M/s. Andhra Pradesh Housing Board, Hyderabad V. DCIT, Circle-5(1), Hyderabad

ITA 717/HYD/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2911 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 08-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M RAVINDRA SAI
• Assessee Lawyers: P K SAHU S RAVI
• Keywords: Gift; Business income; Business expenditure; Salary income; Charitable institution; Opportunity of being heard; Diversion of income; Retrospective amendment; Commercial expediency; Onus to prove; Revised return; Revenue expenditure; Capital expenditure
• Section: 44AD; 142(1); 80IB; 139(5); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, J UDICIAL MEMBER SL.NO. ITA NO. AY APPELLANT RESPONDENT 1. 717 /H/12 2008 - 09 M/S ANDHRA PRADESH HOUSING BOARD, HYDERABAD. (PAN AAAAA 5028 R) DY. COMMISSIONER OF INCOME-TAX, CIRCLE 5(1), HYDERABAD. 2. 715/H/12 2007 - 08 - DO - ADDL. COMMISSIONER OF INCOME-TAX, RANGE-5, HYDERABAD. 3. 1218/H/12 2006 - 07 - DO - - DO - 4. 1217/H/12 2005 - 06 - DO - ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 5(1), HYDERABAD. 5. 12 1 6/H/12 2004 - 05 - DO - INCOME - TAX OFFICER, WARD 5(3), HYDERABAD 6. 1292/H/12 2006 - 07 ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 5(1), HYDERABAD. M/S ANDHRA PRADESH HOUSING BOARD, HYDERABAD. (PAN AAAAA 5028 R) ASSESSEE BY : S/SHRI P.K. SAHU, ADVOCATE, S. RAVI, SR. ADVOCATE DEPARTMENT BY : SHRI M. RAVINDRA SAI DATE OF HEARING 04 - 3 - 2013 DATE OF PRONOUNCEMENT 31 - 5 - 2013 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: THESE ARE SET OF SIX APPEALS OF THE SAME ASSESSEE. APPEALS FOR THE ASSESSMENT YEAR 2004-05, 2005-06, 2007-08 A ND 2008-09 2 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD ARE BY THE ASSESSEE WHEREAS THERE ARE CROSS APPEALS FOR ASSESSMENT YEAR 2006-07. SINCE FACTS ARE SIMILAR AN D ISSUES ARE COMMON, ALL THESE APPEALS ARE CLUBBED AND HEARD TOG ETHER, THEREFORE, A COMMON ORDER IS PASSED FOR THE SAKE OF CONVENIENCE. 2. FIRST WE WILL TAKE UP ASSESSEES APPEAL FOR THE ASST. YEARS 2004-05, 2005-06, 2006-07 AND 2008-09. WE WILL DEAL WITH FACTS AS TAKEN FROM ITA NO. 717/HYD/12 PERTAINING TO THE ASSESSMENT YEAR 2008-09 SINCE THE CIT(A) HAS FOLLOWED HIS REA SONING FOR THIS YEAR IN THE APPEAL FOR THE OTHER ASSESSMENT YEARS. 3. BRIEFLY THE FACTS ARE, THE ASSESSEE IS AN AOP ES TABLISHED UNDER THE AP HOUSING BOARD ACT, 1956. THE ASSESSEE IS ENGAGED IN THE ACTIVITY OF PURCHASE AND SALE OF LAND, CONST RUCTION OF HOUSES AND SALE OF THE SAME AND DERIVING RENT FROM HOUSE PROPERTY. FOR THE ASSESSMENT YEAR UNDER DISPUTE, IT FILED RETURN OF INCOME 30/09/2008 DECLARING LOSS OF RS. 63,15,98,32 9/-. THE RETURN FILED BY THE ASSESSEE WAS ORIGINALLY PROCESS ED U/S 143(1) OF THE IT ACT. SUBSEQUENTLY, THE ASSESSEES CASE WA S SELECTED FOR SCRUTINY ASSESSMENT AND IN RESPONSE TO THE NOTICES ISSUED U/S 142(1) AND 143(2) OF THE ACT, THE ASSESSEE APPEARED BEFORE THE ASSESSING OFFICER AND SUBMITTED THE DETAILS CALLED FOR BY THE ASSESSING OFFICER. DURING THE ASSESSMENT PROCEEDIN G, THE ASSESSING OFFICER NOTED THAT UNDER THE HEAD ADMINI STRATIVE EXPENDITURE THE ASSESSEE HAS DEBITED INFRASTRUCTUR E EXPENDITURE OF RS. 1180,00,00,000/-. EXPLAINING THE DETAILS OF EXPENDITURE CLAIMED IN ITS LETTER DATED 22/12/10, THE ASSESSEE SUBMITTED THAT THE GOVERNMENT OF AP HAS FORMULATED A SCHEME UNDER THE NAME RAJIV GRUHAKALPA (RGK) FOR PROVIDING HOUSING TO T HE URBAN POOR FALLING IN THE SALARY INCOME OF RS. 24,000-36,000 A ND THE COST OF THE HOUSE WAS WORKED OUT AT RS. 82,500/- TO THE BEN EFICIARY. AS 3 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD PER THE SCHEME THE BENEFICIARY HAS TO PAY ONLY RS. 8,250/- AND THE BALANCE TO BE FINANCED BY THE BANK AS SOFT LOAN . THE APHB WAS TO BEAR THE FINANCIAL BURDEN OF PROVIDING INFRA STRUCTURE FACILITIES, DRAINAGE, WATER SUPLY, INTERNAL ROAD AN D POWER SUPPLY. IT WAS SUBMITTED THAT DURING THE ASSESSMENT YEARS 2 005-06 AND 2006-07 MORE THAN TWO LAKHS HOUSES WERE PLANNED UN DER THE GORT NO. 432, DATED 23/12/2005 AND SUBSEQUENT GOS B Y GORT NO. 433, 441 & 442. AGAINST THESE GOS THE APHB HAS PAID TO THE GOVERNMENT OF AP TOWARDS INFRASTRUCTURE FEE/COST OF LAND OF RS. 1180 CRORES. IT WAS SUBMITTED THAT AS PER THE RGK S CHEME, THE ENTIRE COST OF INFRASTRUCTURE WAS BORNE BY THE GOVE RNMENT AND THE INFRASTRUCTURE/COST OF LAND TO BE PAID TO THE G OVERNMENT THROUGH AP HOUSING CORPORATION. 4. THE ASSESSING OFFICER AFTER GOING THROUGH THE GO S SUBMITTED BEFORE HIM BY THE ASSESSEE WAS OF THE VIEW THAT IT IS NOT A SCHEME PROVIDING HOUSES TO THE POOR WITHOUT COST. I T INVOLVES COST TO BE BORNE BY THE BENEFICIARY. THE GOVERNMENT PROVIDES LAND TO THE ASSESSEE FREE OF COST AND THE GOVERNMEN T ALSO PROVIDES INFRASTRUCTURE FACILITIES FREE OF COST TO THE ASSESSEE. THE ASSESSING OFFICER WAS FURTHER OF THE OPINION THAT A S PER THE GO THE INFRASTRUCTURE COST PAYABLE TO THE GOVERNMENT T O THE EXTENT OF COST OF LAND HAS TO BE UTILIZED FOR INFRASTRUCTU RE DEVELOPMENT UNDER THE SCHEME BY THE ASSESSEE AND IT NEVER SAYS THAT THE AMOUNT HAS TO BE PAID BACK TO THE GOVERNMENT OR TO ANY AUTHORITY. THE ASSESSING OFFICER WAS ALSO OF THE VI EW THAT THERE IS NO COMPENSATORY PAYMENT SINCE COMPENSATORY PAYMENTS ARE MADE ESSENTIALLY TO COMPENSATE FOR SOME LOSSES OR F OR A BREACH OF CONTRACT. THE ASSESSING OFFICER OBSERVED THAT NEITH ER THE ASSESSEE HAS CAUSED ANY LOSS TO THE AP GOVERNMENT N OR THE GOVERNMENT HAS DEMANDED ANY COMPENSATION FROM THE A SSESSEE. 4 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD HENCE, THE AMOUNT PURPORTEDLY PAID TO THE AP STATE HOUSE CORPORATION LTD. ON THE DIRECTION OF THE GOVERNMENT IS NOT A COMPENSATORY PAYMENT. THE ASSESSING OFFICER OPINED THAT WHEN THE COST OF HOUSE IS BORNE BY THE MIDDLE INCOME BEN EFICIARIES AND WHEN THE GOVERNMENT BEARS THE COST OF LAND AND INFR ASTRUCTURE AND WHEN THERE IS NO CLEAR DIRECTIVE FROM THE GOVER NMENT THAT THE ASSESSEE HAS TO PAY THEM BACK OR TO ANY OTHER A UTHORITY THE PAYMENT OF RS. 1180 CRORES CLAIMED BY THE ASSESSEE AS EXPENDITURE IS WITHOUT ANY JUSTIFICATION. THE ASSES SING OFFICER OBSERVED THAT FOR AN EXPENDITURE TO BE ALLOWABLE U NDER THE PROVISIONS OF THE ACT IT SHOULD BE REVENUE IN NATUR E AND IT MUST HAVE A DIRECT NEXUS WITH THE BUSINESS OR ACTIVITY O F THE ASSESSEE. 5. THE ASSESSING OFFICER FURTHER CAME TO THE CONCLU SION THAT IF THE ASSESSEE AT ALL HAS TO PAY A CERTAIN AMOUNT TO THE GOVERNMENT AS AN OBLIGATION IT COULD HAVE DONE SO F ROM THE PROFITS DERIVED BY IT AFTER PAYMENT OF TAXES. ON TH E BASIS OF THE ABOVE SAID CONCLUSION, THE ASSESSING OFFICER DISALL OWED THE CLAIM OF EXPENDITURE OF RS. 1180 CRORES AND ADDED THE SAM E TO THE RETURNED INCOME. 6. THE ASSESSING OFFICER FURTHER FOUND THAT THE ASS ESSEE HAD DEBITED AN AMOUNT OF RS. 3,86,18,879/- UNDER THE HE AD PENSION. WHEN THE ASSESSING OFFICER ASKED THE ASSESSEE TO EX PLAIN REGARDING THE ALLOWABILITY OF THE EXPENDITURE CLAIM ED, THE ASSESSEE STATED THAT THE EMPLOYEES OF THE BOARD ARE ELIGIBLE FOR PENSION BENEFIT AS APPLICABLE TO STATE GOVERNMENT E MPLOYEES AND THEY ARE GOVERNED BY PENSION CODE OF 1980. THE RETI RED EMPLOYEES ARE PAID MONTHLY PENSION ON THE BASIS OF TOTAL NUMBER OF YEARS RENDERED ON THE LAST PAY DRAWN AS CERTIFIE D BY THE DIRECTOR, STATE AUDIT. IT WAS SUBMITTED THAT NO RES ERVE FUND HAS 5 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD BEEN PROVIDED BY THE BOARD. ALL THE PENSION PAYMENT S ARE MET FROM THE REVENUE. THE ASSESSEE SUBMITTED THAT THE E XPENDITURE CANNOT BE CONSIDERED AS CAPITAL SINCE IT IS INCURRE D IN COURSE OF BUSINESS AND NO ASSET CAME INTO EXISTENCE. AS NO CA PITAL HAS COME INTO EXISTENCE THE EXPENDITURE CANNOT BE CONSI DERED AS A CAPITAL EXPENDITURE. THE ASSESSING OFFICER HOWEVER REJECTED THE CONTENTION OF THE ASSESSEE. THE ASSESSING OFFICER R EFERRING TO GO NO. 17 DATED 29/07/94 OBSERVED THAT IN PARA 6 OF TH E SAID GO IT IS CLEARLY MENTIONED THAT THE PAYMENT OF PENSION IS TO BE ARRANGED THROUGH THE CAO, APHB BY CREATING A SEPARA TE PENSION CELL AND FUND FOR MEETING THE ENTIRE EXPENDITURE FR OM ITS OWN SOURCES, WHICH MEANS THAT THE ASSESSEE HAS TO CREAT E A SEPARATE FUND AND MEET THE EXPENDITURE FROM THAT ONLY. THE A SSESSING OFFICER OBSERVING THAT THE ASSESSEE HAS NOT PROVED THAT THE EXPENDITURE TOWARDS PENSION WAS MADE WHOLLY AND EXC LUSIVELY FOR THE PURPOSE OF BUSINESS DISALLOWED THE EXPENDITURE AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 7. THE ASSESSING OFFICER APART FROM MAKING OTHER DISALLOWANCES, ALSO DISALLOWED THE CLAIM OF DEDUCTI ON U/S 80-IB OF THE ACT, BY HOLDING THAT NEITHER THE ASSESSEE HAS F ULFILLED THE CONDITIONS LAID DOWN IN SECTION 80-IB(10) NOR IT HA S CLAIMED DEDUCTION IN THE RETURN OF INCOME. 8. IN COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASS ESSEE ALSO TOOK A PLEADING THAT BY VIRTUE OF THE AMENDMENT TO THE APHB ACT OF 1956 ON 05/08/2010 WITH RETROSPECTIVE EFFECT FRO M 01/04/2002, THE SURPLUS OF THE APHB VESTS WITH THE GOVERNMENT OF AP AND HENCE THERE IS NO LIABILITY TO INCOME-TAX SO FAR AS THE ASSESSEE IS CONCERNED. THE ASSESSING OFFICER HOWEVE R DID NOT ACCEPT SUCH CONTENTION OF THE ASSESSEE BY HOLDING T HAT THE 6 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD ASSESSEE IS NOT A STATE GOVERNMENT OR CENTRAL GOVER NMENT BODY. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASS ESSEE HAS NOT OBTAINED ANY EXEMPTION CERTIFICATE FROM THE INCOME- TAX DEPARTMENT TO CLAIM EXEMPTION FROM TAX. ACCORDINGLY , THE ASSESSING OFFICER COMPLETED THE ASSESSMENT VIDE ORD ER DATED 31/12/2010. 9. THE ASSESSEE BEING AGGRIEVED OF THE ASSESSMENT O RDER, PREFERRED AN APPEAL BEFORE THE CIT(A). 10. IN COURSE OF THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, THE ASSESSEE RAISED THE FOLLOWING ADDITI ONAL GROUNDS: A) THE APPELLANT, ANDHRA PRADESH HOUSING BOARD (AP HB), IS AN INSTRUMENTALITY AND AGENCY OF THE GOVERNMENT OF ANDHRA PRADESH. IT FUNCTIONS AS AN EXTENDED ARM OF THE GOVERNMENT. IT IS TO BE CONSIDERED AS AN ATTACHED O FFICE OR DEPARTMENT OF THE STATE GOVERNMENT. FOR THIS REASON , IT CANNOT BE CONSIDERED AS AN INDEPENDENT TAXABLE ENTI TY AND THE AMOUNTS RECEIVED BY IT IN THE COURSE OF ITS ACT IVITIES AS ITS TAXABLE INCOME. B) THE ACTIVITIES OF THE APPELLANT ARE UNDERTAKEN I N SYSTEMATIC ORGANIZED MANNER INCOME FROM SUCH ACTIVI TIES BY A TAXABLE PERSON IS NORMALLY TAXABLE UNDER THE HEAD INCOME FROM BUSINESS. BUT THERE IS NO PROFIT MOTIVE BY TH E APPELLANT WHILE UNDERTAKING ITS ACTIVITIES FOR THE PURPOSE FOR WHICH IT EXISTS. STATUTORILY IT EXERCISES SOVEREIGN AND GOVERNMENT FUNCTIONS. THEREFORE, INCOME CANNOT BE T AXED UNDER THE HEAD BUSINESS INCOME OR ANY OTHER HEAD. C) EVEN IF THE APPELLANT IS TREATED AS AN ENTITY IN DEPENDENT OF THE STATE GOVERNMENT AND THE INCOME IS ARISING F ROM BUSINESS ACTIVITY, THE APPELLANT ACTS AS AN AGENT O F THE STATE GOVERNMENT. THEREFORE, THE INCOME ACCRUES TO ITS PR INCIPAL, THE STATE GOVERNMENT. SUCH INCOME CANNOT BE TAXED I N THE HANDS OF THE STATE GOVERNMENT UNDER ARTICLE 289 OF THE CONSTITUTION. 11. THE CIT(A) CALLED FOR A REMAND REPORT FROM THE ASSESSING OFFICER ON THE ADDITIONAL GROUNDS FILED BY THE ASSE SSEE AND THE SUBMISSIONS MADE IN THAT REGARD. THE ASSESSING OFFI CER ALSO 7 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD SUBMITTED A REMAND REPORT, A COPY OF WHICH WAS ALSO FORWARDED TO THE ASSESSEE. THE ASSESSEE SUBMITTED A REJOINDER T O THE REMAND REPORT OF THE ASSESSING OFFICER. IT WAS CONTENDED O N BEHALF OF THE ASSESSEE THAT APHB IS AN INSTRUMENTALITY AND AN AGE NCY OF GOVERNMENT OF AP AND AS A RESULT IT FUNCTIONS AS AN EXTENDED ARM OF THE GOVERNMENT. BEING A PART AND PARCEL OF THE G OVERNMENT IT WORKS AS A DEPENDENT ENTITY. IT WAS FURTHER SUBMITT ED THAT THE APHB WAS CONSTITUTED UNDER A STATUTE BY THE STATE L EGISLATURE TO CARRY OUT THE ACTIVITIES WHICH ARE ESSENTIALLY GOVE RNMENT FUNCTIONS. THE APHB IS COMPLETELY UNDER THE CONTRO L AND SUPERVISION OF THE GOVERNMENT. THE APHB ACT ALSO PR OVIDES THAT ALL SURPLUS AMOUNTS ARE TO BE VESTED IN THE CONSOLI DATED FUND OF THE STATE GOVERNMENT. IT WAS SUBMITTED THAT EVEN T HOUGH THERE IS A BOARD THAT GOVERNS THE WORKING OF THE APHB, YE T, THE BOARD FUNCTIONS UNDER THE GOVERNMENT AND ITS EMPLOYEES AR E GOVERNED BY THE SAME TERMS AND CONDITIONS AS ARE APPLICABLE TO THE STATE GOVERNMENT EMPLOYEES. IT WAS SUBMITTED THAT SINCE T HERE IS NO PROFIT MOTIVE, THE INCOME CANNOT BE ASSESSED UNDER THE HEAD BUSINESS. IT WAS FURTHER SUBMITTED BY THE ASSESSE E THAT APHB BEING AN INSTRUMENTALITY AND AGENCY OF THE STATE GO VERNMENT HAS TO BE CONSIDERED AS STATE AND ITS INCOME CANNOT B E BROUGHT TO TAX IN VIEW OF ARTICLE 289 OF THE CONSTITUTION OF I NDIA. 12. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND OTHER FACTS AND MATERIALS ON RECORD WAS NOT CON VINCED WITH THE CONTENTION OF THE ASSESSEE THAT APHB BEING A S TATE ITS INCOME CANNOT BE BROUGHT TO TAX IN VIEW OF ARTICLE 289 OF THE CONSTITUTION OF INDIA. THE CIT(A) RELYING UPON THE RATIO LAID DOWN BY THE AP HIGH COURT IN CASE OF NATIONAL REMOTE SEN SING AGENCY, HYDERABAD V/S. ADDITIONAL INDUSTRIAL TRIBUNAL-CUM- ADDITIONAL LABOUR COURT, HYDERABAD IN WP NO. 17370 OF 1994 AND BY THE 8 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD HONBLE SUPREME COURT IN CASE OF BANGALORE WATER SU PPLY V/S. A. RAJAPPA OPINED THAT MERELY BECAUSE THE EMPLOYER IS A GOVERNMENT DEPARTMENT OR LOCAL BODY THE ENTERPRISE DOES NOT CEASE TO BE AN INDUSTRY. HE FURTHER OBSERVED THAT G OVERNMENTS AND MUNICIPAL STATUTORY BODY MAY RUN ENTERPRISES WH ICH DO NOT FOR THAT REASON CEASE TO BE AN INDUSTRY. CHARITABLE ACTIVITIES MAY ALSO BE INDUSTRIES. UNDERTAKINGS WITHOUT PROFIT MOT IVE CAN VERY WELL BE INDUSTRIES. HE OBSERVED THAT ANY OPERATION CARRIED ON IN A MANNER ANALOGOUS TO TRADE OR BUSINESS MAY LEGITIMAT ELY BE A STATUTORY INDUSTRY. THE ABSENCE OF PROFIT MOTIVE OR GAINFUL OBJECTIVE IS IRRELEVANT BY THE VENTURE IN THE PUBLI C JOINT, PRIVATE OR OTHER SECTOR. THE CIT(A) REFERRING TO SECTION 3 (2) OF THE APHB ACT, OPINED THAT THE APHB IS NOT GOVERNMENT BUT IS A BODY CORPORATE ESTABLISHED BY THE GOVERNMENT OF AP WHIC H IS DISTINCT FROM THE GOVERNMENT OF AP. FURTHER REFERRING TO SE CTION 4 OF THE ACT, THE CIT(A) OBSERVED THAT THE PROVISION CONTAIN ED IN SUB- CLAUSE (M) PROVIDING FOR APPOINTMENT OF VARIOUS MEM BERS OF THE BOARD INCLUDING MEMBERS FROM THE FINANCIAL INSTITUT IONS WHICH PROVIDE FINANCIAL ASSISTANCE TO THE BOARD CLEARLY E STABLISHES THE CHARACTER OF THE BOARD AS BEING A COMMERCIAL BODY D ISTINCT FROM THE GOVERNMENT. THE CIT(A) REFERRING TO SECTION 7 OF THE APHB ACT, WHICH PROVIDES FOR SALARY AND REMUNERATION TO THE EMPLOYEES, OPINED THAT THIS SECTION ITSELF CLEARLY BRINGS OUT THE FUNDAMENTAL DISTINCTION BETWEEN THE GOVERNMENT AND THE ASSESSEE BOARD AS THE BOARD HAS SEPARATE FUND AND T HE SALARIES OF THE BOARD ARE TO BE PAID FROM THE FUND OF THE BO ARD, WHICH IS UNLIKE THE SALARIES OF THE GOVERNMENT SERVANTS AND OF THE GOVERNMENT WHICH ARE PAID FROM CONSOLIDATED FUND OF THE STATE. FURTHER REFERRING TO SECTION 17 OF THE APHB ACT, TH E CIT(A) OBSERVED THAT THE PROVISION CONTAINED THEREIN CLEAR LY STATES THAT EMPLOYEES OF THE APHB ARE NOT THE GOVERNMENT SERVAN TS BUT THEY 9 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD ARE SERVANTS OF THE BOARD. THE CIT(A) OBSERVED THAT APHB ACT CLEARLY STATES THAT THE GENERAL RULES REGARDING GOV ERNMENT SHALL APPLY TO THE SERVANTS OF THE BOARD. HOWEVER, EXCEPT IONS CAN BE PROVIDED AND THE BOARD IS COMPETENT TO FRAME DIFFER ENT RULES FOR ITS SERVANTS. HE FURTHER OBSERVED THAT SECTIONS 16 , 17, 18 & 18A, 19 & 20 OF APHB ACT MAKES IT CLEAR THAT THE EMPLOYE ES OF BOARD ARE SERVANTS OF THE BOARD AND NOT SERVANTS OF THE A P GOVERNMENT. FROM THE ANALYSIS OF THE AFORESAID FACTS, THE CIT(A ) CONCLUDED THAT THE APHB IS CLEARLY A COMMERCIAL CORPORATE BOD Y OF THE GOVERNMENT AND IS DISTINCT FROM THE GOVERNMENT ITSE LF. THE CIT(A) FURTHER OBSERVED THAT WHEN IT COMES TO THE D IRECT REVENUE OF THE GOVERNMENT THE RECEIPTS GO TO THE CONSOLIDAT ED FUND OF THE STATE GOVERNMENT, WHICH IS EXEMPLIFIED BY ALL THE T AXES AND OTHER RECEIPTS OF THE GOVERNMENT. THE LOANS TAKEN BY THE GOVERNMENT ARE IN THE FORM OF GOVERNMENT BONDS FOR WHICH THE G OVERNMENT ITSELF STANDS SURETY. HOWEVER, IN THE CASE OF THE A SSESSEE ALL RECEIPTS GO TO THE FUND OF THE BOARD AND NOT TO THE GOVERNMENT. ALL LOANS TAKEN BY THE BOARD ON COMMERCIAL TERMS AN D ARE NOT AT ALL EQUATED WITH THE GOVERNMENT SECURITIES. HE FURT HER OBSERVED THAT THE GOVERNMENT OF AP DOES NOT STAND SURETY TO ANY OF THE LOANS OF THE BOARD AND IT IS THE BALANCE SHEET AND PROJECTS OF THE APHB WHICH ARE EXAMINED FINANCIAL INSTITUTIONS BEFO RE GIVING LOANS. NONE OF THESE FACTORS INDICATE THE WORK OF T HE GOVERNMENT OR THE WORK OF AN AGENT OF THE GOVERNMENT. RATHER T HIS IS EXACTLY HOW A PRIVATE COMMERCIAL ORGANIZATION WORKS. 