Industrial Development Corporation Vs. The Commissioner of Income Tax  INSC
673 (20 August 1997)
KIRPAL, K. T. THOMAS
C.A Nos. 3482/90 & 2267/91)
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.
the Corporation has filed this appeal by special leave.
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.
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.
10(20A) of the I.T. Act reads thus:
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."
Any income falling within the ambit of said sub-section would automatically
slip out of exigibility under I.T. Act.
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.
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.
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:
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.
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.
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.
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.
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
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):
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.
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 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
word "development" in Section 10(20A) of the I.T.
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
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.
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.