing industries in the various places comprised in the Union territory. Location of industries necessarily involves, planning of cities, towns or villages. The GIDC has actually laid out places for industrial plots in villages and, thus, helped planning and improvement of the type envisaged under Section 10(20A). The lower authorities erred in not accepting the contention.
13. In reply Shri Sathe submitted that GIDC is not an authority. It does not also plan, develop or improve the cities, towns and villages.
It merely lays out industrial areas taking into consideration the needs of the State and not necessarily of the cities, towns or villages which may be located nearby. The word 'authority' indicates a power of enforcing its directors, directly and punish the breach thereof. No evidence has been produced to show the existence of such an 'authority'.
14. In his rejoinder Shri Inamdar submitted that the word 'authority' merely means a body clothed with certain powers for achievement of its object. For enforcement thereof the 'authority' has to take recourse to measures like any other person. The absence of direct powers of punishment does not take away the character of authority, from GIDC.15. On an examination of the facts and arguments we hold that the assessee does not fulfil the conditions of Section I0(20A). In Calcutta State Transport Corpn. v. CIT  108 ITR 922 (Cal.), it was observed as under : ...The term 'authority' has not been defined by the General clauses Act. The dictionary meaning of the word 'authority' is a person or a body having a legal right to command and be obeyed .... The body should be created by a statute, on which powers are conferred to carry out governmental or quasi-governmental functions and which can give directions, the disobedience of which is punishable....
Examined from this point of view, we cannot clothe the assessee with the powers of authority. Regarding its function too, we agree with the learned deparlmental representative that its functions do not conform to the requirements of planning, development or improvement of cities, villages or towns. Industrial lay out may form part of it but the assessee is not constituted for the purpose in Section 10(20A).
Therefore, the decision of the Commissioner (Appeals) is upheld. On this point also, we are fortified by the Gujarat High Court judgment in Gujarat Industrial Development Corpn.' s case (supra).
16. Shri Inamdar's arguments regarding the concept of revocable transfer spring from the wording of Section 63. If an individual settles money on trust retaining the right to dissolve the trust on his subjective satisfaction about the happening of some vague event (like beneficiaries being considered no langer in need) the trust would doubtless be considered revocable. In this case the Government has full powers to appropriate or take back the funds contributed by any time by virtue of the sweeping powers vested in it. It can also dissolve the corporation by holding that the purpose of establishing the corporation is substantially achieved. Consequently, the income could at best be assessed in the hands of the transferor-Government. The authorities below have erred in rejecting the contention.
17. In reply Shri Sathe pointed out that Section 63 is a provision for clubbing of incomes and not for excluding or exempting income. Of course there is no discretion not to apply provisions of Sections 62-63 of the Act if the conditions are fulfilled. In this case, there is no transfer of the type contemplated. The Government has made available certain funds which as per balance sheet are repayable. The Government has made certain deposits and provided some subsidies. But these are not gratuitous. The provision for repayment shows that the transaction is no different from that between any creditor and debtor. The power to dissolve and appropriate the assets is not absolute and is hampered by certain constraints. The satisfaction about the achievement of the purpose for what it was floated has to be exercised objectively and may be subject to challenge in the Legislature or before the judiciary. The provision (Section 45 of the Act) does not constitute power of revocable transfer contemplated in Section 63. The authorities below are, therefore, correct.
18. On an examination of the facts and arguments, we uphold the view of the authorities below. The relationship between the Government and the assessee is that of creditor and debtor. Powers to regulate or dissolve the corporation does not constitute power of revocable transfer. The contention of the assessee is rejected.
19. Shri Inamdar next submitted that the object of the corporation as reflected in the preamble and the other provisions show that the Government was solely motivated by a desire to promote industry, reduce unemployment, increase foreign exchange earnings and generally uplift the lot of the masses. These are objects of advancement of public utility not involving an activity for profit. The assessee is charging only nominal rents and service charges. The accounts themselves show that it is advancing loans to educated unemployed on extremely liberal terms which no commercial minded businessman would. The net return of income itself would show what a poor return the assessee gets on the large investments. The capital contribution of the Government as on 31-3-1980 is 3.5 crores. Interest is paid only on short-term deposits.
Yet the net income is nominal or loss. The annual report (p. 152) speaks for itself. The assessee is, therefore, exempt under Sections 11-13.
20. Elaborating the point further, Shri Inamdar again referred in Shri Ramtanu Co-operative Housing Society Ltd.'s case (supra) to show the functions of the corporation come under public benefit activities. The legislation itself is in term of entry 24 of State list subject to entry 52 in the Union list. In paragraph 16 their Lordships have held that MIDC is not a trading corporation. The corporation has to provide amenities and facilities in industrial estates and areas. Amenities of road, electricity, sewerage and other facilities fall within the programme. The corporation (paragraph No. 21) ensures that there is no haphazard growth of industrial areas in all parts of the State so that the residents of towns and cities do not suffer from pollution, etc.
The deeming provision of acquisition of land for purposes would show that advancement of object of public utility is with large on the face of the corporation. The corporation has been held 1o be an instrumentality or agency of the Government and the corporation is expected to use the assistance for the purpose of public character (paragraph 15 of Ramana Dayaram Shetts case (supra).
21. In reply Shri Sathe submitted that the assessee is not Government.
Even if the objective as reflects in the preamble are taken there is nothing to suggest even remotely that the assessee is engaged in anything but an ordinary commercial venture. Although there is full Government control, the assessee is not prevented from charging the parties at market rates for the services. The fact that the return on investment is low is no ground for holding that there is any charitable or eleemosynary element in its activities. The surplus, if any, may go to the Government, but this again is hot a proper test. All corporations established by the Government would be for some social purpose. If the principle canvassed by Shri Inamdar is accepted, all public sector undertakings would have to be considered charitable.
Without prejudice it was submitted that charity is not a beneficiary in perpetuity as the Government can dissolve the corporation as soon as it is satisfied that the object is achieved.
22. We have examined the facts and the arguments. One should see the objects for which the assessee-corporation was established. It is not doing any manufacturing business in any of the industrial areas developed by it. Although there is no statutory price control on the services rendered by the assessee, the entire scheme of the GIDA shows clearly that the activities of the assessee were not intended to be pursued as 'activities for profit'. It is possible that a private party rendering the same services as the assessee would be considered as carrying an activity for profit. The activity of the assessee, however, may be activity of profit but not activity for profit. That the activities are for a public purpose is clear from the enactment as also from the observations in a similar case of MIDC in Shri Ramtanu Co-operative Housing Society Ltd.'s case (supra). The case before us is similar to that of Andhra Pradesh State Road Transport Co rpn. v.CIT 100 ITR 392 (AP). The assessee has no profit motive, though it earns income in the process. There is no comparison with LIC, banks etc., which were for the purpose of taking out existing business activities of the existing private parties. We, accordingly, hold that the assessee fulfils the conditions for exemption under Sections 11-13.
We were informed that there are no prohibited accumulation or investments. This aspect is left to the ITO for consideration at the time of implementing this order.
23. The other grounds of appeal deal with computation of income. We see no way of making departure from our decision for earlier years against the assessee. Shri Inamdar, however, contended that certain expenses though allowable have not been allowed either under property or under business or other sources. Shri Inamdar, however, could not pinpoint the items. The departmental representative too did not have any ready reconciliation between the returned and assessed incomes except depreciation on property income from which is assessable under Section 22 of the Act. We, therefore, do not propose to examine the issue here.
Nothing in this order, however, need be taken in the way of the assessee from approaching the ITO for rectification.