13. WHILE DEALING WITH THE CONTENTION OF THE ASSESS EE TO THE EFFECT THAT IT IS AN AGENT OF THE GOVERNMENT, THE C IT(A) AFTER REFERRING TO AGENT AS HAS BEEN DEFINED UNDER VARI OUS LAW INCLUDING INCOME-TAX ACT, AND ALSO THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF LAXMINARAYAN RAMGOPAL AND SONS LTD. 10 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD V/S. GOVERNMENT OF HYDERABAD OBSERVED THAT AN AGENT IS AN EARNER OF INDEPENDENT INCOME AND IS SUBJECT TO TAXA TION. THE CIT(A) OBSERVED THAT FOR CONSIDERING THE ASSESSEES CLAIM THAT IT ONLY ACTS ON BEHALF OF THE GOVERNMENT AS AN AGENT A ND THEREFORE IS NOT SUBJECT TO TAXATION, IT IS REQUIRED TO UNDER STAND THE NATURE OF ASSESSEES RELATIONSHIP WITH THE GOVERNMENT WHIL E CARRYING OUT THE FOLLOWING ACTS: 1. THE LEVEL OF CONTROL BEING EXERCISED BY THE ASSE SSEE AND THE GOVERNMENT OVER THE PROPERTY. 2. HOW ARE THE AMOUNTS BEING REMITTED TO THE GOVERN MENT AND IN WHAT MANNER. 3. UNDER THE WHICH ACCOUNT ARE THE PAYMENTS FROM PR OPERTY BEING DEPOSITED. 14. THE CIT(A) ON EXAMINING THE SALE DEED EXECUTED BY APHB FOUND THAT IT HAS BEEN DESCRIBED IN THE SALE DEED A S THE OWNER. AS PER THE SALE DEED IT IS THE APHB WHICH IS SAID TO H AVE TRANSFERRED THE LAND TO THE PURCHASER. THERE IS NO REFERENCE TO THE STATE GOVERNMENT BEING THE OWNER OF THE LAND AND THE ASSE SSEE ACTING AS ITS AGENT FOR THE PURPOSE OF SALE. THE CIT(A) R EFERRING TO SECTION 13 OF APHB ACT OBSERVED THAT THE SAID SECTI ON CLEARLY KEEPS THE AUTHORITY TO THE BOARD TO ENTER INTO CONT RACT IN ITS OWN CAPACITY AND NOT ON BEHALF OF THE GOVERNMENT. THE C IT(A) REFERRING TO VARIOUS PROVISIONS OF THE APHB ACT, IN FERRED THAT APHB IS COMPETENT TO AND MAKES AND EXECUTES HOUSING SCHEMES AS IT FEELS NECESSARY OR THOSE WHICH ARE ENTRUSTED TO IT BY THE GOVERNMENT. IN OTHER WORDS, IT IS NOT ACTING AT ALL AS AN AGENT OF THE GOVERNMENT BECAUSE IT IS INDEPENDENTLY FORMING VARIOUS HOUSING PROJECTS AND EXECUTING THEM IN COMMERCIAL T ERMS. THE FACT THAT SOME APPROVAL IS REQUIRED FROM THE GOVERN MENT DOES NOT ALTER THE BASIC CHARACTERISTICS OF THE APHB. IN EVERY CORPORATION OR COMPANY CERTAIN APPROVALS ARE REQUIR ED FROM THE TOP MANAGEMENT AS PER RULES OF THE COMPANY. THE CIT (A) 11 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD OBSERVED THAT THOUGH THE GOVERNMENT MAY BE HAVING 1 00% OWNERSHIP AND IT IS ENTIRELY UPTO THE GOVERNMENT TO DECIDE ON THE LEVEL OF CONTROL, HOWEVER, THE LEVEL OF CONTROL DOE S NOT IN ANY MANNER CONVERT THE COMMERCIAL ORGANIZATION TO AN A GENT OF THE GOVERNMENT. HE OBSERVED THAT THE APHB ACT ALSO CATE GORICALLY STATES THAT THE OWNERSHIP OF LAND VESTS WITH APHB A ND NOT WITH THE GOVERNMENT. EVEN THE LOCAL AUTHORITIES ARE REQU IRED TO TRANSFER THE LAND TO THE APHB. THE COMPLETE OWNERSH IP OF THE LANDS VESTS WITH THE BOARD WHICH HAS TOTAL AND COMP LETE POWERS TO DEAL WITH THE LANDS AND TO ALSO MAKE PURCHASES, LEASE AGREEMENTS ETC. THAT BESIDES THE BOARD HAS ITS OWN FUNDS AND POWERS TO OBTAIN LOANS FROM OTHER INSTITUTIONS FOR ITS OWN MANAGEMENT. 15. THE CIT(A) FURTHER OBSERVED THAT IF THE ASSES SEE IS A STATE OR AGENT OF THE STATE THEN IT NEED NOT PAY STATE OR LOCAL TAXES WHEREAS THE ASSESSEE PAYS ALL STATE AND LOCAL TAXES AS APPLICABLE. WITH REGARD TO THE CONTENTION OF THE ASSESSEE THAT IT IS A NON- PROFIT ORGANIZATION AND HENCE NOT TAXABLE, THE CIT( A) REFERRING TO CERTAIN GOVERNMENT ORDERS OBSERVED THAT ALONG WITH OTHER COMMERCIAL ORGANIZATIONS LIKE HUDA, APIIC, THE ASSE SSEE IS A MAJOR RESOURCE EARNER FOR THE GOVERNMENT THROUGH IT S COMMERCIAL ACTIVITY AND IT IS NOT A CHARITABLE ORGANIZATION. T HE CIT(A) FURTHER INFERRED THAT THE ASSESSEE DOES NOT HAND OVER THE S ALE AMOUNTS TO THE GOVERNMENT ON A TRANSACTION TO TRANSACTION B ASIS. RATHER AD-HOC OR SURPLUS AMOUNTS IS TRANSFERRED. 16. WITH REGARD TO THE CONTENTION OF THE ASSESSE E THAT ITS INCOME CANNOT BE TAXED IN VIEW OF THE RESTRICTIONS IMPOSED UNDER ARTICLE 289 OF THE CONSTITUTION OF INDIA, THE CIT(A ) REFERRING TO THE DECISION OF HONBLE SUPREME COURT IN CASE OF AP SRTC V/S. 12 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD ITO, 52 ITR 524 OBSERVED THAT THE HONBLE SUPREME C OURT AFTER INTERPRETING ALL THE CLAUSES OF ARTICLE 289 HAS HEL D THAT THE INCOME IN RESPECT OF WHICH EXEMPTION IS CLAIMED OUG HT TO BE THE INCOME OF THE STATE IN TERMS OF CLAUSE (1) OF ARTIC LE 289 AND SECONDLY, THERE MUST BE A DECLARATION BY THE PARLIA MENT IN TERMS OF CLAUSE (3) OF THE ARTICLE 289 OF THE CONSTITUTIO N, WHICH IS ABSENT IN THE CASE OF THE ASSESSEE. THE CIT(A) REFE RRING TO VARIOUS OTHER JUDICIAL PRECEDENTS FINALLY CAME TO H OLD THAT EXEMPTION CLAIMED BY THE ASSESSEE IN TERMS OF ARTIC LE 289 OF THE CONSTITUTION OF INDIA IS NOT SUSTAINABLE IN LAW, WH ICH IS ALSO PROVED BY ASSESSEES OWN CONDUCT WHEN HE FILED THE RETURN OF INCOME. THE CIT(A) HELD THAT THE GOVERNMENT APART FROM IMPLEMENTING THE MANDATE OF CONSTITUTION WHICH IS A SOVEREIGN FUNCTION OF THE GOVERNMENT ALSO CONDUCTS MANY COMME RCIAL OPERATIONS BY CREATING DIFFERENT ORGANIZATION AND P UBLIC SECTOR UNDERTAKINGS. THOUGH THESE ORGANIZATIONS FUNCTION U NDER THE CONTROL OF THE GOVERNMENT, HOWEVER, THEY DO NOT PER FORM ANY SOVEREIGN FUNCTIONS OF THE GOVERNMENT. NEITHER THES E TYPE OF ORGANIZATIONS ARE EXTENDED ARM OF THE GOVERNMENT NO R THEIR EMPLOYEES ARE STATE GOVERNMENT EMPLOYEES. WITH THE AFORESAID OBSERVATIONS, THE CIT(A) REJECTED THE CONTENTIONS O F THE ASSESSEE WITH REGARD TO THE ADDITIONAL GROUNDS RAISED BY IT. 17. THE CIT(A) ALSO REPELLED ASSESSEES CONTENT ION OF DIVERSION OF INCOME BY OVERRIDING TITLE WITH REGARD TO CLAIM OF INFRASTRUCTURE EXPENDITURE AMOUNTING TO RS. 1180 CRORES. THE CIT(A ) WAS OF THE VIEW THAT FOR AN EXPENSE TO BE ALLOWED IT SHOULD BE REVENUE IN NATURE AND IT MUST HAVE A DIRECT NEXUS WITH THE BUS INESS OF THE ASSESSEE. THE CIT(A) RELYING UPON THE DECISION OF M /S MADHAVAPRASAD JATIA V/S. CIT, 118 ITR 200 (SC) AND CIT V/S. PANIPAT WOOLLEN AND GENERAL MILLS CO. LTD., 103 ITR 66 OPINED 13 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD THAT FOR CLAIMING A BUSINESS EXPENDITURE THE CONDIT IONS TO BE CUMULATIVELY SATISFIED ARE I) THE EXPENDITURE SHOUL D NOT BE DISALLOWED UNDER ANY SECTION OF THE IT ACT, II) THE EXPENDITURE SHOULD NOT BE OF THE NATURE OF CAPITAL EXPENDITURE, III) IT SHOULD NOT BE A PERSONAL EXPENDITURE, AND IV) THE EXPENDIT URE SHOULD HAVE BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVE LY FOR THE PURPOSES OF BUSINESS OR PROFESSION. THE CIT(A) RELY ING UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT V/S. IMPERIAL CHEMICAL INDUSTRIES INDIA P. LTD., 74 ITR 17 (SC) OBSERVED THAT THE HONBLE SUPREME COURT THEREIN HEL D THAT A BURDEN OF PROVING THAT A PARTICULAR EXPENDITURE HAS BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS IS ON THE ASSESSEE. THE CIT(A) ALSO RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF S.A. BUILDERS LTD. V/S. CIT, 288 ITR 1 WHEREIN THE HONBLE APEX COURT HELD THAT A NEXUS HAS TO BE ESTABLISHED BETWEEN THE EXPENDITURE AND THE P URPOSE OF THE ACTIVITY BEFORE IT CAN BE ALLOWED. 18. THE CIT(A) EXAMINING THE FACTS OF THE ASSESS EES CASE NOTED THAT THE ASSESSEE CLAIMED TO HAVE INCURRED AN EXPENDITURE ON INFRASTRUCTURE AMOUNTING TO RS. 1180 CRORES SHOW ING IT UNDER THE HEAD ADMINISTRATIVE EXPENDITURE. THE ASSESSE E HAD CLAIMED THAT THE AMOUNT WAS PAID TO THE GOVERNMENT OF AP AS PER THEIR DIRECTIVE UNDER DIFFERENT GOVERNMENT ORDERS. FROM THE PREAMBLE OF THE APHB ACT, THE CIT(A) WAS OF THE VIEW THAT TH E MAIN OBJECTIVE OF THE APHB IS TO MAKE AND IMPLEMENT SCHE MES FOR PROVIDING HOUSING ACCOMMODATION. HOWEVER, THE INTE NTION IS NOT TO PROVIDE CHARITY OR FREE HOUSING SCHEMES TO POOR PEOPLE. RATHER, THE APHB AS A COMMERCIAL ARM OF THE AP GOV ERNMENT ACQUIRES LANDS, DEVELOPS AND SALES HOUSES BUILT ON THOSE LANDS. THE HOUSES ARE SOLD AT MARKET RATE THROUGH DRAW OF LOTS OR 14 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD THROUGH AUCTION. THE SINGAPORE HOUSING PROJECT UNDE RTAKEN BY THE ASSESSEE WOULD SHOW THAT IT IS AN ULTRA MODERN HOUSING SCHEME WHEREIN MORE THAN 2000 FLATS HAVE BEEN CONST RUCTED IN VARIOUS CATEGORIES ALONG WITH DUPLEX HOUSES. THE CO MPLEX HAS MODERN FACILITIES WITH REGARD TO ROAD, GREENERY AND OTHER AMENITIES. ALL THE FLATS AND DUPLEX HOUSES HAVE BEE N SOLD IN THE OPEN MARKET THROUGH A COMMERCIAL DRAW OF LOTS AND A T MARKET RATES OF THE PROPERTY. 19. THE CIT(A) NOTED THAT HUGE AMOUNT OF ADVANCE S HAVE BEEN TAKEN FROM CUSTOMERS EVEN BEFORE THE COMMENCEMENT O F THE WORK ON THE PROJECT. HE FURTHER NOTED THAT NOT A SI NGLE DWELLING UNIT WAS CONSTRUCTED BY THE HOUSING BOARD FOR LOWER INCOME GROUP OR POOR PERSONS UNDER THE SCHEME. HE FURTHER NOTED THAT THE STATE GOVERNMENT IS THE ONLY AUTHORITY WHICH HA S A RIGHT ON THE REVENUES OF THE ASSESSEE. NEGATING THE CONTENTI ON OF THE ASSESSEE TO THE EFFECT THAT THE OBJECTIVE OF PROVID ING HOUSING ACCOMMODATION IS NOT A COMMERCIAL ACTIVITY RATHER A CHARITABLE ONE WITH NO BUSINESS MOTIVE AND WITH A MANDATE TO P ROVIDE DEVELOPMENT TO THE STATE THROUGH HOUSING ACTIVITY, THE CIT(A) OBSERVED THAT PROVIDING HOUSING DOES NOT CHANGE THE CHARACTER OF THE ORGANIZATION. ON THE OTHER HAND, THE ACTIVITY V IS--VIS THE HOUSING IS COMMERCIAL IN NATURE. HE OBSERVED THAT T HE ASSESSEE BUILDS AND SALES HOUSES IN VERY MUCH THE SAME MANNE R IN WHICH A COMMERCIAL BUILDER DOES IT AND ONLY DIFFERENCE BEIN G WHILE FOR A COMMERCIAL BUILDER THE PROFITS ARE MADE AVAILABLE T O THE OWNERS/PARTNERS, IN CASE OF THE ASSESSEE THE OWNERS HIP VESTS WITH THE AP GOVERNMENT AND SO DO ALL RIGHTS OVER THE PRO PERTY. THE APPLICATION OF THE PROFIT BY THE AP GOVERNMENT EIT HER FOR SCHEMES FOR THE POOR OR FOR ITS OWN ADMINISTRATIVE EXPENSES DOES NOT IN ANY WAY CHANGE THE CHARACTER OF BUSINESS OF THE ASSESSEE 15 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD JUST AS THE APPLICATION OF THE PROFITS BY PARTNERS OR SHAREHOLDERS DOES NOT ALTER THE NATURE OF THE BUSINESS OF THE PA RTNERSHIP OR COMPANY. THE CIT(A) HELD THAT THE ASSESSEE IS A COM MERCIAL ARM OF THE STATE GOVERNMENT AND CARRIES ON ITS ACTIVITY WITH THE SAME COMMERCIAL EXPEDIENCY. HE FURTHER OBSERVE THAT A RE ADING OF THE APHB ACT, 1956 WOULD CLEARLY SHOW THAT THERE IS NO ELEMENT OF CHARITY OR OF NON-PROFIT MOTIVE ENSHRINED WITH RES PECT TO THE APHB. THE CIT(A) HELD THAT THE GOVERNMENT ORDERS IS SUED ARE PURELY ADMINISTRATIVE INSTRUCTIONS ASKING THE APHB TO TRANSFER SOME FUNDS TO AP STATE HOUSING CORPORATION. AS SUCH IT IS NOT A LEGAL CHARGE BY ANY STRETCH OF IMAGINATION. HE OBSE RVED THAT A LEGAL CHARGE OF TAX IS IMPOSED WITH LEGAL AUTHORITY PROVIDED BY THE RELEVANT TAXING STATUTE. A LEGAL ORDER IS ALSO PASSED FOR THE SAME. WHEREAS IN CASE OF THE ASSESSEE NO SUCH CONDI TIONS EXIST. 