GUJARAT INDUSTRIAL DEVELOPMENT CORPORATIONversusTHE COMMISSIONER OF INCOME TAX

A      GUJARAT INDUSTRIAL DEVELOPMENT CORPORATION
                                        v.
                 THE COMMISSIONER OF INCOME TAX

                               AUGUST 20, 1997

B                  [B.N. KIRPAL AND K.T. THOMAS, JJ.]

         Income Tax Act, 1961-Section 10(20A)-Gujarat Industrial Develop-
  ment Act, 1962-Section 2(9)(n) & 13-lncome of Appellant from industrial
  development-Whether falls within ''planning, development or improvement
C of cities, towards villages or both''-Held, yes.

          The Appellant Corporation was formed under the Gujarat In-
    dustrial Development Act, 1962, for the the purpose of securing the orderly
    establishment of industries in the State of Gujarat. The Appellant claimed
    exemption from payment of Income Tax under Sec. 10(20A) of the Act of
D   1961.

          The claim of the Appellant was disallowed by the Income Tax Officer
    but allowed by the Appellate Commissioner. On second Appeal the
    Tribunal reversed the view taken by Appellate Commissioner. The High
    Court dismissed the claim of the Appellant and held that since develop-
E   ment 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.

         On appeal, the Appellant contended that as per Section 10(20A) if
F   an Authority is constituted for the purpose of planning or development or
    improvement of any city or town or village or a combination of them, the
    income of such Authority is not exigible to Income Tax.

          Allowing the Appeal, the Court

G          HELD : 1.1. The development of industrial area would have its direct
    impact on the development or improvement of that part of the city, town
    or village where such area is located. Delinking industrial area from the
    scope of development of any area is, without any practical sense. [470-F-G] ·

          1.2. The word "development" in Section 10(20A) for the I.T. Act should
H be understood in its wide sense. These is no warrant to exclude all develop·
                                        466
            GUJARAT INDL. DEVELOPMENT CORPN.v. C.l.T.                    467

ment programmes relating to any industry from the purview of the word           A
"development" in the said sub-section. There is no indication in the Act that
development envisaged therein should confine to non-industrial activities.
Development of a place can be accelerated through varieties of schemes and
establishment of industries is one of the modes of developing an area.
                                                                   [471-E-F]    B
     Shri Ramtanu Co-operative Housing Society Ltd. & Anr. v. State of
Maharashtra and Ors., [1970) 3 SCC 323, relied on.

      1.3. One of the reasons for incorporating a specific provision of
exemption from income tax such as sub-section 10(20A) is to protect public
bodies created under law for achieving the purpose of developing urban or       C
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. [471-G]

      State of Tamil Nadu. v. M.K Kandaswami, [1976) 1 SCR 38; Calcutta D
Jute Manufacturing Company & Anr. v. Commercial Tax Officer & Ors., JT
(1997) 5 SC 690, referred to.

      1.4. The authorities constituted by law for facilitating all kinds of
development of cities, towns and villages for public purposes shall not be E
subjected to the liability to pay income tax. The High Court interpreted
the exemption clause too rigidly and narrowly which result 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. [472-B-C]                                                           F

     CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2950 of
1985 Etc.

    . From the Judgment and Order dated 28.6.84 of the Gujarat High
Court in l.T.R. No. 37 of 1976.                                     G
      Sameer Parekh, Ms. Musharaf Chawdhary for P.H. Parekh for the
appellants.

     Ranbir Chandra, Arun K. Sharma and B.K. Prasad for the Respon-
~                                                                               H
    468                  SUPREME COURT REPORTS [1997] SUPP. 3 S.C.R.

A         The Judgment of the Court was delivered by

          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').
B
          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
C   Bench of the 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 Develop-
  ment Act, 1962, (for short 'the Gujarat Act') with the right to hold
  properties and the right to sue and be sued and in its own name. The
D Income-tax Officer concerned repelled the claim of the Corporation for
  exemption from tax on both grounds, but the Appellate Assistant Commis-
  sioner (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.
E 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,
F that he does not press the claim under the first 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 :
G
            "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 plan-
            ning, development or improvement of cities, towns and villages, or "
H           for both."
        GUJARATINDL. DEVELOPMENT CORPN.v. C.I.T. [THOMAS, J.]               469

            Any income falling within the ambit of said sub-section would A
    automatically slip out of exigibility under l.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.                 •
                                                                                  B
            The second limb of the sub-section consists of two 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 C
    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 devefopment or improvement of
    any city or town or village or a combination of them, the income of such
    Authority is not exigible to income tax.                                       D

           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 E
    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 in- F
            dustries in any particular area, can any one say that it is for the
            purpose of planning, developing or improving a particular city,
            town or 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 the particular area develops G
            by that industry alone. There may be advantages and disad-
            vantages. On the one hand, because there are industrial activities
0
            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 H
    470                   SUPREME COURT REPORTS [1997] SUPP. 3 S.C.R.

A           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.
            The answer would be in the negative."

          The Gujarat Act was enacted "to make special provision for securing
B
    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.
c
           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
D   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 enumerates 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".
E
          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 al.:;o to be provided in a planned industrial
    area as per the modern concept of any industrial complex. Even education-
F   al institutions may have to be provided in such complex. Therefore,
    development of industrial area would have its direct impact on the develop-
    ment 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.

G          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 !l·
     Division Bench of this Court has said in Shri Ramtanu Co-operative Hous-
  ing Society Ltd. and Another v. State of Maharashtra and Others, [1970) 3
H sec 323:
     GUJARAT INDL. DEVELOPMENT CORPN.v. C.I.T. [THOMAS, J.)                 471

         "The functions and powers of the Corporation indicate that the            A
         Corporation is acting as a wing of the State Government in estab-
         lishing industrial estates and developing industrial areas, acquiring
         property for those purposes, constructing building, allotting build-
         ings, factory sheds to industrialists or industrial undertakings. It is
         obvious that the Corporation will receive moneys for disposal of          B
         land, 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 in-
         dustrial estates and industrial areas. Amenities of road, electricity,    C
         sewerage and other facilities in industrial estates and industrial
         areas are within the programme of work of the Corporation."

       The scheme of the Gujarat Act, as is seen from a survey of the
relevant provisions referred to above, would indicate that the Corporation         D
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 develop-
ment of such areas.

       The word "development" in Section 10(20A) of the I.T. Act should E
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 of a place can be accelerated through varieties of F
schemes and establishment of industries is one of the modes of developing
an area.

      One of the reasons for incorporating a specific provisions of exemp-
tion from income tax such as sub-section 10(20A) is to protect public
bodies created under law for achieving the purpose of developing urban or          G
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 v. M.K.
Kandaswami, [1976] 1 SCR 38. This Court has reiterated the said principle          H
    472                  SUPREME COURT REPORTS (1997] SUPP. 3 S.C.R.

A in Calcutta Jute Manufacturing Co. & Another v. Commercial Tax Officer &
    Others, 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.
B 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 liabili~ while the authorities dealing with housing schemes
  which provide houses to private individuals would stand outside the taxing
C 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.

    V.M.                                                     Appeals allowed.