20. THE CIT(A) REFERRED TO THE DEFINITION OF TAXE S AND LEGAL CHARGES BY OECD AND RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF TISCO V/S. COLLECTOR OF C ENTRAL EXCISE, 263 ITR 466 (SC) WHEREIN THE HONBLE SUPREME COURT HAS HELD THAT TAXES OR CESS OR LEGAL CHARGES HAVE TO BE LEVI ED BY EITHER THE GOVERNMENT OR A LEGAL AUTHORITY THROUGH THE POWERS CONFERRED BY A STATUTE. FURTHER, ANY CESS OR TAX OR A LEGAL CHA RGE MUST HAVE A PRESCRIBED RATE UNDER A STATUTE FOR THE PURPOSE. TH E GOVERNMENT CANNOT ARBITRARILY ASK FOR ANY AMOUNT IT DEEMS FIT. ON THE BASIS OF THE ABOVE, THE CIT(A) CONCLUDED THAT THERE IS ABSOL UTELY NO NEXUS BETWEEN THE AMOUNTS PAID BY THE ASSESSEE TO THE STA TE GOVERNMENT AND THE ACTUAL ACTIVITY OF THE ASSESSEE. HE FURTHER HELD THAT THE ASSESSEE HAS ALSO NOT DISCHARGED ITS ONUS TO PROVE THAT INDEED THIS PAYMENT WAS MADE DUE TO BUSINESS E XPEDIENCY. THE CIT(A) HELD THAT THE TRANSFER OF FUND BY THE AS SESSEE IS AN APPLICATION OF INCOME. THE CIT(A) OBSERVED THAT THE RE IS 16 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD ABSOLUTELY NO ARRANGEMENT OF SALE AND PURCHASE OF L AND BETWEEN THE STATE GOVERNMENT AND THE AP HOUSING BOARD. HE F URTHER NOTED THAT THE GOVERNMENT ORDERS QUOTED BY THE ASSE SSEE DOES NOT IN ANY WAY STATE THAT ANY MONEY IS TO BE PAID T O THE STATE GOVERNMENT IN LIEU OF LANDS PROVIDED. THE CIT(A) FU RTHER HELD THAT THE TRANSFER OF FUND CANNOT ALSO BE SAID TO BE IN THE NATURE OF COMPENSATORY PAYMENT AS COMPENSATORY PAYMENT IS ESS ENTIAL TO COMPENSATE FOR SOME LOSS. COMPENSATORY PAYMENT CAN ALSO BE FOR A BREACH OF CONTRACT. SINCE IN CASE OF THE ASSESSEE NO SUCH EVENT HAS HAPPENED AS THE ASSESSEE HAS NOT CAUSED ANY LOS S TO THE GOVERNMENT FOR WHICH ANY COMPENSATION HAS BEEN DEMA NDED. 21. WHILE DEALING WITH THE ASSESSEES CONTENTION WITH REGARD TO DIVERSION OF INCOME BY OVERRIDING TITLE, THE CIT(A) HELD THAT THE SAID PRINCIPLE APPLIES ONLY IN CASES WHERE THE INCO ME NEVER REACHES THE ASSESSEE AS HIS INCOME. MERELY BECAUSE THE ASSESSEE HAS AN OBLIGATION TO APPLY CERTAIN AMOUNT OUT OF IT S INCOME FOR A PARTICULAR PURPOSE WILL NOT MAKE IT A CASE OF DIVER SION OF INCOME BY OVERRIDING TITLE. AN OBLIGATION TO APPLY THE INC OME ACCRUED, ARISEN OR RECEIVED AMOUNTS MERELY TO THE APPORTIONM ENT OF INCOME AND THE INCOME SO APPLIED IS NOT DEDUCTIBLE. HE OPINED THAT THERE IS A DIFFERENCE BETWEEN AN AMOUNT WHICH A PERSON IS OBLIGED TO APPLY OUT OF HIS INCOME AND AN AMOUNT WH ICH BY THE NATURE OF THE OBLIGATION CANNOT BE SAID TO BE A PAR T OF HIS INCOME. WHERE BY THE OBLIGATION INCOME IS DIVERTED BEFORE I T REACHES THE ASSESSEE IT IS DEDUCTIBLE BUT WHERE THE INCOME IS R EQUIRED TO BE APPLIED TO DISCHARGE AN OBLIGATION AFTER SUCH INCOM E HAS REACHED THE ASSESSEE THEN THE SAME CONSEQUENCE IN LAW DOES NOT FOLLOW. THE CIT(A) REFERRING TO SUB-SECTION (7) OF SECTION 58 OF THE APHB ACT, OPINED THAT THE WORD SURPLUS NET REVENUE DOE S NOT IN ANY WAY STATE THAT IT IS TO BE CALCULATED BY DENYING TH E LIABILITY UNDER 17 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD THE IT ACT. THE CIT(A) HELD THAT SURPLUS NET REVEN UE IN OTHER WORDS WOULD MEAN NET PROFIT AFTER TAXES. THE CIT(A) OBSERVED THAT THE ASSESSEE HAS FULLY PAID ALL THE STATE TAXE S, LOCAL TAXES WHEREVER APPLICABLE. HOWEVER, WHEN IT COMES TO PAYM ENT OF INCOME-TAX, THE ASSESSEE INTERPRETS THE LAW IN A DI FFERENT MANNER WHICH IS IN COMPLETE DIS-CONSONANCE WITH THE CONSTI TUTION OF INDIA, THE INCOME-TAX ACT AND EVEN THE DIRECTIONS O F THE AP GOVERNMENT. THE CIT(A) OBSERVED THAT THE IMPLICATIO N OF THE AMENDMENT BROUGHT TO SECTION 58 OF THE APHB ACT, IS ONLY TO THE EXTENT THAT THE NET SURPLUS [AFTER ALL EXPENSES AND TAXES] WOULD LIE WITH THE GOVERNMENT AND NOT IN THE APHB ACCOUNT TO DO AWAY WITH REPEATED ISSUANCE OF GOVERNMENT ORDERS FOR TRA NSFER OF FUND. HOWEVER, TO INTERPRET THE AMENDMENT AS A LEGAL SANC TION FOR NOT PAYING INCOME-TAX IS A DELIBERATE ACT, WHICH IS NOT ONLY AGAINST THE SPIRIT OF THE CONSTITUTIONAL PROVISIONS BUT AL SO AGAINST THE LETTER AND SPIRIT OF THE AMENDMENT IN QUESTION. ON THE BASIS OF THE AFORESAID CONCLUSION THE CIT(A) HELD THAT THE I NFRASTRUCTURE EXPENDITURE CLAIMED AMOUNTING TO RS. 1180 CRORES BE ING AN APPLICATION OF INCOME IT CANNOT BE ALLOWED AS AN EX PENDITURE. ACCORDINGLY, HE SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER. 22. THE CIT(A) ALSO SUSTAINED THE ADDITION OF RS. 3,86,18,879/- BEING THE CLAIM MADE BY THE ASSESSEE TOWARDS PENSIO N PAYMENT BY OBSERVING THAT PENSION HAS TO BE ROUTED THROUGH A PENSION FUND AND IS NOT AN EXPENSE CHARGEABLE TO THE PROFIT AND LOSS ACCOUNT. THE CIT(A) ALSO REJECTED ASSESSEES CONTE NTION WITH REGARD TO CLAIM OF DEDUCTION U/S 80-IB. 23. BEING AGGRIEVED OF THE AFORESAID ORDER, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS: 18 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE APPELLANT IS AN INSTR UMENTALITY AND AGENCY OF THE GOVERNMENT OF ANDHRA PRADESH. IT FUNCTIONS AS AN EXTENDED ARM OF THE GOVERNMENT. IT IS AND FOR THIS REASON, IT CANNOT BE CONSIDERED AS AN INDE PENDENT TAXABLE ENTITY. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT THERE IS NO PROFIT MOTIVE BY THE APPELLANT WHILE UNDERTAKING ITS ACTIVITIES FOR THE PURPOSE FOR WHICH IT EXISTS. STATUTORILY IT EXERCISES SOVERIGN AND GOVERNMENT FUNCTIONS. THEREFORE. INCOME CANNOT BE T AXED UNDER THE HEAD 'BUSINESS INCOME' OR ANY OTHER HEAD. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT EVEN IF THE APPELLANT IS TREATED AS AN ENTITY INDEPENDENT OF THE STATE GOVERNMENT AND T HE INCOME IS ARISING FROM BUSINESS ACTIVITY. THE APPEL LANT ACTS AS AN AGENT OF THE STATE GOVERNMENT. THEREFORE. THE INCOME ACCRUES TO ITS PRINCIPAL. THE STATE GOVERNMENT. SUC H INCOME CANNOT BE TAXED IN THE HANDS OF THE STATE GOVERNMEN T UNDER ARTICLE 289 OF THE CONSTITUTION. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT CONSIDERING THE ORAL SUBMISSIONS OF TH E APPELLANT MADE ON THE LAST DATE OF HEARING ON 08.03 .2012, BESIDES IN HIS ORDER THE LAST DATE OF HEARING HAS B EEN STATED AS 01.03.2012, WHICH IS NOT A FACT. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT DEALING IN HIS APPELLATE ORDER SEVERAL ORAL AND WRITTEN SUBMISSIONS OR THE APPELLANT AS WELL AS THE RULINGS RELIED UPON BY IT IN ITS APPEAL AND REJOINDER TO TH E REMAND REPORT OF THE ASSESSING OFFICER. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) COMMITTED GRAVE IMPROPRIETY IN REPRODUCING THE VIEW S OF THE ASSESSING OFFICER IN THE REMAND REPORT IN HIS OWN O RDER INSTEAD OF APPLYING HIS MIND ON THE SUBJECT. 7. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THE SUBMISSIONS MADE BY THE AP PELLANT WITH RESPECT TO AMENDMENT TO SECTION 58 OF THE A.P. HOUSING BOARD ACT. 1956. THE COMMISSIONER OUGHT TO HAVE APPRECIATED THAT BY VIRTUE OF THE SAID AMENDMENT WI TH RETROSPECTIVE EFFECT FROM 1 SI APRIL 2002, THE ENTI RE SURPLUS OF THE APPELLANT STOOD VESTED IN THE CONSOLIDATED F UND OF THE 19 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD STATE GOVERNMENT OF ANDHRA PRADESH. IT IS AS IF THE ENTIRE INCOME ACCRUING TO THE APPELLANT WAS SLICED AWAY AN D THERE WAS DIVERSION OF INCOME BY OVER RIDING TITLE IN FAV OUR OF THE GOVERNMENT OF ANDHRA PRADESH. 8. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN PASSING THE ORDER IN THE APPELLANT'S APPEA L ONLY FOR THE ASSESSMENT YEAR 2008-09, WHEN THE HON 'BLE ITA T HAD REMITTED ITS APPEALS FOR THE ASSESSMENT YEARS 2004- 05. 2005-06 & 2006-07 FOR FRESH CONSIDERATION AND THE PPELLANT HAD FILED FRESH WRITTEN SUBMISSIONS BEFORE HIM. IN THE FITNESS OF THINGS, THE COMMISSIONER OF INCOME TAX (APPEALS) SHOULD HAVE PASSED THE ORDERS FOR ALL THE FOUR ASSESSMENT YEARS TOGETHER, AS THE MOST IMPORTANT ISSUES ARE COMMON A ND THE DISPUTE CONTINUES FROM THE A.Y. 2004-05. 9. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN STATING IN HIS ORDER THAT THE APPELLANT HA D CLAIMED ITSELF TO BE A LOCAL AUTHORITY WHEREAS THERE WAS NO SUCH PLEADING BY IT. 10. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ER RED IN DECLINING THE CLAIM OF THE APPELLANT TO THE DEDU CTION UNDER SECTION 36( I )(XII) BY REFERRING TO HIS EARL IER ORDER PASSED FOR THE A. Y. 2006-07. WHICH HAD SINCE BEEN SET ASIDE BY THE HONBLE ITAT AND REMITTED BACK TO HIM F OR FRESH CONSIDERATION. IN THE PROCESS. THE LEARNED COMMISSI ONER OF INCOME TAX (APPEALS) HAS IGNORED THE FRESH SUBMISSI ONS AND RECENT RULINGS SUBMITTED BY THE APPELLANT. 11. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS FAILED TO APPRECIATE THAT PAYMENT OF PENSION TO THE EMPLOYEES OF THE APPELLANT IS AN ADMISSIBLE EXPENDI TURE INCURRED WHOLLY FOR ITS BUSINESS. HE HAS NOT CONSID ERED THE WRITTEN SUBMISSIONS OF THE APPELLANT AND THE RULING S RELIED UPON BY IT. 12. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN IGNORING THE DIRECTIVE OF THE GOVERNMENT O F ANDHRA PRADESH TO THE APPELLANT TO TREAT THE INFRASTRUCTUR E EXPENDITURE INCURRED BY IT AS AN EXPENSE IN ITS BOO KS OF ACCOUNT WHICH THE APPELLANT UNDER THE LAW IS BOUND TO OBEY. FURTHER, THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HAS ERRED IN HOLDING THAT THE AMENDMENT TO SECTION 58 OF THE APHB ACT. PROVIDING FOR TRANSFER OF THE SURPLUS NET REVENUE AFTER MEETING ITS EXPENDITURE TO THE AP GOVERNMENT IS ULTRA VIRES THE CONSTRUCTION. 20 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD 13. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN HOLDING THAT THE APPELLANT WAS CLEARLY A C OMMERCIAL BODY CORPORATE OF THE GOVERNMENT AND IS DISTINCT FR OM THE GOVERNMENT ITSELF. 14. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN HEAVILY RELYING ON THE DECISIONS IN THE CA SE OF APSRTC VS. ITO [( 1964) 52 ITR 524 (SC)] AND NEW DE LHI MUNICIPAL COUNCIL VS. PUNJAB AND OTHERS [SCC (1997) 7 SCC 339] TO HOLD THAT THE INCOME OF THE APPELLANT IS TA XABLE WITHOUT TAKING INTO ACCOUNT THE APPELLANT'S SUBMISS IONS DISTINGUISHING THESE CASES. 24. APART FROM THE SUBMISSIONS MADE BY THE LEAR NED COUNSEL FOR THE ASSESSEE SHRI P.K. SAHU AT THE TIME OF HEAR ING THE ASSESSEE HAS ALSO FILED WRITTEN SUBMISSIONS CONTAIN ING THE ISSUES ON WHICH THE ORDER OF THE CIT(A) WAS CHALLENGED. H EREAFTER, WE WILL DEAL WITH THE ISSUE-WISE CONTENTION OF THE PAR TIES AND RECORD OUR FINDING. 25. THE FIRST ISSUE RAISED BY THE ASSESSEE WHICH IS COMMON FOR ALL THE ASSESSMENT YEARS UNDER APPEAL IS - INCOME OF THE ASSESSEE IS THE INCOME OF THE STATE GOVERNMENT, HEN CE, NOT TAXABLE. 26. IN THIS REGARD THE ASSESSEES WRITTEN SUBMISSIO N READS AS UNDER: THE ASSESSEE IS AN EXTENDED ARM OF THE STATE GOVERNMENT, HENCE, ITS INCOME IS NOT TAXABLE AS PER ARTICLE 289 OF THE CONSTITUTION OF INDIA. IN THE APPEAL ORDER, THE CIT(A) HAS EXTRACTED PARA GRAPHS 3, 3.1 TO 3.6 FROM THE WRITTEN SUBMISSIONS MADE BY THE APPELLANT ON THE ADDITIONAL GROUNDS. THESE EXTRACT PERTAINS TO THE PLEA THAT APHB IS A CREATURE OF STATUTE, CLO THED WITH STATUTORY POWERS AND FUNCTIONS UNDER STRICT SUPERVI SION, CONTROL AND DIRECTION OF THE STATE GOVERNMENT. THE CIT(A) HAS EXTRACTED ONLY PARAGRAPHS 4 AND 4.12 OF THE WRI TTEN SUBMISSIONS, AND NOT THE OTHER PARAGRAPHS 4.1 TO 4. 11 AND 21 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD 4.13. THESE RELATE TO THE PLEA THAT AS AN INSTRUMEN TALITY OF THE STATE, FOR CARRYING OUT GOVERNMENT FUNCTIONS, A PHB IS AN EXTENDED ARM OF THE GOVERNMENT AND NOT A SEPARATE INDEPENDENT ENTITY, WHICH CAN BE SUBJECTED TO TAX. BUT, THE CIT(A) HAS GIVEN A FINDING THAT APHB HAS INDEPENDEN T EXISTENCE, MANAGES ITS OWN AFFAIRS, DOES NOT DISCHA RGE SOVEREIGN FUNCTIONS AND IS NOT AN EXTENDED WING OF THE GOVERNMENT. WHILE DOING SO, SEVERAL SUBMISSIONS BY THE APPELLANT IN PARAGRAPHS 4.1 TO 4.11 AND 4.13 HAVE E SCAPED CONSIDERATION BY THE CIT(A). THE CIT(A) HAS NOT CONSIDERED THE FOLLOWING PLEA TH AT APHB IS CLOTHED WITH STATUTORY POWERS. IT COULD ACQUIRE LAND FROM THE LOCAL AUTHORITIES, COMPULSORILY ACQUIRE LAND UN DER LAND ACQUISITION ACT, 1984. IT HAS THE STATUTORY POWER T O RECONSTITUTE LAND ALLOTMENT AND DISPOSSESS PERSONS BY AWARDING COMPENSATION FOR THE PURPOSE OF HOUSING SC HEMES. THE MAIN PLEA OF THE APPELLANT IS THAT IT IS SO PER VASIVELY CONTROLLED AND SUPERVISED BY THE GOVERNMENT UNDER T HE TERMS OF THE STATUTE UNDER WHICH APHB WAS CONSTITUT ED, THAT IT CANNOT BE REGARDED AS AN INDEPENDENT AND AUTONOM OUS ENTITY. IT IS THE EXTENDED ARM OF THE GOVERNMENT. T HE APPELLANT HAD CITED RULINGS IN WHICH THE COURTS HAV E LAID DOWN THAT IN SIMILAR CIRCUMSTANCES, THE ORGANISATIO N INVOLVED WAS NOT CONSIDERED AN ENTITY SEPARATE AND INDEPENDE NT OF THE GOVERNMENT. THE APPELLANT HAD ARGUED THAT APHB IS EMPOWERED WIT H STATUTORY POWERS TO ACQUIRE LAND, EVICT ANY PERSON FROM THE PREMISES, FOLLOWING THE PROCEDURE LAID DOWN IN THE ACT, AND RECOVER RENT OR DAMAGES FROM SUCH PERSONS. IT CAN PROSECUTE OFFENDERS FOR IMPRISONMENT/FINE. CLOTHING OF APHB WITH STATUTORY POWERS IS INDICATIVE OF DISCHARGING SOVEREIGN FUNCTIONS. SUCH POWERS AND PRIVILEGES ARE INCONSIST ENT WITH PROFIT MAKING VENTURE THAT CAN BE DESCRIBED AS TRAD E OR BUSINESS. THE CIT(A) HAS NOT CONSIDERED THIS PLEA. HE HAS SIMPLY GONE BY THE ARGUMENT THAT THERE IS NO DIFFER ENCE BETWEEN APHB AND ANY PRIVATE REAL ESTATE DEVELOPER. BOTH CONSTRUCT BUILDINGS, SELL PROPERTIES AND MAKE PROFI T. HE HAS NOT CONSIDERED THE FOLLOWING SUPREME COURT'S RULING S. IN SHRIRAMTANU CO-OPERATIVE HOUSING SOCIETY VS. STATE OF MAHARASHTRA, 1970 (3) SCC 323, IN WHICH THE ACTIVIT IES OF LEASE, SALE, EXCHANGE, WAS NOT HELD TO BE TRADING A CTIVITIES, TAKING INTO ACCOUNT THE PURPOSE FOR WHICH MAHARASHT RA DEVELOPMENT CORPORATION IS CONSTITUTED UNDER MAHARA SHTRA INDUSTRIAL DEVELOPMENT ACT, 1961. IN SUKHDEV SINGH VS. 22 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD BHAGATRAMSARDAR SINGH RAGHUVANSHI, (1975) 1 SCC 421 (SC) , THE SUPREME COURT OBSERVED THAT A PUBLIC AUT HORITY PERFORMS STATUTORY DUTIES AND CARRIES OUT TRANSACTI ONS FOR THE BENEFIT OF THE PUBLIC AND NOT FOR PRIVATE PROFI T. THE CIT(A) HAS REFERRED TO THE SUBMISSIONS MADE BY THE A.O. IN THE REMAND REPORT AND HAS EXTRACTED FROM IT AT P ARAGRAPH 5.1 OF THE APPEAL ORDER. BUT THE PARAGRAPHS NO.5.12 .1 TO 5.12.3 APPEARING AT PAGES 46 TO 54 OF THE APPEAL OR DER CONTAIN THE FINDING OF THE CIT(A) IN HIS OWN WORDS REJECTING THE CONTENTION OF THE APPELLANT THAT THE INCOME OF THE APHB CAN BE REGARDED AS THAT OF THE GOVERNMENT OF ANDHRA PRADESH , AND NOT TAXABLE IN VIEW OF THE PRESCRIPTI ON IN ARTICLE 289 OF THE CONSTITUTION. THE APPELLANT FIND S THAT THESE PARAGRAPHS CONTAINING THE FINDINGS OF THE CIT(A) AR E VERBATIM REPRODUCTION FROM THE PAGES 17 TO 27 OF TH E REMAND REPORT OF THE A.O. THUS, HE HAS ADOPTED THE LANGUAGE AND THE LOGIC OF THE A.D. FOR HIS OWN CONC LUSIONS. THE APPELLANT HAS SUBMITTED A REJOINDER TO THE REMA ND REPORT ON 15.12.2011, COUNTERING THE OBSERVATIONS OF THE A .O., WHICH HAVE BEEN ADOPTED BY THE CIT(A) IN HIS ORDER. HOWEVER, THE SUBMISSIONS MADE BY THE APPELLANT IN T HE REJOINDER HAVE NOT BEEN REFERRED TO OR CONSIDERED A T ALL BY THE CIT(A). SOME OF THE IMPORTANT PLEAS TAKEN IN TH IS REJOINDER ARE GIVEN BELOW: I. THE APPELLANT IS USED AS AN INSTRUMENT BY THE ST ATE FOR RESOURCE MOBILISATION. FOR THIS LAND IS ALLOTTE D FOR EXPLOITING COMMERCIALLY FOR THIS PURPOSE. II. THE EMPLOYEES OF APHB ARE GOVERNED BY THE SAME TERMS AND CONDITIONS AS ARE APPLICABLE TO THE STATE GOVERNMENT OFFICERS. THE SAME ORDER OF THE GOVERNME NT ISSUED ON PAY COMMISSION REPORT APPLIES TO THE OFFI CERS OF THE GOVERNMENT AS ALSO OF APHB. THIS IS INDICATI VE OF THE FACT THAT APHB IS AN EXTENDED ARM OF THE GOVERNMENT. III. THE ACCOUNTANT GENERAL OF ANDHRA PRADESH HAS CATEGORISED APHB FOR CIVIL AUDIT AND NOT FOR COMMER CIAL AUDIT. THE FACT THAT THE ACCOUNTANT GENERAL'S OFFIC E DOES NOT CONDUCT COMMERCIAL AUDIT FOR APHB AND APHB IS CATEGORIZED UNDER THE GROUP FOR CIVIL AUDIT SHOWS T HAT APHB IS NOT BEING CONSIDERED AS A COMMERCIAL ORGANIZATION. THE ACCOUNTANT GENERAL CONDUCTS PERFORMANCE AUDIT OF THE ORGANIZATIONS SELECTED FOR CIVIL 23 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD AUDIT. IV. IN BLHARILALLLOBRAY VS. ROSHANLALDOHRAY (1984) 1 SCC 551 (SC), THE SUPREME COURT HELD THAT, EVEN THOUGH THE INCORPORATION OF A BODY CORPORATE MAY SUGGEST THAT THE STATUTE INTENDED IT TO BE A STATUT ORY CORPORATION INDEPENDENT OF THE GOVERNMENT IT IS NOT CONCLUSIVE ON THE QUESTION WHETHER IT IS REALLY SO INDEPENDENT. SOMETIMES THE FORM MAY BE THAT OF A BODY CORPORATE INDEPENDENT OF THE GOVERNMENT BUT IN SUBSTANCE IT MAY BE JUST THE ALTER EGO OF THE GOVERNMENT ITSELF. THE TRUE TEST OF DETERMINATION O F THE SAID QUESTION DEPENDS UPON THE DEGREE OF CONTROL TH E GOVERNMENT HAS OVER IT, THE EXTENT OF CONTROL EXERC ISED BY THE SEVERAL OTHER BODIES OR COMMITTEES OVER IT A ND THEIR COMPOSITION, THE DEGREE OF ITS DEPENDENCE ON GOVERNMENT FOR ITS FINANCIAL NEEDS AND THE FUNCTION AL ASPECT, NAMELY, WHETHER THE BODY IS DISCHARGING ANY IMPORTANT GOVERNMENTAL FUNCTION OR JUST SOME FUNCTI ON WHICH IS MERELY OPTIONAL FROM THE POINT OF VIEW OF GOVERNMENT. V. THE SUPREME COURT IN VIRENDRA KUMAR SRIVASTAVA V S. V.P. RAJYAKARMACHARIKALYAN NIGAM (2005) 1 SCC 149 (SC) , THE SUPREME COURT HELD THAT ON A DETAILED EXAMINATION OF THE ADMINISTRATIVE, FINANCIAL AND FUNCTIONAL CONTROL THERE IS NO DOUBT THAT IT IS NOT HING BUT AN 'INSTRUMENTALITY AND AGENCY OF THE STATE' AND TH E CONTROL OF THE STATE IS NOT ONLY 'REGULATORY' BUT I T IS 'DEEP AND PERSUASIVE' IN THE SENSE THAT IT IS FORME D WITH THE OBJECT OF CATERING TO THE NEEDS OF THE GOVERNMENT EMPLOYEES AS A SUPPLEMENT TO THEIR SALAR IES AND OTHER PERKS. EVEN DAY TO DAY FUNCTIONING OF THE CORPORATION IS WATCHED, SUPERVISED AND CONTROLLED B Y THE VARIOUS DEPARTMENTAL AUTHORITIES OF THE STATE PARTICULARLY THE DEPARTMENT OF FORD & CIVIL SUPPLIE S. THE MULTIPLE TEST INDICATED TO BE APPLIED BOTH BY THE MAJORITY AND MINORITY VIEW IN PRADEEP KUMAR BISWAS VS.INDIAN INSTITUTE OF CHEMICAL BIOLOGY (2002) 5 SC C 111. (SC) IS FULLY SATISFIED IN THE PRESENT CASE FO R RECORDING A CONCLUSION THAT THE CORPORATION IS COVE RED AS AN 'AGENCY AND INSTRUMENTALITY OF THE STATE' IN THE DEFINITION OF 'STATE' UNDER ARTICLE 12 OF THE CONST ITUTION. VI. THE SUPREME COURT IN V.P. AVASEVAMVIKASPARISHAD VS. FRIENDS COOP. HOUSING SOCIETY LTD, 1996 AIR 114 : 24 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD 1995 SCC SUPL. (3) 456, HAS HELD THAT RIGHT TO SHEL TER IS A FUNDAMENTAL RIGHT, WHICH SPRINGS FROM THE RIGHT T O RESIDENCE ASSURED IN ART.19( 1)( E) AND RIGHT TO LI FE UNDER ARTICLE 21 OF THE CONSTITUTION. THE STATE GOVERNMENT IS EXPECTED TO PROVIDE HOUSING FACILITIE S TO THE PUBLIC AND CREATE HOUSING INFRASTRUCTURE ENSURI NG PLANNED URBAN DEVELOPMENT. IN W.B. HOUSING BOARD VS . BRIJENDRA PRASAD GUPTA (1997) 6 SCC 207, THE SUPREM E COURT HELD THAT THE PUBLIC PURPOSE IS NOT LOST, IF THE STATE OR HOUSING BOARD EARNS ANY PROFIT. IN GULAM MUSTAFA VS. THE STATE OF MAHARASHTRA (1976) 1 SCC 800, THE SUPREME COURT HELD THAT THE EXCESS LAND ACQUIRED BY THE MUNICIPAL COMMITTEE, WH EN SOLD IN PLOTS FOR HOUSING COLONY, IT SERVED PUBLIC PURPOSE. SIMILARLY, THE SUPREME COURT IN STATE OF GUJARAT VS. SANKALCHANDKHODIDAS PATEL, (1977) 4 SCC 590, HAS HELD THAT THE ACQUISITION OF LAND FOR HOUS ING FACILITIES OF A COOPERATIVE SOCIETY WAS FOR PUBLIC PURPOSE. ALL THE HOUSING SCHEMES OF APHB ARE SANCTIONED BY THE GOVERNMENT. THE ACTIVITY UNDERTAK EN BY THE APHB AT THE BEHEST OF THE GOVERNMENT IS A GOVERNMENTAL FUNCTION CARRIED ON FOR PUBLIC PURPOSE . THE OBSERVATIONS OF THE SUPREME COURT IN ABOVE RULI NGS ARE SUPPORTIVE OF THE APPELLANT'S PLEA THAT THE HOU SING SCHEMES IMPLEMENTED BY APHB ARE FOR PUBLIC PURPOSES AND NOT WITH ANY PROFIT MOTIVE. VII. THE CIT(A) HAS LAID CONSIDERABLE EMPHASIS ON T HE SUPREME COURT'S RULING IN ANDHRA PRADESH STATE ROAD TRANSPORT CORPORATION VS. INCOME TAX OFFICER, (1964 ) 52 ITR 524 (SC)TO ARGUE THAT LIKE APSRTC, APHB IS A LEGAL ENTITY DISTINCT FROM THE STATE. IN THIS CASE, THE SUPREME COURT HAD HELD THAT THE TRADING ACTIVITY CARRIED ON BY APSRTC WAS NOT CARRIED ON BY THE STAT E GOVERNMENT NOR THROUGH ITS AGENT. ACCORDINGLY, INCO ME OF APSRTC DOES NOT QUALIFY FOR EXEMPTION IN TERMS O F ARTICLE 289(1). IN RESPONSE, AT PARAGRAPH 18 OF THE REJOINDER (PAGE 292 OF PAPER BOOK-H), THE APPELLANT HAD ANALYSED THE SUPREME COURT'S OBSERVATION IN APSRTC'S CASE IN DETAIL, AND ARGUED THAT THE SAME I S NOT AGAINST THE STAND OF THE APPELLANT. THE COURT H AD OBSERVED THAT APSRTC WAS A COMPANY, IN WHICH THE STATE AND OTHERS WERE HAVING SHAREHOLDING. IN CASE OF APSRTC, INCOME WAS NOT MADE OVER TO THE STATE OR IT BECAME PART OF THE GENERAL REVENUE OF THE STATE. TH E SURPLUS FUND CAN BE USED FOR ROAD DEVELOPMENT ONLY. IN 25 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD CONTRAST, THE APPELLANT HAD INTER ALIA ARGUED THAT APHB DOES NOT HAVE ANY SHAREHOLDING, IT IS ENTIRELY OWNED BY THE STATE GOVERNMENT AND THAT THE SURPLUS NET REVENUE VESTS IN THE CONSOLIDATED FUNDS OF THE STATE UNDER APHB ACT. UNLIKE IN THE CASE OF A CORPORATION HAVING INDEPENDENT BOARD OF DIRECTORS, THE STATE GOVERNMENT HAS UNLIMITED POWER UNDER THE ACT TO INTERFERE IN THE WORKING OF THE APHB. THESE AND THE OTHER SUBMISSIONS MADE IN THE TABULAR ANALYSIS BY T HE APPELLANT OF THE APSRTC'S CASE HAVE NOT BEEN CONSIDERED BY THE CIT(A). NO PROFIT MOTIVE THE CIT(A) HAS EXTRACTED IN HIS ORDER PARAGRAPHS 5, 5.1, 5.2(PART) AND 5.5 OF THE WRITTEN SUBMISSIONS O N THE ADDITIONAL GROUNDS, RELATING TO THE PLEA OF THE APPELLANT THAT APHB DISCHARGES STATUTORY FUNCTIONS TO CARRY OUT THE HOUSING SCHEMES OF THE GOVERNMENT. SINCE THE ACTIVITIES ARE NOT UNDERTAKEN WITH ANY PR OFIT MOTIVE, THE RECEIPTS CANNOT BE TREATED AS INCOME FR OM BUSINESS. THE CIT(A) HAS EXTRACTED THE FIRST PART O F PARAGRAPH 5.2, WHEREIN THE CONSTITUTION BENCH OF TH E SUPREME COURT IN NEW DELHI MUNICIPAL COUNCIL VS. ST ATE OF PUNJAB, (1997) 7 SCC 339, HAS HELD THAT WHERE THERE IS NO PROFIT MOTIVE INVOLVED IN ANY ACTIVITY, IT CANNOT BE SAID THAT IT CONSTITUTES TRADE OR BUSINES S. SIGNIFICANTLY, THE SECOND PART OF THE PARAGRAPH 5.2 HAS NOT BEEN EXTRACTED IN THE ORDER OF THE CIT(A). IN T HIS, THE APPELLANT HAS RELIED ON THE OBSERVATION OF THE SUPREME COURT IN BABURAOSHANTARAM MORE VS. BOMBAY HOUSING BOARD, 1954 SCR 572 : AIR 1954 SC 153, WHEREIN IT WAS HELD THAT BOMBAY HOUSING BOARD AS A CORPORATE BODY WAS BROUGHT INTO EXISTENCE FOR THE PURPOSE OF FRAMING HOUSING SCHEMES TO SOLVE THE PROBLEM OF ACUTE SHORTAGE OF ACCOMMODATION IN BOMBAY. IN EFFECT, IT IS A GOVERNMENT SPONSORED BOD Y NOT HAVING ANY PROFIT MAKING MOTIVE. THE SAME PRINCIPLE APPLIES TO THE APPELLANT. ACCORDINGLY, IT S ACTIVITY CANNOT BE REGARDED AS A BUSINESS. HAD THIS RULING ON A HOUSING BOARD BEEN TAKEN INTO ACCOUNT, THE DECISION OF THE CIT(A) WOULD HAVE BEEN OTHERWISE. IN W.B. HOUSING BOARD VS. BRIJENDRA PRASAD GUPTA (1997) 6 SCC 207, THE SUPREME COURT HELD THAT THE PUBLIC PURPOSE IS NOT LOST, IF THE STATE OR HOUSING BOARD 26 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD EARNS ANY PROFIT. IN GULAM MUSTAFA VS. THE STATE OF MAHARASHTRA (1976) 1 SCC 800, THE SUPREME COURT HELD THAT THE EXCESS LAND ACQUIRED BY THE MUNICIPAL COMMITTEE, WHEN SOLD IN PLOTS FOR HOUSING COLONY, I T SERVED PUBLIC PURPOSE. SIMILARLY, THE SUPREME COURT IN STATE OF GUJARAT VS. SANKALCHANDKHODIDAS PATEL, (19 77) 4 SCC 590, HAS HELD THAT THE ACQUISITION OF LAND FO R HOUSING FACILITIES OF A COOPERATIVE SOCIETY WAS FOR PUBLIC PURPOSE. ALL THE HOUSING SCHEMES OF APHB ARE SANCTIONED BY THE GOVERNMENT. THE ACTIVITY UNDERTAK EN BY THE APHB AT THE BEHEST OF THE GOVERNMENT IS A GOVERNMENTAL FUNCTION CARRIED ON FOR PUBLIC PURPOSE . THE SUPREME COURT IN BAJIRAO T. KOTE VS. STATE OF MAHARASHTRA (1995) 2 SCC 442, HAS HELD THAT SATISFACTION OF THE STATE GOVERNMENT REGARDING EXISTENCE OF PUBLIC PURPOSE IS NOT OPEN TO JUDICIAL SCRUTINY UNLESS THERE IS MALAFIDE OR COLOURABLE EXE RCISE OF POWER. APHB IS EXECUTING THE DECISIONS TAKEN BY THE GOVERNMENT AS ITS EXECUTING AGENCY. THEREFORE, APHB IS DISCHARGING FUNCTIONS WHICH ARE GOVERNMENTAL IN NATURE. ITS ENTIRE ACTIVITIES ARE SANCTIONED AND DI CTATED BY THE GOVERNMENT. IT ONLY EXECUTES WHAT THE GOVERNMENT WANTS TO BE CARRIED OUT. THE APPELLANT WOULD SUBMIT THAT THE STRUCTURE AND FUNCTIONS OF APHB ARE SUCH THAT THERE IS NO CONCEPT OF COST OR PROFIT. THE ACCOUNTS ARE BASED ON CASH FLOW . THE ACCOUNTING IS ONLY FOR THE PURPOSE OF MONITORIN G ACTIVITIES AND RECORDING RECEIPTS AND EXPENDITURE. THE CONCEPT OF PROFIT CAN BE APPLIED ONLY TO FOR PROFIT ORGANIZATIONS. THE AO/CIT(A) HAS UNDERSTOOD THAT AN Y ACTIVITY GENERATING SURPLUS WOULD BY ITSELF SHOW PR OFIT MOTIVE. THE APPELLANT WOULD SUBMIT THAT THIS CONCLU SION IS NOT BASED ON ANY APPRECIATION OF THE DEVELOPMENT OF INCOME TAX LAW. IN THE PAST THERE WAS CONFUSION ABO UT THE MEANING OF PROFIT MOTIVE. IN SECTION 2(15) OF INCOME TAX ACT, AS IT WAS THEN WORDED, THE EXPRESSI ON 'NOT INVOLVING THE CARRYING ON OF ANY ACTIVITY FOR PROFIT' CAME TO BE EXAMINED BY A FIVE MEMBER BENCH OF THE SUPREME COURT IN ADDITIONAL COMMISSIONER OF INCOME- TAX VS. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIAT ION, (1980) 121 ITR 1 (SC). THE BENCH REFERRED TO THE VIEWS OF THE LEARNED JUDGE OF A DIVISION BENCH IN A N EARLIER CASE THAT AN ACTIVITY GENERATING SURPLUS WO ULD AUTOMATICALLY MEAN AN ACTIVITY FOR PROFIT. IN FACT, THE JUDGE HAD OBSERVED THAT THE ADVANCEMENT OF OBJECT O F 27 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD GENERAL PUBLIC UTILITY MUST NOT INVOLVE THE CARRYIN G ON OR OF ANY ACTIVITY FOR PROFIT AND IF IT DOES, THE EXEMPTION IS FORFEITED. BUT THE LARGER BENCH DISAGR EED WITH THIS VIEW. IT HELD THAT THE EXPRESSION 'ACTIVI TY FOR PROFIT' MEANS FOR THE PURPOSE OF MAKING PROFIT AND CONNOTES THE END WITH REFERENCE TO WHICH SOMETHING IS DONE. IT IS NOT, THEREFORE, ENOUGH THAT AS A MATTER OF FACT AN ACTIVITY RESULTS IN PROFIT BUT IT MUST BE C ARRIED ON WITH THE OBJECT OF EARNING PROFIT. PROFIT-MAKING MUST BE THE END TO WHICH THE ACTIVITY MUST BE DIRECTED O R IN OTHER WORDS, THE PREDOMINANT OBJECT OF THE ACTIVITY MUST BE MAKING OF PROFIT. THE PREDOMINANT OBJECT OF APHB IS NOT MAKING PROFIT BUT CREATING HOUSING INFRASTRUCTURE AS PER THE SCHEME OF THE GOVERNMENT. IN VIEW OF THE AUTHORITATIVE RULINGS OF THE SUPREME COURT THAT SURPLUS BY ITSELF DOES NOT TANTAMOUNT TO PROFIT MOTIVE, THE REVENUE'S CONCLUSION SHOULD BE REJECTED. THE APPELLANT HAS ALREADY EXPLAINED THAT PROVIDING HOUSING INFRASTRUCTURE IN AN ORDERLY MANN ER IS A GOVERNMENTAL FUNCTION AND APHB IS CARRYING OUT SUCH SCHEMES ON BEHALF OF THE GOVERNMENT. FURTHER, IT HAS EARLIER EXPLAINED THAT BY VIRTUE OF THE STATUTO RY PROVISIONS, THE REVENUE GENERATED BY IT IS EITHER S PENT FOR HOUSING INFRASTRUCTURE OR IT VESTS IN THE CONSOLIDATED FUND OF THE STATE. THEREFORE, THERE IS NO PROFIT MOTIVE IN THE ACTIVITIES UNDERTAKEN BY APHB. ALL ITS ACTIVITIES ARE DRIVEN BY PUBLIC PURPOSE UNDER T HE DIRECTION OF THE GOVERNMENT. THE CIT(A) HAS CONSIDERED A PLEA WHICH THE APPELLANT HAS NOT MADE. HE HAS HELD THAT INCOME OF APHB IS NOT EXEMPT FROM TAX AS ITS ACTIVITIES ARE NOT CHARITABLE. FOR THIS, HE HAS NOTED THAT THE HOUSING SCHEMES ARE NOT FOR THE POOR AND THAT THE HOUSES ARE NOT SOLD AT SUBSIDISED PRIC ES. BUT THE APPELLANT HAS NOT RAISED ANY PLEA THAT IT I S A CHARITABLE ORGANISATION. WHAT IT HAS ARGUED IS THAT ITS EXISTENCE IS NOT WITH PROFIT MOTIVE AND IT IS EXEMP LIFIED BY THE FACT THAT IT SERVES PUBLIC PURPOSE. THE APPELLANT WOULD EXPLAIN THAT THE PRIVATE PARTIE S MAY BE UNDERTAKING THE ACTIVITIES IN THE JOINT VENT URE FOR THEIR PROFIT MOTIVE BUT THE SAME DOES NOT APPLY TO APHB, WHICH IS ONLY HARNESSING THE CAPABILITY OF TH E PRIVATE PARTIES TO ACHIEVE THE PUBLIC PURPOSE. IN T HIS REGARD, THE APPELLANT WOULD QUOTE FROM THE SUPREME COURT'S RULING IN SOORARAMPRATAP REDDY AND OTHERS V S. 28 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD DISTRICT COLLECTOR, RANGA REDDY DISTRICT, (2008) 9 SCC 552, WHEREIN FOREIGN RULINGS WERE CITED WITH APPROV AL BEFORE CONCLUDING THAT SUCH JOINT VENTURE ARRANGEME NT DOES NOT SULLY PUBLIC PURPOSE. CLAUSE (1) OF ARTICL E 289 OF THE CONSTITUTION STATES THAT THE PROPERTY AND IN COME OF A STATE SHALL BE EXEMPT FROM UNION TAXATION. HOWEVER, CLAUSE (2) IS AN EXCEPTION TO THIS AND PRESCRIBES THAT PARLIAMENT MAY BY LAW PROVIDE FOR TAXING THE INCOME FROM TRADE OR BUSINESS OF ANY KIN D CARRIED ON BY AND ON BEHALF OF THE GOVERNMENT OF A STATE OR ANY OPERATION CONNECTED THEREIN. THE AO SEEKS TO INVOKE THIS CLAUSE AFTER HOLDING THAT APHB IS UNDERTAKING REAL ESTATE BUSINESS WITH PROFIT MOTIVE . BUT FOR THE REASONS EXPLAINED IN THE FOREGOING PARAGRAP HS, THE APPELLANT WOULD SUBMIT THAT APBH IS A NOT-FOR- PROFIT ORGANISATION. THE NINE JUDGE BENCH OF THE SUPREME COURT IN NEW DELHI MUNICIPAL COUNCIL VS. ST ATE OF PUNJAB AND OTHERS, (1997) 7 SCE 339, HAS HELD TH AT AN ACTIVITY CAN BE DESCRIBED AS TRADE OR BUSINESS O NLY WHEN IT IS CARRIED ON WITH PROFIT MOTIVE. ACCORDING LY, IT HELD THAT ONLY WHERE A TRADE OR BUSINESS IS CARRIED ON WITH PROFIT MOTIVE, CLAUSE (2) OF ARTICLE 289 WOULD BE ATTRACTED. WHERE THERE IS NO PROFIT MOTIVE INVOLVED IN ANY ACTIVITY CARRIED ON BY THE STATE GOVERNMENT, TH E COURT HELD THAT IT CANNOT BE SAID TO BE CARRYING ON A TRADE OR BUSINESS WITHIN THE MEANING OF CLAUSE (2), MERELY BECAUSE SOME SURPLUS RESULTS FROM SUCH ACTIVITY. THIS OBSERVATION OF THE SUPREME COURT SQUARELY APPLIES TO APHB. AGENT OF STATE GOVERNMENT APHB HAS BEEN CREATED UNDER A STATUTE TO WORK AS EXECUTING AGENCY OF THE STATE GOVERNMENT. IN HOUSIN G BOARD OF HARYANA VS. HARYANA HOUSING BOARD EMPLOYEES UNION, (1996) 1 SCE 95 (SE), SUPREME COUR T EXAMINED THE PROVISIONS OF THE HARYANA HOUSING BOAR D ACT, 1971. THE PROVISIONS EXTRACTED IN THE RULING C LOSELY RESEMBLES THOSE OF ANDHRA PRADESH HOUSING BOARD ACT , 1956. SOME OF THE PROVISIONS OF THE APHB ACT SUGGES T EVEN GREATER DEGREE OF CONTROL BY THE STATE GOVERNMENT OF APHB. THE APPELLANT HAD SUBMITTED A SECTION WISE COMPARISON BETWEEN APHB ACT AND THOSE EXTRACTED AND ANALYSED BY THE SUPREME COURT OF HARYANA HOUSING BOARD ACT BEFORE THE CIT(A) (PAGE 9 6 OF PAPER BOOK - I). AFTER EXTRACTING THE RELEVANT 29 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD PROVISIONS FROM THE HARYANA HOUSING BOARD ACT, THE SUPREME COURT HAS OBSERVED AS UNDER: 29. THE ABOVE PROVISIONS CLEARLY SPELL OUT THAT THE BOARD WHICH IS BASICALLY AND ESSENTIALLY A CREATION OF THE ACT OF STATE LEGISLATURE CONSISTS OF PERSONS APPOINTED BY THE STATE GOVERNMENT ON SALARY BASIS. THE BOARD'S PERSONNEL ARE NOT ELECTED BY THE PEOPLE AND THERE IS NO ELEMENT OF PEOPLE'S CHOICE BEING REPRESENTED IN ANY MANNER IN THE CONSTITUTION OF TH E BOARD. THE BOARD FUNCTIONS STRICTLY UNDER THE SUPERVISION AND CONTROL OF THE STATE GOVERNMENT AND DOES NOT HOLD OR POSSESS A 'LOCAL FUND'. WHAT CONSTITUTES THE FUND OF THE BOARD HAS ALREADY BEEN SPECIFIED ABOVE. 30. THESE FUNCTIONS AS ARE INDICATED IN A HOUSING SCHEME ARE ESSENTIALLY PERFORMED BY MUNICIPAL BOARD S OR MUNICIPAL COUNCIL WHICH, UNDOUBTEDLY, ARE 'LOCAL AUTHORITIES' BUT ON THAT ANALOGY THE HARYANA HOUSIN G BOARD CANNOT BE TREATED TO BE A 'LOCAL AUTHORITY' A S THE EXTENT OF CONTROL OF THE STATE GOVERNMENT UNDER WHI CH THE BOARD HAS TO FUNCTION IS SO PROMINENTLY PERVASI VE THAT IT IS ALMOST DESTRUCTIVE OF ITS INDEPENDENCE W HICH WILL ALSO BE APPARENT FROM THE FACT THAT IN THE MAT TER OF SETTLEMENT OF ITS ANNUAL PROGRAMMES, BUDGET AND ESTABLISHMENT SCHEDULE, THE BOARD HAS TO OBTAIN THE SANCTION OF THE STATE GOVERNMENT UNDER SECTION 24 O F THE ACT. THE SUPPLEMENTARY BUDGET AND PROGRAMME, IF ANY, HAS ALSO TO BE SANCTIONED BY THE STATE GOVERNMENT. 31. WE NEED NOT REFER TO OTHER PROVISIONS AS THE PROVISIONS ALREADY REFERRED TO ABOVE ARE SUFFICIENT TO BRING HOME THE POINT THAT HARYANA HOUSING BOARD DOE S NOT HAVE EVEN THE SEMBLANCE OF INDEPENDENCE WHICH ARE NORMALLY POSSESSED BY LOCAL SELF-GOVERNMENTS, L IKE MUNICIPAL BOARDS OR DISTRICT BOARDS ETC. THE BOARD ALSO DOES NOT EVEN PARTIALLY CONSIST OF ELECTED REPRESENTATIVES OF THE PEOPLE. THE ABOVE OBSERVATIO NS OF THE SUPREME COURT ARE EQUALLY APPLICABLE TO APHB . THE PROVISIONS OF APHB ACT ARE SIMILAR TO THOSE CONSIDERED BY THE SUPREME COURT WITH RESPECT TO HARYANA HOUSING BOARD ACT. AS IN THE CASE OF HARYANA HOUSING BOARD, APHB HAS NO AUTONOMY OR INDEPENDENCE, AND IT WORKS AS A CAPTIVE INSTRUMENTA LITY 30 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD UNDER THE CLOSE CONTROL AND SUPERVISION OF THE STAT E GOVERNMENT. THE LAW OF AGENCY CONTAINED IN SECTIONS 182, 212, 2 13, 222, 223 AND 226 OF THE INDIAN CONTRACT ACT THROW L IGHT ON THE RELATIONSHIP BETWEEN THE PRINCIPAL AND HIS A GENT. THE PRINCIPAL ALWAYS INDEMNIFIES THE AGENT FOR THE LOSS INCURRED IN THE COURSE OF THE BUSINESS. THE AGENT I S REQUIRED TO ACT IN THE INTEREST OF THE PRINCIPAL WI TH DUE DILIGENCE. HE IS TO GIVE ACCOUNTS OF DEALINGS WITH OTHER PRINCIPALS TO HIS PRINCIPALS. THE AGENT IS NOT TO M AKE ANY PROFIT FROM THE DEALINGS APART FROM THE REMUNERATION RECEIVED FROM THE PRINCIPAL. THE APPEL LANT WOULD SUBMIT THATALL THE INGREDIENTS OF RELATIONSHI P BETWEEN PRINCIPAL AND AGENT ARE PRESENT IN THE STATUTORY ARRANGEMENT BETWEEN THE STATE GOVERNMENT AND APHB. THE FUNDS AND LAND ARE PROVIDED BY THE GOVERNMENT AND ANY SURPLUS OVER THE EXPENDITURE INCURRED FOR THE PURPOSES OF THE ACT VESTS IN THE CONSOLIDATED FUNDS OF THE STATE. THOUGH APHB ENTERS INTO CONTRACT IN ITS OWN NAME, IT CAN BE CONTENDED THAT IT IS DOING SO ON BEHALF OF THE STATE. LAW OF AGENC Y RECOGNISES THAT AN AGENT CAN DEAL WITH COUNTER PART IES IN HIS OWN NAME AND WITHOUT DISCLOSING THE IDENTITY OF THE PRINCIPAL. WHAT IS TO BE SEEN IS WHETHER THE PR OFIT OR LOSS ARISING IN THE COURSE OF THE DEALINGS OF TH E AGENT ACCRUES TO THE PRINCIPAL, AND NOT TO THE AGEN T. IN THE ARRANGEMENT PRESCRIBED UNDER APHB ACT, ALL THE WORKS DONE BY APHB IS ASSIGNED TO IT WHEN THE HOUSI NG SCHEMES ARE SANCTIONED BY THE GOVERNMENT, AND WHEN DIRECTIONS ARE ISSUED BY IT TO APHB. ALL THE EXPEND ITURE ON THE ADMINISTRATION OF APHB IS MET BY THE GOVERNMENT. THEREFORE, APHB AS AN ENTITY DOES NOT SUFFER ANY LOSS OR ENJOY ANY PROFIT ON ITS OWN ACCO UNT. THE FULL ACCOUNTS OF THE AMOUNTS SPENT AND RECEIVED ARE GIVEN TO THE GOVERNMENT. THE APPELLANT HAD EARL IER CITED THE SUPREME COURT' RULING IN HOUSING BOARD OF HARYANA CASE (SUPRA), WHEREIN IT HAS BEEN HELD THAT THE DEGREE OF CONTROL AND SUPERVISION THE STATE GOVERNMENT HAS OVER THE HOUSING BOARD RESULTS IN TH E HOUSING BOARD NOT HAVING ANY SEMBLANCE OF INDEPENDENCE. THEREFORE, THE APPELLANT HEREIN (APHB ) IS ACTING AS AN AGENT IN THE CAPACITY OF EXECUTING AGENCY OF THE STATE GOVERNMENT. ACCORDINGLY, ALL TH E RECEIPTS ARISING FROM THE ACTIVITIES OF APHB IN IMPLEMENTING THE HOUSING SCHEMES ACCRUES TO THE 31 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD PRINCIPAL, THE STATE GOVERNMENT. SINCE APHB FUNCTIO NS UNDER NO-PRO FIT- NO-LOSS BASIS, IT DOES NOT HAVE A NY INCOME AT ALL. IF AT ALL, ANY INCOME ARISES, IT IS THAT OF THE STATE GOVERNMENT. IN ANDHRA PRADESH STATE ROAD TRANSPORT CORPORATION VS. INCOME TAX OFFICER, (1964) 52 ITR 524 (SC), THE SUPREME COURT EXPLAINED THAT, IF A TRADE OR BUSINES S IS CARRIED ON BY THE STATE DEPARTMENTALLY AND INCOME I S DERIVED FROM IT, THERE WOULD BE NO DIFFICULTY IN HO LDING THAT THE SAID INCOME IS THE INCOME OF THE STATE. IF A TRADE OR BUSINESS IS CARRIED ON BY A STATE THROUGH ITS AGENTS APPOINTED EXCLUSIVELY FOR THAT PURPOSE, AND THE AGENTS CARRY IT ON ENTIRELY ON BEHALF OF THE STATE AND NOT ON THEIR OWN ACCOUNT, THERE WOULD BE NO DIFFICU LTY IN HOLDING THAT THE INCOME MADE FROM SUCH TRADE OR BUSINESS IS THE INCOME OF THE STATE. THE GUJARAT HIGH COURT IN U.K. ACHARYA VS. STATE O F GUJARAT, AIR 1989 GUJARAT 81, HAS HELD THAT THE ST ATE OF GUJARAT IS ENTITLED TO GIVE DIRECTIONS TO THE HO USING BOARD FOR THE PURPOSES OF THE ACT AND THESE ARE BIN DING ON THE HOUSING BOARD. THE CONTROL OF THE STATE GOVERNMENT IS ALL PERVASIVE IN CONNECTION WITH ANY OF THE HOUSING SCHEME UNDERTAKEN BY APHB. THIS OBSERVATION OF THE HON'BLE HIGH COURT IS EQUALLY APPLICABLE TO THE APHB. APHB HAS BEEN CREATED TO OPERATE AS AN EXECUTING AGENCY FOR THE PLANS AND PROGRAMMES OF THE STATE GOVERNMENT. IT IS BOUND BY THE DIRECTIONS ISSUED BY THE GOVERNMENT. MOST OF THE INCOME TAX DEMAND HAS BEEN RAISED BY THE A.O. WITH RESPECT TO THE SALE OF LAND AND TRANSFER OF PROCEEDS TO THE A.P. HOUSING CORPORATIO N OR TO THE GOVERNMENT. WHEN ANY LAND IS TRANSFERRED TO OR IS ACQUIRED BY APHB, IT DOES NOT BECOME ABSOLUTE OWNER OF SUCH LAND. SECTION 40-C OF THE A.P. HOUSIN G BOARD ACT, 1956, STATES THAT THE GOVERNMENT LAND CA N BE TRANSFERRED TO THE 'CONTROL' OF APHB FOR THE PUR POSE OF PROVIDING HOUSING ACCOMMODATION. SECTION 45 EMPOWERS APHB TO SELL, EXCHANGE, MORTGAGE OR OTHERWISE DISPOSES OFF ANY LAND, BUILDING OR PROPER TY 'VESTED' IN IT, AND SUCH ACTION IS SUBJECT TO ANY R ULES MADE BY THE GOVERNMENT. THE SUPREME COURT IN FRUIT & VEGETABLE MERCHANTS UNION VS. DELHI IMPROVEMENT TRUST, AIR 1957 SC 344: 1957 SCR 1, HAS EXAMINED 32 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD THE MEANING OF 'VEST' AND HELD THAT WHEN THE LAND W AS TRANSFERRED FROM THE GOVERNMENT TO THE DELHI IMPROVEMENT TRUST, IT WAS NOT TO VEST IN THE IMPROVEMENT TRUST ABSOLUTELY FREE FROM ALL ENCUMBRANCES. THE LAND DID NOT VEST IN THE IMPROVEMENT TRUST IN TITLE BUT MERELY IN POSSESSION , SO THAT THE IMPROVEMENT TRUST CAN USE THE LAND FOR THE PURPOSE FOR WHICH THE LAND IS TRANSFERRED. PLACING OF THE PROPERTY AT THE DISPOSAL OF THE TRUST DOES NOT SIGN IFY THAT THE GOVERNMENT HAD DIVESTED ITSELF OF ITS TITL E TO THE PROPERTY. SIMILAR IS THE SITUATION WITH THE APH B. THE GOVERNMENT HAS TRANSFERRED LAND TO APHB FOR USE FOR ITS OWN PURPOSE. IT IS ENTITLED TO REQUIRE APHB TO SELL THE LAND AND TRANSFER THE SALE PROCEEDS TO EIT HER ITS NOMINEE (AP HOUSING CORPORATION) OR TO ITSELF, FOR USE OF SUCH FUND FOR PUBLIC PURPOSE. THERE ARE A NUMBER OF MEETINGS IN THE CHAMBER OF THE CHIEF MINISTER OF ANDHRA PRADESH, IN WHICH APHB HAS BEEN GIVEN DIRECTIONS FOR RESOURCE MOBILISATION FOR THE STATE EXCHEQUER. ACCORDINGLY, APHB HAD SOLD LAND AND TRANSFERRED THE AMOUNTS TO APHC AND THE STATE GOVERNMENT FROM TIME TO TIME. THE STATE GOVERNMENT HAS ISSUED ORDERS DIRECTING APHB TO TREAT SUCH PAYMENTS AS EXPENDITURE IN ITS ACCOUNTS. THUS, APHB HAS BEEN UNDERTAKING THE ACTIVITIES AS AND WHEN THE GOVERNMENT REQUIRES IT TO DO SO IN THE CAPACITY OF ITS AGENT. IT MAY BE NOTED THAT THE SOLE PURPOSE FOR WHICH APH B HAS BEEN CONSTITUTED IS TO EXECUTE HOUSING SCHEMES. EACH HOUSING SCHEME IS FORMULATED FOR EXECUTION WIT H THE SANCTION OF THE STATE GOVERNMENT. IF THE STATE GOVERNMENT DOES NOT ACCORD ANY SANCTION, APHB WOULD HAVE NO ACTIVITY TO PERFORM. APART FROM SANCTIONING THE SCHEMES, THE STATE GOVERNMENT IS THICKLY INVOLVED I N GUIDING, DIRECTING AND FACILITATING THE ACTIVITIES OF APHB. THE STATUTORY POWERS AND PRIVILEGES CONFERRED ON APHB BY THE LEGISLATURE OF THE STATE IS TO HELP IT IN CARRYING OUT ITS FUNCTIONS. HENCE, THERE IS NO DOUB T THAT THE ACTIVITIES OF APHB ARE UNDERTAKEN FOR AND ON BE HALF OF THE STATE. AS OF NOW, THERE IS NO LAW MADE BY TH E PARLIAMENT TO LEVY INCOME TAX WITH RESPECT TO ANY T RADE OR COMMERCE CARRIED ON BY OR ON BEHALF OF THE GOVERNMENT OF A STATE OR ANY OPERATIONS CONNECTED WITH THEREWITH. THEREFORE, ANY INCOME ARISING OUT O F THE OPERATIONS IN THE COURSE OF EXECUTION OF HOUSIN G 33 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD SCHEMES CANNOT BE SUBJECTED TO TAX IN THE HANDS OF THE STATE GOVERNMENT. THE SAME INCOME DOES NOT ACCRUE TO APHB, AS IT IS MERELY FUNCTIONING AS AN AGENT OF THE STATE GOVERNMENT. 27. THE LEARNED DEPARTMENTAL REPRESENTATIVE ALS O FILED WRITTEN SUBMISSIONS BEFORE US PUTTING FORTH HIS CONTENTIONS . AT THE OUTSET, THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY DE NIED THE ASSESSEES CONTENTION THAT SOME OF HIS ARGUMENTS AN D CASE LAWS HAVE NOT BEEN CONSIDERED BY THE FIRST APPELLATE AUT HORITY. HE SUBMITTED THAT THE CIT(A) HAD PASSED THE ORDER AFTE R CONSIDERING ALL THE FACTS AND CONTENTIONS RAISED BY THE ASSESSE E. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT APHB CAN NOT BE CONSIDERED TO BE AN EXTENDED ARM OF THE STATE GOVER NMENT DUE TO THE FOLLOWING REASONS: I) STATE GOVERNMENT DOES NOT HAVE ANY SHAREHOLDING WITH THE APHB. II) THE FUNDS GIVEN BY THE STATE GOVERNMENT FOR DIF FERENT PROJECTS ARE SHOWN AS UNSECURED LOANS IN THE BALANC E SHEET AND THE APHB IS ALSO PAYING HUGE INTEREST TO THE GOVERNMENT ON SUCH LOANS. III) APHB IS DOING BUSINESS ACTIVITY AS A BODY CORP ORATE AND EARNS PROFITS ON THE SALE MADE BY IT AND ITS HOUSES /FLATS TO THE PUBLIC. THUS, THE REAL ESTATE BUSINESS OF APHB IS NEITHER INCIDENTAL TO THE ORDINARY FUNCTIONS OF THE STATE G OVERNMENT NOR THE UNION GOVERNMENT AS DECLARED BY LAW UNDER C LAUSE (3) OF ARTICLE 289 OF THE CONSTITUTION. HENCE, THE ARTICLE 289 DOES NOT APPLY TO APHB. 28. IT IS SUBMITTED BY RELYING UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF APSRTC, 52 ITR 524 AND OF THE 34 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD HONBLE AP HIGH COURT IN THE CASE AP STATE CIVIL S UPPLIES CORPORATION LTD., 149 ITR 497 BASED ON CERTAIN PRIN CIPLES WHICH ARE AS UNDER: 1) CORPORATION HAS A PERSONALITY WHICH IS DISTINCT FROM THE STATE AND, HENCE, NORMAL INCOME OF A CORPORATION CA NNOT BE TREATED AS INCOME OF STATE. 2) THE CORPORATION IS ITS OWN MASTER AND IS ANSWERA BLE AS FULLY AS ANY OTHER PERSON OR CORPORATION. IT IS NOT THE CROWN AND HAS NONE OF THE PROFITS OR PRIVILEGES OF THE CR OWN. ITS SERVICES ARE NOT CIVIL SERVICES AND ITS PROPERTY IS NOT CROWNED PROPERTY. IT IS AS MUCH BOUND BY THE ACT OF PARLIAMENT AS ANY OTHER SUBJECT OF THE KIND AND CO RPORATION CONSTITUTED THROUGH A STATE ACT IS OF COURSE A PUBL IC AUTHORITY AND ITS PURPOSES NO DOUBT ARE PUBLIC PURP OSES BUT IT IS NOT A GOVERNMENT DEPARTMENT NOR DO ITS POWERS FALL WITHIN THE PROVISIONS OF THE GOVERNMENT AND TRADING ACTIVITY CARRIED BY THE CORPORATION IS NOT A TRADING ACTIVIT Y CARRIED ON BY THE STATE DEPARTMENTAL NOR IS IT A TRADING AC TIVITY CARRIED ON BY A STATE THROUGH ITS AGENCIES APPOINTE D IN THAT BEHALF. 3) STATE MAY ISSUE A NOTIFICATION UNDER THE STATUTE UNDER WHICH THE CORPORATION IS CONSTITUTED PROVIDING EXPR ESSLY OR BY NECESSARY IMPLICATION THAT THE INCOME DERIVED BY THE CORPORATION FROM ITS TRADING ACTIVITY WOULD BE INCO ME OF THE STATE. IT IS SUBMITTED THAT APPLICATION OF THE ABOVE PRINC IPLES TO THE FACTS OF THE ASSESSEES CASE WOULD BRING OUT THE FO LLOWING FEATURES, WHICH ARE : I) THE ASSESSEE HAS DISTINCT PERSONALITY FROM THE S TATE, WHICH IS EVIDENT FROM THE CONSTITUTION AS A COMPANY 35 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD AND THE FACT THAT THE ACCOUNT OF THE BOARD ARE DIFF ERENT THAN THE STATE. THE ASSESSEE IS CONDUCTING TRADING ON ITS OWN AND SHOWING RECEIPTS AND EXPENDITURE ON ITS OWN ACCOUNT, THE ENTIRE ACTIVITY OF THE ASSESSEE IS SUBJECT TO TAX AUDIT, AND THE ASSESSEE IS DONATING PART OF ITS INCOME TO STATE AND CLAIMING 80-IB DEDUCTION SEPARATELY FOR SOME ASSESSMENT YEARS AND THE STATE IS NOT INDEMNIFYING THE ASSESSEE FOR ANY OF ITS ACTS O R OMISSIONS OR COMMISSIONS. II) THE ASSESSEE IS ALSO NOT COVERED UNDER ARTICLE 289(3) BECAUSE THE ACTIVITY OF THE ASSESSEE IS NOT DECLARED BY THE PARLIAMENT AS AN ACTIVITY INCIDENTA L TO THE ORDINARY FUNCTION OF THE GOVERNMENT. IT IS SUBMITTED THAT THESE FACTS MAKE IT CLEAR THAT THE INCOME OF THE ASSESSEE IS NOT THAT OF THE STATE AND , HENCE, IS LIABLE TO TAX. IT IS SUBMITTED THAT THE H ONBLE AP HIGH COURT IN THE CASE OF AP STATE CIVIL SUPPLI ES CORPORATION, 149 ITR 497 AND HONBLE SUPREME COURT IN THE CASE OF SOMPRAKASH REKKI VS. UNION OF INDIA [1981] 51 COMPANY CASE 71 HAVE LAID DOWN CERTAIN TESTS, WHICH ARE I) IF THE ENTIRE SHARE CAPITAL OF THE CORPORATION I S HELD BY THE GOVERNMENT IT WOULD GO A LONG WAY TOWARDS INDICATING THAT THE CORPORATION IS INSTRUMENTALITY OR AN AGENCY OF THE GOVERNMENT. EXISTENCE OF DEEP AND PERVASIVE STATE CONTROL MAY BE AN INDICATION THA T THE CORPORATION IS A STATE AGENCY OR AN INSTRUMENTALITY WHETHER THE CORPORATION ENJOYS MONOPOLY STATUS IT I S STATE CONFERRED OR STATE PROTECTED. II) IF THE FUNCTIONS OF THE CORPORATION ARE OF PUBL IC IMPORTANCE AND CLOSELY RELATED TO THE GOVERNMENTAL 36 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD FUNCTIONS IT WOULD BE RELEVANT FACTOR ON CLASSIFYIN G THE CORPORATION AS AN INSTRUMENTALITY OR AN AGENCY OF T HE GOVERNMENT. III) SPECIFICALLY IF A DEPARTMENT OF GOVERNMENT IS TRANSFERRED TO A CORPORATION IT WOULD BE A STRONG F ACTOR SUPPORTIVE OF THE INFERENCES OF THE CORPORATION BEI NG AN INSTRUMENTALITY OR AGENCY OF THE GOVERNMENT. IV) EVEN IF A CORPORATION MEETS ALL THE TESTS TO BE TERMED AS INSTRUMENTALITY OF THE STATE IN SUCH CASE ALSO IT IS HELD THAT AN INSTRUMENTALITY IS DIFFERENT FRO M THE STATE AND ITS INCOME CANNOT BE EQUATED TO THAT OF T HE STATE. 29. IT IS FURTHER SUBMITTED THAT COMPANY AS DEFINED IN SECTION 2(17) OF THE ACT INCLUDES ANY INDIAN COMPANY, ANY B ODY CORPORATE INCORPORATED BY OR UNDER THE LAWS OF A COUNTRY AND ANY INSTITUTION, ASSOCIATION OR BODY WHETHER INCORPORAT ED OR NOT. A STATE UNDERTAKING INCORPORATED UNDER THE COMPANIES ACT IS NOT OUTSIDE THE DEFINITION OF COMPANY. PERSON DEFINED U/S 2(31) INCLUDES A COMPANY. INCOME DERIVED BY ANY PERSON IS LIABLE TO CHARGE OF INCOME TAX U/S 4 OF THE ACT. IT WAS SUBMI TTED THAT THE ASSESSEE HAS NOT CLAIMED EXEMPTION UNDER ANY OF THE PROVISIONS OF THE IT ACT, BUT, UNDER ARTICLE 289 OF THE CONSTI TUTION OF INDIA. IT WAS SUBMITTED THAT WHAT IS EXEMPT FROM TAXATION UNDER ARTICLE 289(1) IS THE INCOME OF A STATE AND NOT THE INCOME OF THE INSTRUMENTALITY OR AN AGENCY OF A STATE. THE INCOM E OF THE COMPANY BEING DISTINCT FROM THE INCOME OF THE STATE , IMMUNITY FROM TAXATION PROVIDED UNDER ARTICLE 289(1) OF THE CONSTITUTION IS NOT ATTRACTED. IT WAS SUBMITTED THAT IF THE NEWLY B ROUGHT IN AMENDMENT IN SECTION 58(7) OF THE APHB ACT, APPLICA BLE RETROSPECTIVELY WILL BE INTERPRETED TO MEAN THAT IN COME OF THE 37 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD CORPORATION IS THAT OF THE STATE IT WOULD IMPLY THA T THE LEGISLATION IS PASSED BY A STATE ON A SUBJECT ON WHICH CENTRE I S ONLY COMPETENT TO LEGISLATE. IT WAS SUBMITTED THAT WHEN THERE IS REPUGNANCY BETWEEN THE STATE LEGISLATION AND CENTRA L LEGISLATION AS PER ARTICLE 254 OF THE CONSTITUTION THE CENTRAL LEGISLATION WILL PREVAIL AND THE STATE LEGISLATION SHALL BE TREATED AS VOID TO THE EXTENT OF THE REPUGNANCY. IN SUPPORT OF SUCH CONTEN TION, THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE DECISION OF THE HONBLE ALLAHABAD HIGH COURT IN CASE OF UP JAL NIGAM LTD., 202 TAXMAN 285. IT WAS SUBMITTED THAT APHB FIRST E ARNS ITS INCOME FOR A PARTICULAR FY WHICH IS TAXABLE AFTER M EETING ITS EXPENDITURE AND THE SURPLUS FUND IS TRANSFERRED TO CONSOLIDATED FUND OF THE STATE GOVERNMENT. THUS, THE EXEMPTION F ROM TAXATION CLAIMED BY THE APHB ON THE GROUND THAT ITS SURPLUS IS TRANSFERRED TO THE CONSOLIDATED FUND OF THE STATE GOVERNMENT IS NOT ACCEPTABLE AS THE TRANSFER OF SURPLUS IS NOTHING MO RE THAN MERE APPLICATION OF ITS INCOME. 30. IT WAS SUBMITTED THAT ALL PUBLIC SECTOR UNDERTA KINGS AND CORPORATIONS WHICH HAVE BEEN CREATED UNDER SOME ACT , PASSED BY THE STATE GOVERNMENT OR THE PARLIAMENT ARE ALSO SUB JECT TO TAXATION UNDER THE INCOME-TAX ACT, 1961, EVEN THOUG H, THEIR NET SURPLUSES ARE TRANSFERRED TO THE CONSOLIDATED FUNDS OF THE GOVERNMENT. RELYING UPON THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF APSRTC V/S. ITO, 52 ITR 524 A ND IN CASE OF MUNICIPAL COMMISSIONER OF DUMDUM MUNICIPALITY V/S. INDIAN TOURISM DEVELOPMENT CORPORATION AND OTHERS, AND ADI TYAPORE INDUSTRIAL AREA DEVELOPMENT AUTHORITY V/S. UNION O F INDIA, 153 TAXMAN 17, IT IS SUBMITTED THAT APHB IS A DISTINCT LEGAL ENTITY AND IT IS NOT A STATE GOVERNMENT PER SE. IT IS SUBMITTE D THAT ALL THE DIRECTORS OF THE APHB ARE NOMINATED BY THE GOVERNME NT OF 38 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD ANDHRA PRADESH, THEREFORE, IT IS CONVENIENT ON THEI R PART TO INFLUENCE THE GOVERNMENT OF AP TO PASS A LEGISLATIO N IN THE AP HOUSING BOARD ACT BY INTRODUCING THE PROVISION OF S UB-SECTION (7) OF SECTION 58 RETROSPECTIVELY WITH A CLEAR INTENT T O CIRCUMVENT THE PROVISIONS OF IT ACT, 1961 AND TO MAKE SURE THAT TH E SURPLUS OF THE ASSESSEE IS GIVEN THE COLOUR OF BEING EXEMPT FR OM TAXATION. IT IS SUBMITTED THAT SUCH AMENDMENT BROUGHT INTO THE A PHB ACT IS CLEARLY REPUGNANT TO ARTICLE 73 READ WITH ARTICLE 2 54 OF THE CONSTITUTION OF INDIA. IT IS SUBMITTED THAT THE REP UGNANCY BECOMES MORE APPARENT FROM THE FACT THAT THE APHB H AD FILED RETURN OF INCOME CLAIMING DEDUCTION U/S 80-IB. IT P REPARES ITS OWN INCOME AND EXPENDITURE ACCOUNT AND BALANCE SHE ET WHICH IS DULY CERTIFIED BY CHARTERED ACCOUNTANT AND FILED AL ONG WITH RETURNS OF INCOME. IT FURNISHES A TAX AUDIT REPORT U/S 44AB OF THE IT ACT. IT IS SUBMITTED THAT APHB IS A DISTINCT LEG AL ENTITY BEING A BODY CORPORATE AND IS NOT AN INSTRUMENTALITY OF THE GOVERNMENT OF AP OR AN EXTENDED ARM OF THE STATE GOVERNMENT. I T WAS SUBMITTED THAT APHB IS NOT AN AUTHORITY AS ENVISAGE D UNDER ARTICLE 12 OF THE CONSTITUTION AS IT DOES NOT HAVE THE POWER TO ACT AS GOVERNMENT OF AP. IT IS ONLY A BOARD FORMED FOR THE PURPOSE OF HOUSING CONSTITUTED WITH A LIMITED MANDATE UNDER TH E APHB ACT, 1956. IN SUPPORT OF SUCH CONTENTION, THE LEARNED D EPARTMENTAL REPRESENTATIVE RELIED UPON THE FOLLOWING DECISIONS: 1. PUNJAB URBAN DEVELOPMENT AUTHORITY, 103 TTJ 988 2. JALANDHAR DEVELOPMENT AUTHORITY, 124 TTJ 598 3. JAMMU DEVELOPMENT AUTHORITY, ITA NO. 30/ASR/2011 31. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITT ED THAT THE RETURNS FILED FOR THE RELEVANT ASSESSMENT YEARS WOU LD GIVE AN INDICATION THAT FOR THE AYS 2004-05 AND 2006-07 THE ASSESSEE ITSELF FILED RETURN OF INCOME ADMITTING INCOME UNDE R THE HEAD 39 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD INCOME FROM OTHER SOURCES AND CLAIMED DEDUCTION U /S 80-IB. HOWEVER, AS PER THE COMPUTATION, THE INCOME IN FACT WAS EXCESS OF INCOME OVER EXPENDITURE, WHICH FALLS IN THE CATE GORY OF BUSINESS INCOME. FOR THE AY 2005-06 IT FILED ITS R ETURN OF INCOME DECLARING THE INCOME UNDER THE HEAD HOUSE PROPERTY AND INCOME FROM CAPITAL GAIN AND WENT ON TO SHOW NET LOSS. F OR THE AY 2007-08 THE ASSESSEE FILED ITS RETURN OF INCOME DEC LARING INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND IN COME FROM OTHER SOURCES AND CLAIMED DEDUCTION U/S 80-IB. FOR THE AY 2008- 09 THE ASSESSEE FILED ITS RETURN OF INCOME DECLARIN G INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IT IS SUBMIT TED THAT DEDUCTION CAN BE CLAIMED U/S 80-IB ONLY WHEN THERE ARE PROFITS DERIVED FROM BUSINESS. THOUGH THE ASSESSEE RETURNED ITS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES BUT THE VERY FACT THAT IN THE RETURN OF INCOME THE ASSESSEE CLAIMED DEDUCT ION U/S 80-IB CLEARLY DEMONSTRATES THAT THE INCOME OF THE ASSESSE E IS IN NATURE OF BUSINESS. IT IS SUBMITTED THAT THE ASSESSEE HAVI NG CLAIMED DEDUCTION U/S 80-IB IT CANNOT TURN BACK AT THE TIME OF PROCEEDINGS BEFORE INCOME-TAX APPELLATE TRIBUNAL TO CLAIM THAT ITS INCOME IS EXEMPT FROM BEING TAXED UNDER THE IT ACT, 1961 DUE TO RETROSPECTIVE AMENDMENT CARRIED OUT IN THE APHB ACT , 1956 IN THE YEAR 2010. IT IS SUBMITTED THAT THE ASSESSEE HAVING VOLUNTARILY COMPLIED WITH TAX AUDIT PROVISIONS AND COMMERCIAL A UDIT PROVISIONS YEAR AFTER YEAR CLEARLY SHOWS THAT IT RE COGNISED ITS LIABILITY UNDER THE INCOME-TAX ACT. IT IS SUBMITTED THAT IRRESPECTIVE OF THE RETROSPECTIVE AMENDMENT EFFECTE D TO THE APHB ACT, ASSESSEES LIABILITY UNDER INCOME-TAX ACT WOUL D NOT CHANGE BECAUSE THE ASSESSEE ITSELF FILED RETURN OF INCOME DECLARING TAXABLE INCOME AND CLAIMED DEDUCTION U/S 80-IB. IT IS SUBMITTED THAT HAVING FILED ITS RETURN OF INCOME THE ONLY WAY THE ASSESSEE CAN CLAIM THAT ITS INCOME IS NOT TAXABLE IS BY WAY OF FILING REVISED 40 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD RETURN OF INCOME U/S 139(5) OF THE ACT. SINCE THE ASSESSEE HAS NOT FILED ANY REVISED RETURN CLAIMING EXEMPTION FRO M TAX THE CLAIM OF THE ASSESSEE ON LEGAL GROUNDS AS WELL AS O N FACT CANNOT BE ACCEPTED. 32. THE LEARNED DEPARTMENTAL REPRESENTATIVE FINALLY SUBMITTED THAT IN AN IDENTICAL CASE DECIDED BY THE HONBLE BO MBAY HIGH COURT IN CASE OF VIDHARBHA HOUSING BOARD V/S. ITO, 92 ITR 430, THE BOMBAY HIGH COURT AFTER RELYING UPON THE DECISI ON OF THE HONBLE SUPREME COURT IN CASE OF APSRTC V/S. ITO ( SUPRA) HELD THAT THE INCOME AND PROPERTY OF THE BOARD COULD NOT BE REGARDED AS INCOME AND PROPERTY OF THE STATE GOVERNMENT, HEN CE, THE IMMUNITY CLAIMED UNDER ARTICLE 289(1) OF THE CONSTI TUTION WILL NOT BE AVAILABLE. IT IS SUBMITTED THAT THE ASESSSEE S CASE CLEARLY FITS IN TO THE AFORESAID CASE DECIDED BY THE HONBL E BOMBAY HIGH COURT AND IN VIEW OF THE RATIO LAID DOWN THEREIN TH E INCOME OF THE ASSESSEE CANNOT BE HELD TO BE THE INCOME OF THE STA TE UNDER ARTICLE 289(1) OF THE CONSTITUTION OF INDIA. 33. WE HAVE CONSIDERED THE ELABORATE SUBMISSIONS MA DE BY BOTH THE PARTIES ORALLY AT THE TIME OF HEARING AS WELL A S THROUGH THEIR RESPECTIVE WRITTEN SUBMISSIONS. WE HAVE ALSO PERUSE D MATERIALS PLACED ON RECORD AS WELL AS IN THE PAPERBOOKS. WE H AVE CAREFULLY APPLIED OUR MIND TO THE CATENA OF DECISIONS CITED B EFORE US BY BOTH THE PARTIES. BEFORE DWELLING UPON THE MERITS O F THE CONTENTION OF THE PARTIES WE CONSIDER IT NECESSARY TO NARRATE CERTAIN FACTS. 34. THE ASSESSEE, APHB WAS FORMED UNDER THE AP HOUS ING BOARD ACT, 1956 OF THE STATE LEGISLATURE. THE MAIN OBJECT OF FORMATION OF THE APHB AS SET OUT IN THE PREAMBLE OF THE APHB ACT , 1956 IS TO 41 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD TAKE SUCH MEASURES, TO MAKE SUCH SCHEMES, AND TO CA RRY OUT SUCH WORKS AS ARE NECESSARY FOR THE PURPOSE OF DEAL ING WITH AND SATISFYING THE NEED OF HOUSING ACCOMMODATION. THE A CTIVITY OF THE ASSESSEE IS TO CONSTRUCT HOUSING PROJECTS ON LAND P ROVIDED BY THE STATE GOVERNMENT OR ACQUIRED BY IT AND SALE IT TO P EOPLE BELONGING TO DIFFERENT INCOME GROUPS. THE ASSESSEE RECOGNISES INCOME GENERATED FROM THE ACTIVITY OF SALE OF HOUSE S AND ALSO MAINTAINS REGULAR BOOKS OF ACCOUNT WHEREIN SUCH TRA NSACTIONS ARE RECORDED. THE ASSESSEES ACCOUNTS ARE ALSO SUBJECT TO STATUTORY AUDIT UNDER THE PROVISIONS OF THE IT ACT. IT IS ALS O A FACT THAT FOR THE AY 2004-05, 2005-06 AND 2006-07 THE ASSESSEE HA D FILED RETURN OF INCOME DECLARING CERTAIN INCOME AND ALSO CLAIMING DEDUCTION U/S 80-IB OF THE ACT. ASSESSMENTS FOR THE AFORESAID ASSESSMENT YEARS WERE COMPLETED BY REJECTING CLAIM OF DEDUCTION U/S 80IB OF THE ACT AND ALSO TREATING THE INCOME AS BUSINESS INCOME. IN FACT IT IS EVIDENT FROM THE ASSESSMENT O RDER PASSED FOR THE ASSESSMENT YEAR 2005-06 THE ASSESSEE ITSELF IN COURSE OF ASSESSMENT PROCEEDING HAD ADMITTED THE PROFIT FROM SALE OF LAND AS ITS BUSINESS INCOME. THE ASSESSEE CHALLENGED THE ASSESSMENT BEFORE THE FIRST APPELLATE AUTHORITY AND HAVING FAI LED THERE, APPROACHED THE INCOME-TAX APPELLATE TRIBUNAL, HYDER ABAD BENCH. 35. IN COURSE OF HEARING BEFORE THE INCOME-TAX APP ELLATE TRIBUNAL, THE ASSESSEE RAISED CERTAIN ADDITIONAL GR OUNDS CLAIMING ITS INCOME TO BE NOT TAXABLE IN VIEW OF THE AMENDME NT BROUGHT RETROSPECTIVELY TO THE APHB ACT BY INTRODUCTION OF SUB-SECTION (7) OF SECTION 58. THE ADDITIONAL GROUNDS HAVING BEEN R AISED FOR THE FIRST TIME BEFORE THE TRIBUNAL, IT REMANDED THE MAT TERS BACK TO THE CIT(A) FOR CONSIDERATION OF ADDITIONAL GROUNDS AS WELL AS THE OTHER GROUNDS. IN THE MEANWHILE, ASSESSMENT FOR TH E AY 2007-08 AND 2008-09 WERE ALSO COMPLETED AND THE ASSESSEES APPEAL 42 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD AGAINST THE ASSESSMENT ORDERS WERE PENDING BEFORE T HE CIT(A). IT WILL BE PERTINENT TO MENTION HERE THAT FOR THE AY 2 007-08 AND 2008-09 ALSO THE ASSESSEE HAD FILED ITS RETURN OF I NCOME DECLARING INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND INCOME FROM OTHER SOURCES AND FOR THE ASSESSMENT YEAR 200 7-08 CLAIMED DEDUCTION U/S 80-IB OF THE IT ACT. AFTER THE RETROS PECTIVE AMENDMENT EFFECTED IN THE YEAR 2010 TO THE APHB ACT BY INTRODUCTION OF SUB-SECTION (7) OF SECTION 58 OF TH E APHB ACT, THE ASSESSEE CLAIMED THAT THE INCOME EARNED BY IT IS TH E INCOME OF THE STATE. 36. FROM THE AFORESAID NARRATION OF FACT, IT IS VER Y MUCH CLEAR THAT, BUT, FOR THE AMENDMENT TO THE APHB ACT MADE B Y THE STATE LEGISLATURE IN THE YEAR 2010 THE ASSESSEE ALL ALONG HAD BEEN VOLUNTARILY FILING ITS RETURN OF INCOME BY RECOGNIZ ING ITS INCOME. IT IS ALSO A FACT THAT THE ASSESSEE ALL ALONG WAS CLAI MING DEDUCTION U/S 80-IB OF THE ACT. ONLY AFTER THE AMENDMENT TO S ECTION 58 OF THE APHB ACT, WAS MADE THE ASSESSEE MADE A CLAIM TH AT ITS INCOME IS NOT TAXABLE UNDER THE IT ACT, BY CLAIMING IMMUNITY UNDER ARTICLE 289(1) OF THE CONSTITUTION OF INDIA. THE MAIN THRUST OF THE ARGUMENT OF THE LEARNED AR OF THE ASSESSEE F OR CLAIMING IMMUNITY FROM TAXATION UNDER THE IT ACT, 1961 ARE B ROADLY THE FOLLOWING REASONS: 1. THE APHB IS A CREATURE OF STATUTE, CLOTHED WITH STATUTORY POWERS AND FUNCTIONS UNDER SUPERVISION, CONTROL AND DIRECTION OF THE STATE GOVERNMENT. IT IS AN INSTRUM ENTALITY OF THE STATE FOR CARRYING OUT GOVERNMENT FUNCTIONS AND AS SUCH IS AN EXTENDED ARM OF THE GOVERNMENT AND NOT A SEPA RATE INDEPENDENT ENTITY WHICH CAN BE SUBJECTED TO TAX. 43 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD 2. THE STATE GOVERNMENT EXERCISES PERVASIVE CONTROL OVER THE BOARD UNDER THE TERMS OF THE STATUTE, HENCE, IT CANNOT BE REGARDED AS AN INDEPENDENT AND AUTONOMOUS BODY. 3. THE BOARD IS EMPOWERED WITH STATUTORY POWER TO A CQUIRE LAND, EVICT ANY PERSON FROM THE PREMISES, FOLLOWING THE PROCEDURE LAID DOWN IN THE ACT, AND RECOVER RENT OR DAMAGES FROM SUCH PERSON. EXERCISE OF SUCH STATUTORY POWER IS INDICATIVE OF THE FACT THAT THE BOARD IS DISCHARGIN G SOVEREIGN FUNCTION WHICH IS INCONSISTENT WITH PROFIT MAKING V ENTURE IN THE NATURE OF TRADE OR BUSINESS. 4. THE ASSESSEE IS USED AS AN INSTRUMENT BY THE STA TE FOR RESOURCE MOBILIZATION FOR WHICH LAND IS ALLOTTED FO R EXPLOITING COMMERCIALLY FOR THIS PURPOSE. 5. THE EMPLOYEES OF THE APHB ARE GOVERNED BY THE SA ME TERMS AND CONDITIONS AS ARE APPLICABLE TO THE STATE GOVERNMENT OFFICERS, WHICH ESTABLISHES THAT IT IS A N EXTENDED ARM OF THE GOVERNMENT. 6. THE ACCOUNTANT GENERAL OF AP HAS CATEGORIZED AP HB FOR CIVIL AUDIT AND NOT FOR COMMERCIAL AUDIT, WHICH SHO WS THAT THE APHB IS NOT CONSIDERED AS A COMMERCIAL ORGANIZA TION. 7. THE ACTIVITIES OF THE BOARD ARE NOT UNDERTAKEN W ITH ANY PROFIT MOTIVE. IT ONLY DISCHARGES STATUTORY FUNCTIO NS TO CARRY OUT HOUSING SCHEMES OF THE GOVERNMENT OF PROVIDING OF HOUSING INFRASTRUCTURE IN AN ORDERLY MANNER IS A GOVERNMENTAL FUNCTION AND APHB IS CARRYING OUT SUCH SCHEMES ON BEHALF OF THE GOVERNMENT. FURTHER AS PRO VIDED UNDER THE STATUTORY PROVISIONS THE REVENUE GENERATE D BY THE BOARD IS EITHER SPENT FOR HOUSING INFRASTRUCTURE OR IT VESTS IN THE CONSOLIDATED FUND OF THE STATE. 8. APHB HAS BEEN CREATED UNDER A STATUTE TO WORK AS AN EXECUTING AGENCY OF THE STATE GOVERNMENT. ALL THE 44 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD INGREDIENTS RELATIONSHIP BETWEEN PRINCIPAL AND AGEN T ARE PRESENT IN THE STATUTORY ARRANGEMENT BETWEEN THE ST ATE GOVERNMENT AND APHB. THE FUNDS AND LAND ARE PROVIDE D BY THE GOVERNMENT AND ANY SURPLUS OVER THE EXPENDITURE IS INCURRED FOR THE PURPOSES OF THE ACT VESTS IN THE CONSOLIDATED FUND OF THE STATE. THOUGH APHB ENTERS INTO CONTRACT IN ITS OWN NAME BUT IN EFFECT IT IS DOING SO ON BEHALF OF THE STATE. IN LAW OF AGENCY WHAT IS TO BE SEEN I S WHETHER THE PROFIT OR LOSS ARISING IN THE COURSE OF THE DEA LING OF THE AGENT ACCRUES TO THE PRINCIPAL AND NOT TO THE AGENT . 37. THE LEARNED COUNSEL FOR THE ASSESSEE TAKING US THROUGH VARIOUS PROVISIONS OF THE APHB ACT,1956 HAD SUBMITT ED THAT THE STATE GOVERNMENT EXERCISES PERVASIVE CONTROL OVER T HE BOARD. TO EMPHASIZE SUCH CONTENTION HE REFERRED TO THE TRANSF ER ORDER OF ONE SHRI G. SAI PRASAD AND APPOINTMENT OF LAW OFFIC ER. HE SUBMITTED THAT THE BOARD CANNOT TAKE ANY DECISION O N ITS OWN BUT EVERY ACTION OF THE BOARD HAS TO BE WITH THE APPROV AL OF THE GOVERNMENT. IN THIS CONTEXT THE LEARNED COUNSEL REF ERRED TO THE MINUTES OF MEETING HELD IN THE CHAMBER OF THE CHIEF MINISTER. HE FURTHER SUBMITTED THAT RAJIV GRUHA KALPA SCHEME IS A SCHEME OF THE STATE GOVERNMENT AND THE BOARD IS ONLY IMPLEMEN TING IT AS AN AGENCY OF THE GOVERNMENT. HE FURTHER SUBMITTED THAT FOR MOBILIZING RESOURCES BY WAY OF SALE OF LAND THE BOA RD IS UTILIZED AS A TOOL. IT WAS SUBMITTED THAT THE MODE AND MANNE R OF MAINTAINING THE ACCOUNTS IS ALSO AS PER THE DIRECTI ON OF THE GOVERNMENT. FOR MORTGAGING ALSO PERMISSION IS REQUI RED. IN SUM AND SUBSTANCE IT IS THE CONTENTION OF THE LEARNED COUNSEL THAT THE STATE GOVERNMENT EXERCISES PERVASIVE CONTROL AND TH E BOARD AS SUCH IS NOT AN INDEPENDENT AUTONOMOUS BODY BUT IS A N EXTENDED ARM OF THE STATE GOVERNMENT. IT IS THE SUBMISSION O F THE LEARNED 45 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD COUNSEL THAT THE INCOME OF THE BOARD THEREFORE, IN EFFECT, IS THE INCOME OF THE STATE GOVERNMENT, HENCE, FOR THAT REA SON IMMUNE FROM TAXATION UNDER ARTICLE 289(1) OF THE CONSTITUT ION OF INDIA. 38. ALL THE AFORESAID CONTENTIONS RAISED BY THE LEA RNED COUNSEL HAS BEEN DEALT WITH AND ANSWERED BY THE HONBLE SUP REME COURT IN CASE OF APSRTC V/S. ITO, 52 ITR 524. THE HONBL E SUPREME COURT WHILE AFFIRMING THE DECISION OF THE HONBLE A P HIGH COURT EXAMINED THE PROVISIONS OF APSRTC ACT VIS--VIS ART ICLE 289 OF THE CONSTITUTION OF INDIA AND HELD THAT THE INCOME OF THE APSRTC CANNOT BE HELD TO BE THE INCOME OF THE STATE GOVERN MENT AS APSRTC HAS ITS OWN IDENTITY AND DISTINCT FROM THE G OVERNMENT. THE HONBLE SUPREME COURT ANLAYSING THE THREE CLAUS ES OF ARTICLE 289 OF CONSTITUTION OF INDIA, HELD IN THE FOLLOWING MANNER: READING THE THREE CLAUSES TOGETHER, ONE CONSIDERATI ON EMERGES BEYOND ALL DOUBT AND THAT IS THAT THE PROPE RTY AS WELL AS THE INCOME IN RESPECT OF WHICH EXEMPTION IS CLAIMED UNDER CLAUSE (1) MUST BE THE PROPERTY AND INCOME OF THE STATE, AND SO, THE SAME QUESTION FACE S US AGAIN: IS THE INCOME DERIVED BY THE APPELLANT FR OM ITS TRANSPORT ACTIVITIES THE INCOME OF THE STATE ? IF A TRADE OR BUSINESS IS CARRIED ON BY THE STATE DEPARTMENTALLY AND INCOME IS DERIVED FROM IT, THERE WOULD NO DIFFICULTY IN HOLDING THAT THE SAID INCOME IS THE INCOME OF THE STATE. IF A TRADE OR BUSINESS IS CARRIED ON BY A STATE THROUGH ITS AGENTS APPOINTED EXCLUSIVELY FOR THAT PURPOSE, AND THE AGENTS CARRY IT ON ENTIRELY ON BEHALF OF THE STATE AND NOT ON THEIR OW N ACCOUNT, THERE WOULD BE NO DIFFICULTY IN HOLDING TH AT THE INCOME MADE FROM SUCH TRADE OR BUSINESS IS THE INCO ME OF THE STATE. BUT DIFFICULTIES ARISE WHEN WE ARE DE ALING WITH TRADE OR BUSINESS CARRIED ON BY A CORPORATION ESTABLISHED BY A STATE BY USING A NOTIFICATION UNDE R THE RELEVANT PROVISIONS OF THE ACT. THE CORPORATION, TH OUGH STATUTORY, HAS A PERSONALITY OF ITS OWN AND THIS PERSONALITY IS DISTINCT FROM THAT OF THE STATE OR O THER SHAREHOLDERS. IT CANNOT BE SAID THAT A SHAREHOLDER OWNS THE PROPERTY OF THE CORPORATION OR CARRIES ON THE BUSINESS WITH WHICH THE CORPORATION IS CONCERNED. T HE 46 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD DOCTRINE THAT A CORPORATION HAS A SEPARATE LEGAL EN TITY OF ITS OWN IS SO FIRMLY ROOTED IN OUR NOTIONS DERIV ED FROM COMMON LAW THAT IT IS HARDLY NECESSARY TO DEAL WITH IT ELABORATELY; AND SO, PRIMA FACIE, THE INCOM E DERIVED BY THE APPELLANT FROM ITS TRADING ACTIVITY CANNOT BE CLAIMED BY THE STATE WHICH IS ONE OF THE SHAREHOLDERS OF THE CORPORATION. 39. THE HONBLE SUPREME COURT AFTER ANALYZING THE DIFFERENT CLAUSES OF ARTICLE 289(1) IN THE CONTEXT OF THE CLA IM MADE BY THE ASSESSEE HELD AS UNDER: THE MAIN POINT WHICH WE ARE EXAMINING AT THIS STAG E: IS THE INCOME DERIVED BY THE APPELLANT FROM ITS TRA DING ACTIVITY, INCOME OF THE STATE UNDER ARTICLE 289(1) ? IN OUR OPINION, THE ANSWER TO THIS QUESTION MUST BEIN THE NEGATIVE. FAR FROM MAKING ANY PROVISION WHICH WOULD MAKE THE INCOME OF THE CORPORATION THE INCOME OF TH E STATE, ALL THE RELEVANT PROVISIONS EMPHATICALLY BRI NG OUT THE SEPARATE PERSONALITY OF THE CORPORATION AND PRO CEED ON THE BASIS THAT THE TRADING ACTIVITY IS RUN BY TH E CORPORATION AND THE PROFIT AND LOSS THAT WOULD BE M ADE AS A RESULT OF THE TRADING ACTIVITY WOULD BE THE PR OFIT AND LOSS OF THE CORPORATION. THERE IS NO PROVISION IN THE ACT WHICH HAS ATTEMPTED TO LIFT THE VEIL FROM THE F ACE OF THE CORPORATION AND THEREBY ENABLE THE SHAREHOLDERS TO CLAIM THAT DESPITE THE FROM WHICH THE ORGANIZATION HAS TAKEN, IT IS THE SHAREHOLDERS WHO RUN THE TRADE AND WHO CAN CLAIM THE INCOME COMING FROM IT AS THEIR OWN. SECTION 28 WHICH PROVIDES FOR THE PAYMENT OF INTERE ST CLEARLY BRINGS OUT THE DUALTY BETWEEN THE CORPORATI ON ON THE ONE HAND AND THE STATE AND CENTRAL GOVERNMENTS ON THE OTHER. TAKE, FOR INSTANCE, THE C ASE OF SUPERSESSION OF THE CORPORATION AUTHORIZED BY SECTION 38. SECTION 38(2)(C) EMPHATICALLY BRINGS OU T THE FACT THAT THE PROPERTY REALLY VESTS IN THE CORPORATION, BECAUSE IT PROVIDES THAT DURING THE PE RIOD OF SUPERSESSION, IT SHALL VEST IN THE STATE GOVERNM ENT. SIMILARLY, SECTION 39(2) WHICH DEALS WITH THE DISTRIBUTION OF ASSETS IN CASE OF LIQUIDATION, BRIN GS OUT THE SAME FEATURE. IT HAS BEEN URGED BEFORE US BY TH E ADVOCATE-GENERAL THAT SECTION 30 CONTEMPLATES THAT AFTER PROVISIONS IS MADE AS REQUIRED BY SECTION 28 AND 29 AND FUNDS ARE UTILIZED AS PRESCRIBED BY SECTION 30, THE BALANCE HAS TO BE GIVEN TO THE STATE GOVERNMENT 47 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD FOR THE PURPOSE OF ROAD DEVELOPMENT, AND THAT, IT I S SUGGESTED, INDICATES THAT INCOME BELONGS TO THE STA TE GOVERNMENT. THIS ARGUMENT IS CLEARLY NOT WELL-FOUND ED. WHEN WE ARE DECIDING THE QUESTION AS TO WHETHER THE INCOME DERIVED BY THE CORPORATION IS THE INCOME OF THE STATE, THE PROVISION MADE BY SECTION 30 FOR MAKING OVER TO THE STATE GOVERNMENT THE BALANCE THAT MAY REMAIN AS INDICATED THEREIN, IS OF NO ASSISTANCE. T HE INCOME IS UNDOUBTEDLY THE INCOME OF THE CORPORATION . ALL THAT SECTION 30 REQUIRES IS THAT A PART OF THAT INCOME MAY BE ENTRUSTED TO THE STATE GOVERNMENT FOR A SPECIFIC PURPOSE OF ROAD DEVELOPMENT. IT IS NOT SUGGESTED OR SHOWN THAT WHEN SUCH INCOME IS MADE OVER TO THE STATE, IT BECOMES A PART OF THE GENERAL REVENUE OF THE STATE. IT IS INCOME WHICH IS IMPRESS ED WITH AN OBLIGATION AND WHICH CAN BE UTILIZED BY THE STATE GOVERNMENT ONLY FOR THE SPECIFIC PURPOSE FOR WHICH IT IS ENTRUSTED TO IT. THEREFORE, WE ARE SATI SFIED THAT THE INCOME DERIVED BY THE APPELLANT FROM ITS TRADING ACTIVITY CANNOT BE SAID TO BE THE INCOME OF THE STATE UNDER ARTICLE 289(1), AND IF THAT IS SO, THE FACTS THAT THE TRADING ACTIVITY CARRIED ON BY THE APPELLA NT MAY BE COVERED BY ARTICLE 289(2) DOES NOT REALLY AS SIST THE APPELLANTS CASE. EVEN IF A TRADING ACTIVITY FA LLS UNDER CLAUSE (2) OF ARTICLE 289, IT CAN SUSTAIN A C LAIM FOR EXEMPTION FROM UNION TAXATION ONLY IF IT IS SHO WN THAT THE INCOME DERIVED FROM THE SAID TRADING ACTIV ITY IS THE INCOME OF THE STATE. THAT IS HOW ULTIMATELY, THE CRUX OF THE PROBLEM IS TO DETERMINE WHETHER THE INCOME IN QUESTION IS THE INCOME OF THE STATE, AND ON THIS VITAL TEST, THE APPELLANT FAILS. 40. EVEN THOUGH THE LEARNED AR HAS TRIED TO IMPRESS UPON US THAT THE ASSESSEE BOARD IS NOTHING BUT AN EXTENDED ARM OF THE GOVERNMENT OR PART OF THE GOVERNMENT, BUT, IN OUR V IEW, IT IS NOT SO. SUB-SECTION (2) OF SECTION 3 OF THE APHB ACT, 1 956 READS AS UNDER: THE BOARD SHALL BE A BODY CORPORATE HAVING PERPETUA L SUCCESSION AND A COMMON SEAL AND MAY SUE AND BE SUED IN ITS CORPORATE NAME AND SHALL BE COMPETENT T O ACQUIRE AND HOLD PROPERTY BOTH MOVEABLE AND IMMOVEABLE AND TO CONTRACT AND DO ALL THINGS NECESS ARY FOR THE PURPOSE OF THIS ACT. 48 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD 41. A READING OF THE AFORESAID PROVISION MAKES IT C LEAR THAT THE ASSESSEE IS A BODY CORPORATE HAVING PERPETUAL SUCCE SSION AND A COMMON SEAL AND IT CAN SUE AND BE SUED IN ITS CORP ORATE NAME. THE SAID PROVISION ALSO MAKES IT CLEAR THAT THE BOA RD SHALL BE COMPETENT TO ACQUIRE AND HOLD PROPERTY BOTH MOVABLE AND IMMOVABLE AND TO CONTRACT AND DO ALL THINGS NECESS ARY FOR THE PURPOSES OF THE ACT. SUB-SECTION (3) OF SECTION 3 O F THE ACT PROVIDES THAT THE BOARD SHALL BE DEEMED TO BE A LOC AL AUTHORITY FOR THE PURPOSES OF LAND ACQUISITION ACT, 1894. THE CONSTITUTION OF THE BOARD SHALL BE AS PER SECTION 4 OF THE APHB ACT. AS PER THE AFORESAID PROVISION, THE BOARD SHALL BE CONSTITUTED OF MEMBERS, WHO ARE NOT ONLY GOVERNMENT OFFICIALS BUT ALSO REPR ESENTATIVE OF THE FINANCIAL INSTITUTION PROVIDING FINANCIAL ASSIS TANCE TO THE BOARD. SECTIONS 5 TO 12 DEAL WITH THE TERMS OF OFFI CE AND CONDITIONS OF SERVICE OF THE MEMBERS, FILING UP VAC ANCIES, APPOINTMENT OF COMMITTEES, MEETING OF THE BOARD ETC . SECTION 13 OF THE ACT EMPOWERS THE BOARD TO ENTER INTO AND PER FORM ALL SUCH CONTRACTS AS IT MAY CONSIDER NECESSARY OR EXPEDIENT FOR CARRYING OUT ANY OF THE PURPOSES OF THE ACT. SECTION 14 OF T HE ACT PROVIDES THAT EVERY CONTRACT SHALL BE MADE ON BEHALF OF THE BOARD BY THE VICE CHAIRMAN AND HOUSING COMMISSION. HOWEVER, AMEN DMENT WAS MADE BY ACT NO. 12 OF 2010 BY INTRODUCING NEW C LAUSES WHICH REQUIRE SANCTION OF THE GOVERNMENT IF THE CON TRACT EXCEEDS CERTAIN MONETARY LIMIT FIXED BY THE GOVERNMENT. SEC TION 21 OF THE ACT PROVIDES THAT THE BOARD SUBJECT TO THE CONTROL OF THE GOVERNMENT MAY INCUR EXPENDITURE AND UNDERTAKE WORK S FOR THE FRAMING AND EXECUTION OF SUCH HOUSING SCHEMES AS IT MAY CONSIDER NECESSARY OR AS MAY BE ENTRUSTED BY THE GO VERNMENT. SECTION 58 PROVIDES THAT THE BOARD SHALL HAVE ITS O WN FUND AND MAY ACCEPT GRANTS, SUBVENTIONS, DONATIONS, GIFTS OR LOANS FROM 49 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD THE CENTRAL OR STATE GOVERNMENT OR A LOCAL AUTHORIT Y OR ANY INDIVIDUAL OR BODY, WHETHER INCORPORATED OR NOT FOR ALL OR ANY OF THE PURPOSES OF THE ACT. IT ALSO PROVIDED THAT GOVE RNMENT SHALL EVERY YEAR MAKE A GRANT TO THE BOARD OF A SUM EQUIV ALENT TO THE ADMINISTRATIVE EXPENSES OF THE BOARD. SECTION 58(4) PROVIDES THAT ALL MONEYS RECEIVED BY THE BOARD, ALL PROCEEDS OF L AND OR ANY OTHER KIND OF PROPERTY SOLD BY THE BOARD, ALL RENTS , BETTERMENT CHARGES AND ALL INTEREST, PROFITS AND OTHER MONEYS ACCRUING TO THE BOARD SHALL CONSTITUTE THE FUND OF THE BOARD. AN AM ENDMENT WAS MADE TO SECTION 58 BY ACT NO. 12 OF 2010 BY INTRODU CING SUB- SECTION (7) WITH RETROSPECTIVE EFFECT FROM 01/04/20 02. THE NEWLY INTRODUCED SUB-SECTION (7) PROVIDES THAT THE SURPLU S NET REVENUE AFTER MEETING THE EXPENDITURE OF THE BOARD SHALL VE ST IN CONSOLIDATED FUND OF THE STATE OF ANDHRA PRADESH. S ECTION 59 OF THE ACT AS IT STOOD EARLIER PROVIDED THAT ALL PROPE RTY, THE BOARD FUND AND ALL OTHER ASSETS VESTING IN THE BOARD SHAL L BE HELD AND APPLIED BY IT, SUBJECT TO THE PROVISIONS AND FOR TH E PURPOSES OF THE ACT. HOWEVER, THE EARLIER SECTION 59 WAS SUBSTI TUTED BY A NEW SECTION 59 BY ACT NO. 12 OF 2010 WITH RETROSPECTIVE EFFECT FROM 01/04/2002. THE AMENDED SECTION 59 READS AS UNDER: 59. APPLICATION OF THE FUND: SUBJECT TO THE PROVISI ONS CONTAINED IN SUB-SECTION (7) OF SECTION 58 ALL PROP ERTY, THE BOARD FUND AND ALL OTHER ASSETS VESTING IN THE BOARD SHALL BE HELD AND APPLIED BY IT, SUBJECT TO T HE PROVISIONS AND FOR THE PURPOSES OF THIS ACT. SECTION 81 OF THE ACT EMPOWERS THE GOVERNMENT TO D ISSOLVE THE BOARD. 42. ON GOING THROUGH THE AFORESAID PROVISIONS IT BE COMES CLEAR THAT THE BOARD HAS AN INDEPENDENT IDENTITY DISTINCT FROM THE STATE GOVERNMENT. THE BOARD IS ALSO CONSTITUTED FOR THE PURPOSE OF CARRYING OUT THE WORK AS ENVISAGED UNDER THE PREAMB LE OF THE ACT. THE BOARD CERTAINLY CANNOT BE EQUATED WITH THE GOVERNMENT 50 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD OR A DEPARTMENT OF THE GOVERNMENT AS IT DOES NOT PE RFORM ANY OF THE DUTIES OF THE GOVERNMENT OR A GOVERNMENT DEPART MENT. IT IS QUITE OBVIOUS THAT THE BOARD IS A STATUTORY BODY PE RFORMING STATUTORY FUNCTIONS DISTINCT FROM THE STATE GOVERNM ENT. IT MAY BE A FACT THAT THE STATE GOVERNMENT EXERCISES SOME AMO UNT OF CONTROL OVER THE FUNCTIONING OF THE BOARD SIMILAR T O CONTROL EXERCISED OVER ALL OTHER GOVERNMENT CORPORATION AND PUBLIC SECTOR UNDERTAKINGS BUT THAT DOES NOT TAKE AWAY THE INDEPE NDENT IDENTITY OR CHARACTER OF THE BOARD. THEREFORE, IT C ANNOT BE SAID THAT THE INCOME OF THE ASSESSEE BOARD IS THE INCOME OF THE STATE GOVERNMENT. IN CASE OF VIDARBHA HOUSING BOARD V/S. ITO (SUPRA), THE HONBLE BOMBAY HIGH COURT AFTER INTERP RETING THE PROVISIONS OF THE MP HOUSING BOARD ACT, 1950, WHICH ARE AKIN TO THE PROVISIONS IN APHB ACT, VIS--VIS THE ASSESSEE S CLAIM OF IMMUNITY UNDER ARTICLE 289(1) OF THE CONSTITUTION O F INDIA HELD AS UNDER: 13. IN OUR VIEW, THOUGH IT IS TRUE THAT THE STATE HAS UNDOUBTEDLY AN OBLIGATION TO PROMOTE THE WELFARE OF ITS CITIZENS AND PROVIDING HOUSING ACCOMMODATION WOULD BE ONE OF THE WELFARE ACTIVITIES OF THE STATE, THE QUESTIO N IS WHETHER BY CONSTITUTING THE PETITIONER BOARD UNDER THE MADH YA PRADESH HOUSING BOARD ACT, 1950, A SEPARATE LEGAL E NTITY HAS BEEN ESTABLISHED UNDERTAKING THE VARIOUS ACTIVITIES ON ITS OWN OR WHETHER THE ENTITY ESTABLISHED IS EITHER A DEPAR TMENT OF THE STATE GOVERNMENT OR AN AGENT OF THE STATE GOVERNMEN T ACTING ON BEHALF OF THE STATE GOVERNMENT, FOR, IT I S OBVIOUS THAT IF THE ACTIVITY UNDERTAKEN IS BEING PERFORMED BY THE PETITIONER BOARD DIRECTLY AS THE DEPARTMENT OF THE STATE GOVERNMENT OR AS AN AGENT ACTING ON BEHALF OF THE S TATE GOVERNMENT, IT WOULD BE CLEAR THAT THE PROPERTY AND INCOME OF THE BOARD WOULD BE THE PROPERTY AND INCOME OF TH E STATE GOVERNMENT, BUT IF THAT BE NOT THE CASE AND IF THE BOARD UNDER RELEVANT PROVISIONS OF THE ACT IS A SEPARATE LEGAL ENTITY DISCHARGING FUNCTIONS ENJOYED UPON IT ON ITS OWN AN D NOT AS AN AGENT OR DEPARTMENT OF THE STATE GOVERNMENT, THE N CLEARLY THE IMMUNITY CLAIMED BY THE PETITIONER BOARD UNDER ARTICLE 289(1) OF THE CONSTITUTION WOULD NOT BE AVAILABLE T O IT. IN OUR 51 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD VIEW, WITH THE POSSIBLE EXCEPTION OF THE PROVISION CONTAINED IN SECTION 32A, NONE OF THE OTHER FEATURES POINTED OUT BY MR. THAKAR SHOWS AT ALL THAT THE BOARD IS A DEPARTMENT OF THE STATE GOVERNMENT OR IS ITS AGENT AND EVEN THE PROVI SIONS OF SECTION 32A DONES NOT INDICATE THAT. UNDER THAT SEC TION ALL MONEYS RECOVERABLE BY THE BOARD UNDER THE ACT OR UN DER ANY AGREEMENT ARE DECLARED TO BE RECOVERABLE AS ARREARS OF LAND REVENUE AND MR. THAKAR URGED THAT THIS PROVISION SH OWED THAT THE BOARD WILL HAVE TO BE REGARDED AS RECOVERIES OF THE STATE GOVERNMENT, OTHERWISE THESE WOULD NOT HAVE BEEN MAD E RECOVERABLE AS ARREARS OF LAND REVENUE. IN OUR VIEW , IT IS NOT POSSIBLE TO ACCEPT THIS SUBMISSION OF MR. THAKAR, F OR, ALL THAT SECTION 32A PROVIDES FOR IS MERELY INDICATE A MODE A RECOVERY AND SIMPLY BECAUSE A PARTICULAR MODE OF RECOVERY WH ICH IS GENERALLY AVAILABLE TO THE STATE GOVERNMENT FOR MAK ING ITS RECOVERIES HAS BEEN MADE AVAILABLE TO THE BOARD FOR MAKING ITS RECOVERIES, IT CANNOT MEAN THAT THE SAID RECOVE RIES BECOMES RECOVERIES OF THE STATE GOVERNMENT OR THAT THE RECOVERIES MADE BY ADOPTING THAT PARTICULAR MODE BE COME RECOVERIES MADE BY THE BOARD FOR AND ON BEHALF OF T HE STATE GOVERNMENT. SIMILARLY, THE PROVISION UNDER WHICH TH E BOARD HAS BEEN DEEMED TO BE A LOCAL AUTHORITY FOR THE PUR POSES OF THE LAND ACQUISITION ACT COULD NOT BE SUGGESTIVE OF AN INFERENCE WHICH WOULD FAVOUR OR SUPPORT THE PETITIO NER'S CONTENTION. IN FACT, THE PROVISION CONTAINED IN SEC TION 3(3) IS A DEEMING PROVISION WHICH IMPLIES THAT BUT FOR THE SA ID PROVISION THE BOARD WOULD BE NOT A LOCAL AUTHORITY, AND WHAT IS MORE, IT HAS BEEN DECLARED LOCAL AUTHORITY FOR T HE PURPOSES OF CERTAIN ENACTMENT, NAMELY, THE LAND ACQUISITION ACT, WHICH ONLY FACILITATES ACQUISITION OF PROPERTIES FOR THE BOARD. THE FEATURES THAT THE BOARD AS A CORPORATE BODY HAS NO POWER TO RAISE SHARE CAPITAL OR THAT ITS ACTIVITIES ARE NOT OF TRADING OR COMMERCIAL NATURE OR THAT THE ELEMENT OF PROFIT-MAK ING IS ABSENT MAY HAVE SOME RELEVANCE ON THE POINT WHETHER ITS INCOME WILL ATTRACT EXEMPTION UNDER SECTION 4(3)(I) OF THE 1922 ACT, BUT FROM THESE FEATURES NO INFERENCE COUL D BE DRAWN THAT THE BOARD IS A MERE DEPARTMENT OF THE ST ATE GOVERNMENT OR ITS AGENT. IT IS TRUE THAT UNDER THE ACT THE BOARD WHILE DISCHARGING ITS FUNCTIONS DOES SO UNDER THE GENERAL SUPERVISION AND CONTROL OF THE STATE GOVERN MENT BUT THAT BY ITSELF CANNOT LEAD TO THE NECESSARY INFEREN CE THAT THE BOARD IS A DEPARTMENT OR AGENT OF THE STATE GOVERNM ENT. AS AGAINST THIS, THERE ARE SEVERAL PROVISIONS IN THE A CT WHICH SUPPORT MR. MANOHAR'S CONTENTION FOR THE 1ST RESPON DENT. 52 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD 14. IN THE FIRST PLACE, AS WE HAVE STATED IN THE EA RLIER PART OF THE JUDGMENT, THE VERY CONSTITUTION OF THE BOARD UN DER SECTION 3 OF THE ACT CLEARLY SHOWS THAT THE BOARD ON ITS IN CORPORATION SHALL BE A BODY CORPORATE HAVING PERPETUAL SUCCESSI ON AND COMMON SEAL. THIS PROVISION CLEARLY SHOWS THAT PRIM A FACIE THE BOARD IS STATUTORY ENTITY DISTINCT FROM THE STA TE GOVERNMENT. EVEN THE CONSTITUTION OF THE BOARD WHIC H HAS BEEN PROVIDED FOR BY SECTION 4 CLEARLY SHOWS THAT S OME MEMBERS OF THE BOARD COULD BE NOMINATED BY THE SPEA KER OF THE LEGISLATIVE ASSEMBLY AND BY THE STATE GOVERNMEN T. THE PROVISION CONTAINED IN SECTION 12 OF THE ACT WOULD BE A CLEAR POINTER TO THE BOARD BEING A SEPARATE ENTITY DISTIN CT FROM THE STATE GOVERNMENT. UNDER THAT SECTION THE BOARD SHAL L HAVE ITS OWN FUND AND SUCH FUND IS TO GET AUGMENTED BY ACCEP TANCE OF GRANTS, SUBVENTIONS, DONATIONS OR GIFTS AS WELL AS LOANS FROM THE CENTRAL OR THE STATE GOVERNMENTS AND OBVIOUSLY THE BOARD WOULD BE PAYING INTEREST ON SUCH LOANS. NOW, IF THE BOARD WERE THE DEPARTMENT OF THE GOVERNMENT OR AN AGENT UNDERTAKING VARIOUS ACTIVITIES FOR AND ON BEHALF OF THE GOVERNMENT, NO PROVISION WOULD HAVE BEEN MADE ENABL ING THE BOARD TO BORROW LOANS FROM THE STATE GOVERNMENT OR TO PAY INTEREST THEREON TO THE STATE GOVERNMENT, FOR, IT IS INCONCEIVABLE THAT A PARTY WOULD BY INTEREST TO ITS ELF. THIS PROVISION, IN OUR VIEW, IS A CLEAR POINTER TO THE F ACT THAT THE BOARD IS A DISTINCT ENTITY APART FROM THE STATE GOV ERNMENT AND NOT DEPARTMENT OR AN AGENT OF THE STATE GOVERNM ENT. ON THE OTHER HAND, THIS PROVISION CLEARLY SUGGESTS THA T THE BOARD IS A SEPARATE ENTITY, POSSESSES ITS OWN PROPERTY, A SSETS OR FUNDS AND UNDERTAKES THE VARIOUS ACTIVITIES ON ITS OWN ACCOUNT. THE OTHER PROVISION WHICH, IN OUR VIEW, IS OF A CLINCHING CHARACTER IS THE ONE TO BE FOUND IN SECTI ON 40(2) OF THE ACT. THAT PROVISION INDICATES AS TO WHAT SHOULD HAPPEN TO THE PROPERTY AND ASSETS OF THE BOARD UPON ITS DISSO LUTION BEING MADE BY THE STATE GOVERNMENT. UNDER SUB-CLAUS E (A) OF SUB-SECTION (2) OF SECTION 40 IT IS PROVIDED THA T WITH EFFECT FROM THE DATE SPECIFIED IN THE NOTIFICATION UNDER S UB-SECTION (1), ALL PROPERTIES, FUNDS AND DUES WHICH ARE VESTE D IN OR REALIZABLE BY THE BOARD SHALL VEST IN AND BE REALIZ ABLE BY THE STATE GOVERNMENT. IF THE BOARD WAS ACTING AS DEPART MENT OF THE STATE GOVERNMENT OR WAS MERELY AS AGENT UNDERTA KING THE ACTIVITIES FOR AND ON BEHALF OF THE STATE GOVER NMENT, IT WAS UTTERLY UNNECESSARY TO MAKE THE PROVISION OF TH E TYPE INDICATED ABOVE. THE VERY FACT THAT PROVISION HAS B EEN MADE IN SECTION 40(2)(A) THAT UPON THE DISSOLUTION OF TH E BOARD ALL PROPERTIES FUNDS AND DUES RECOVERABLE BY THE BOARD SHALL VEST IN THE GOVERNMENT CLEARLY SHOWS THAT THE BOARD IS A DISTINCT 53 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD ENTITY AND IS NOT AN AGENT OR A DEPARTMENT OF THE S TATE GOVERNMENT. SIMILARLY, SECTION 40(2)(B) IS FURTHER INDICATION IN THE SAME DIRECTION. IT PROVIDES THAT ALL LIABILI TIES ENFORCEABLE AGAINST THE BOARD SHALL BE ENFORCEABLE AGAINST THE STATE GOVERNMENT BUT ONLY TO THE EXTENT OF THE PROPERTIES , FUNDS AND DUES VESTED IN AND REALISED BY THE STATE GOVERN MENT. IN OTHER WORDS, UPON THE DISSOLUTION OF THE BOARD IF T HE BOARD IS FOUND TO HAVE CREATED LIABILITY IN EXCESS OF ITS AS SETS OR PROPERTIES AND FUNDS WHICH SHALL VEST IN THE STATE GOVERNMENT, THEN THE STATE GOVERNMENT IS NOT RESPON SIBLE FOR SUCH EXCESS LIABILITIES INCURRED BY THE BOARD. IF THE BOARD WERE MERELY ACTING AS A DEPARTMENT OF THE STATE GOV ERNMENT OR AS AN AGENT OF THE STATE GOVERNMENT, THEN THE ST ATE GOVERNMENT WOULD HAVE BEEN LIABLE FOR ALL THE LIABI LITIES CREATED BY THE BOARD. THESE PROVISIONS, IN OUR VIEW , RUN COUNTER TO THE CONTENTION URGED BY MR. THAKAR BEFOR E US THAT THE PETITIONER-BOARD, WHEN IT UNDER TOOK THE ACTIVI TIES ENJOINED UPON IT BY THE ACT, DID SO EITHER AS A DEP ARTMENT OF THE STATE GOVERNMENT OR AS AN AGENT OF THE STATE GOVERNMENT ACTING ON BEHALF OF THE STATE GOVERNMENT . ON THE OTHER HAND, THESE PROVISIONS CLEARLY SHOW THAT THE PETITIONER-BOARD IS A SEPARATE STATUTORY BODY DISTI NCT FROM THE STATE GOVERNMENT AND IT HAS BEEN UNDERTAKING THE AC TIVITIES ENJOINED ON IT NOT AS AN AGENT OF THE STATE GOVERNM ENT BUT ON ITS OWN. IF THAT THE POSITION WHICH REALLY EMERG ES FROM EXAMINATION OF THE SEVERAL PROVISIONS OF THE ACT, I T SEEMS TO US VERY CLEAR THAT THE INCOME AND PROPERTY OF THE B OARD COULD NOT BE REGARDED AS INCOME AND PROPERTY OF THE STATE GOVERNMENT, WITH THE RESULT THAT THE IMMUNITY CLAIM ED BY THE PETITIONER-BOARD UNDER ARTICLE 289(1) OF THE CONSTI TUTION IS CLEARLY NOT AVAILABLE TO THE PETITIONER-BOARD. IN O UR VIEW, THEREFORE, ON AN EXAMINATION OF THE PROVISIONS OF T HE ACT, THE CONTENTION RAISED BY MR. THAKAR MUST FAIL. 43. THE HONBLE BOMBAY HIGH COURT WHILE COMING TO S UCH CONCLUSION ALSO FOLLOWED THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CASE OF APSRTC V/S. ITO (SUPRA) A ND HELD AS UNDER: 15. IN THIS CONTEXT IT WOULD NOT BE OUT OF PLACE TO REFER TO THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF ANDHRA PRADESH STATE ROAD TRANSPORT CORPORATION V. INCOME-TAX OFFICER. I N THAT CASE A SIMILAR QUESTION BASED ON THE PROVISIONS OF THE ART ICLE 289(1) OF THE CONSTITUTION WAS RAISED AND IMMUNITY FROM UNION TAX ATION 54 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD THEREUNDER WAS CLAIMED BY THE ANDHRA PRADESH STATE ROAD TRANSPORT CORPORATION, AND ON AN EXAMINATION OF THE RELEVANT PROVISIONS OF THE ROAD TRANSPORT CORPORATION ACT, 1 950, UNDER WHICH THE ANDHRA PRADESH STATE ROAD TRANSPORT CORPO RATION WAS CONSTITUTED THE COURT CAME TO THE CONCLUSION THAT T HE TRADING OR BUSINESS ACTIVITY THAT WAS BEING CARRIED ON BY THE ANDHRA PRADESH STATE ROAD TRANSPORT CORPORATION WAS NOT CARRIED ON BY THAT CORPORATION EITHER AS DEPARTMENT OF THE STATE GOVER NMENT OR AS AN AGENT ON BEHALF OF THE STATE GOVERNMENT, BUT THE CO RPORATION INDULGED IN CONCERNED TRADE OR BUSINESS ACTIVITY ON ITS OWN AND IT WAS HELD THAT THE IMMUNITY CLAIMED BY THAT CORPORAT ION UNDER ARTICLE 289(1) OF THE CONSTITUTION WAS NOT AVAILABL E TO IT. IN THAT CASE THERE WERE PROVISIONS OF THAT ACT WHICH SHOWED THAT THE BULK OF THE CAPITAL NECESSARY FOR THE ESTABLISHMENT OF THE CORPORATION HAD BEEN CONTRIBUTED BY THE STATE GOVERNMENT, A SMALL P ORTION BY THE CENTRAL GOVERNMENT AND A FEW SHARES WERE HELD BY SO ME INDIVIDUALS; THE PROVISIONS OF THE ACT ALSO INDICAT ED THAT THE ACTIVITY OF THE CORPORATION WAS CONTROLLED BY THE STATE AND IN PARTICULAR THERE WAS A PROVISION TO BE FOUND IN SECTION 30 OF THE ACT FOR MAKING OVER SURPLUS RECEIPTS TO THE STATE GOVERNMEN T AFTER DISBURSEMENTS INDICATED IN SECTIONS 28 AND 29 HAD B EEN MADE AND, NOTWITHSTANDING THESE FEATURES, WHICH EMERGED FROM THE PROVISIONS OF THE ROAD TRANSPORT CORPORATIONS ACT, 1950, THE S UPREME COURT TOOK THE VIEW THAT THE OTHER FEATURES EMERGING FROM THE EXAMINATION OF THE OTHER PROVISIONS OF THE ACT SHOW ED THAT THE ANDHRA PRADESH STATE ROAD TRANSPORT CORPORATION WAS A DISTINCT STATUTORY CORPORATION AND THE PROPERTY AND INCOME T HEREOF WERE NOT THE PROPERTY AND THE INCOME OF THE STATE GOVERNMENT AND AS SUCH THE IMMUNITY FROM UNION TAXATION UNDER ARTICLE 289( 1) OF THE CONSTITUTION COULD NOT BE CLAIMED BY THAT CORPORATI ON. IT IS TRUE THAT SOME DISTINGUISHING FEATURES WOULD BE NOTICED IF TH E PROVISIONS OF THE MADHYA PRADESH HOUSING BOARD ACT, 1950, ARE EXC LAIMED IN THE CONTEXT OF THE PROVISIONS WHICH OBTAINED IN THE ROA D TRANSPORT CORPORATIONS ACT, 1950, BUT, IN OUR VIEW, THE DISTI NGUISHING FEATURES WHICH WERE POINTED OUT BY MR. THAKAR COULD NOT BE R EGARDED AS HAVING ANY BEARING ON THE QUESTION WHICH IS REQUIRE D TO BE CONSIDERED IN THIS CASE BY US; FOR EXAMPLE, IT WAS POINTED OUT BY MR. THAKAR THAT WHEREAS UNDER THE ROAD TRANSPORT CO RPORATIONS ACT, 1950, THERE WAS PROVISION FOR RAISING A SHARE CAPITAL WHICH COULD BE SUBSCRIBED BY PRIVATE INDIVIDUALS, THERE W AS NOT SUCH PROVISION FOR RAISING ANY SHARE CAPITAL FOR THE PET ITIONER-HOUSING BOARD, UNDER THE MADHYA PRADESH HOUSING BOARD ACT, 1950; IT WAS ALSO POINTED OUT THAT THERE WAS A GLARING DIFFERENC E BETWEEN THE NATURE OF ACTIVITY UNDERTAKEN BY THE ANDHRA PRADESH STATE ROAD TRANSPORT CORPORATION AND THE NATURE OF ACTIVITY UN DERTAKEN BY THE PETITIONER-BOARD, AS, FOR INSTANCE, THE ACTIVITY UN DERTAKEN BY THE 55 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD FORMER ENTITY WAS IN THE NATURE OF TRADING ACTIVITY , WHILE THE ACTIVITY UNDERTAKEN BY THE PETITIONER-BOARD COULD NOT BE REG ARDED AS ANY TRADING ACTIVITY IN ANY SENSE OF THE TERM; FURTHER, IT WAS POINTED OUT THAT SINCE PROFIT MOTIVE WAS ABSENT IN THE INSTANT CASE BEFORE US, THERE WAS NO QUESTION OF MAKING ANY PROVISION FOR M AKING OVER SURPLUS RECEIPTS TO THE STATE GOVERNMENT WHICH WAS FEATURE WHICH APPEARED CLEAR UNDER SECTION 30 OF THE ROAD TRANSPO RT CORPORATIONS ACT, 1950. IN THE FIRST PLACE, IN SPITE OF THE AFOR ESAID PECULIAR FEATURES WHICH OBTAINED UNDER THE ROAD TRANSPORT CO RPORATIONS ACT, 1950, THE SUPREME COURT TOOK THE VIEW THAT THE A. P . STATE ROAD TRANSPORT CORPORATION WAS DISTINCT ENTITY. SECONDLY , AS STATED EARLIER, THE DISTINGUISHING FEATURES MENTIONED BY M R. THAKAR MAY BE RELEVANT ON THE POINT OF ATTRACTING THE EXEMPTION U NDER SECTION 4(3)(I) AND NOT ON THE ISSUE WHICH HAS BEEN RAISED. THE PRINCIPAL QUESTION INVOLVED BOTH IN THAT DECISION AS WELL AS IN THE CASE BEFORE US HAS BEEN WHETHER THE INCOME AND THE PROPERTY OF THE BOARD COULD BE REGARDED AS THE INCOME AND PROPERTY OF THE STATE GOVERNMENT AND ON THAT QUESTION THE PROVISIONS OF T HE MADHYA PRADESH HOUSING BOARD ACT, 1950, ESPECIALLY PROVISI ONS OF SECTIONS 3, 4, 12 AND 14, CLINCHINGLY INDICATE THAT THE PETI TIONER-BOARD CANNOT BE REGARDED AS DEPARTMENT OR AN AGENT OF THE STATE GOVERNMENT AND WILL HAVE TO BE REGARDED AS SEPARATE LEGAL ENTITY DISTINCT FROM THE STATE GOVERNMENT, AND, THEREFORE, THE INCOME AND PROPERTY OF THE BOARD COULD NOT BE REGARDED AS THE INCOME AND THE PROPERTY OF THE STATE GOVERNMENT. IN OTHER WORDS, T HE RELEVANT PROVISIONS CONCERNING A PARTICULAR ENTITY ESTABLISH ED UNDER A PARTICULAR ENACTMENT WOULD HAVE TO BE CONSIDERED FO R DECIDING THE QUESTION AND, IN OUR VIEW, AS STATED EARLIER, THE P ROVISIONS OF THE MADHYA PRADESH HOUSING BOARD ACT, 1950, CLEARLY IND ICATE THAT THE BOARD, ITS PROPERTY AND INCOME CANNOT BE REGARDED A S PROPERTY AND INCOME OF THE STATE GOVERNMENT. IN THIS VIEW OF THE MATTER, WE FEEL THAT THE PRINCIPLE ENUNCIATED IN THE SUPREME COURT' S DECISION IN THE CASE OF ANDHRA PRADESH STATE ROAD TRANSPORT CORPORA TION, WOULD BE APPLICABLE TO THE INSTANT CASE BEFORE US AND ON AN ANALYSIS OF THE PROVISIONS OF THE CONCERNED ACT BEFORE US, WE HAVE COME TO THE CONCLUSION THAT THE PROPERTY AND INCOME OF THE BOAR D IS NOT THE PROPERTY AND INCOME OF THE STATE GOVERNMENT. MR. TH AKAR'S CONTENTION, THEREFORE, MUST FAIL. 44. FACTS BEING IDENTICAL, THE RATIO LAID DOWN AS A BOVE CLEARLY APPLIES TO THE ASSESSEE. THE ASSESSEES CONTENTION THAT THE INCOME OF THE BOARD CANNOT BE SUBJECTED TO TAX UNDE R THE INCOME-TAX ACT, IN VIEW OF THE PROVISIONS CONTAINED UNDER ARTICLE 289(1) OF CONSTITUTION OF INDIA IS NOT ACCEPTABLE. FOR THE SAME 56 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD REASON, THE ASSESSEES CONTENTION THAT IT ACTED AS AN AGENT OF THE STATE GOVERNMENT IS ALSO TENABLE. NO MATERIAL HAS B EEN PLACED ON RECORD THAT A RELATIONSHIP OF AGENCY EXISTS BETWEEN THE STATE GOVERNMENT AND THE APHB. ON THE CONTRARY, THE PROVI SIONS OF THE APHB ACT AS WELL AS THE OTHER MATERIALS ON RECORD C LEARLY ESTABLISHES THE FACT THAT THE ASSESSEE APHB UNDERTA KES THE HOUSING ACTIVITY AS A COMMERCIAL VENTURE NOT AS AN AGENT OF THE STATE BUT INDEPENDENTLY. THEREFORE, THE INCOME DERI VED FROM SALE OF HOUSING PROJECT WOULD CERTAINLY BE THE INCOME OF THE ASSESSEE BOARD AND NOT OF THE STATE GOVERNMENT. FURTHERMORE, IN CASE OF A PRINCIPAL AND AGENT RELATIONSHIP, THE AGENT IS ENTI TLED FOR CERTAIN COMMISSION FOR THE SERVICES RENDERED BY IT. IN THE PRESENT CASE, THERE IS NO SUCH CONSIDERATION FOR WHICH THE APHB A CTS AS AN AGENT OF THE STATE GOVERNMENT FOR CARRYING OUT THE HOUSING SCHEMES OF THE STATE GOVERNMENT. ONLY BECAUSE SUB-S ECTION (7) TO SECTION 58 WAS BROUGHT INTO THE APHB ACT BY WAY OF AN AMENDMENT IN 2010 GIVING RETROSPECTIVE EFFECT FROM 2002, WHICH PROVIDED FOR VESTING OF THE SURPLUS FUND IN CONSOLI DATED FUND OF THE STATE GOVERNMENT IT CANNOT BE SAID THAT THE INC OME EARNED BY THE ASSESSEE IS ACTUALLY THE INCOME OF THE STATE GO VERNMENT. IN FACT A SIMILAR PROVISION U/S 30 OF THE APSRTC ACT, PROVIDED FOR VESTING OF THE SURPLUS FUND WITH THE STATE GOVT. IN SPITE OF SUCH PROVISION, THE HONBLE SUPREME COURT HELD THAT APSR TC IS A DISTINCT STATUTORY CORPORATION AND THE PROPERTY AND INCOME OF APSRTC IS NOT THE INCOME OF THE STATE. 45. THE CHARGEABILITY OF THE INCOME TO TAX IS AS PE R THE CHARGING SECTION CONTAINED U/S 4 OF THE IT ACT, 1961. THE RE TROSPECTIVE AMENDMENT MADE TO THE APHB ACT BY ACT 12 OF 2010 CA NNOT DILUTE THE EFFECT OF THE PROVISIONS CONTAINED UNDER THE INCOME-TAX ACT, WHICH IS AN ACT OF THE PARLIAMENT HENCE HAS OV ERRIDING EFFECT 57 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD OVER AN ACT OF THE STATE LEGISLATURE. IT IS A FACT ON RECORD THAT THE PLEA TAKEN BY THE ASSESSEE THAT BOARDS INCOME IS T HE INCOME OF THE STATE GOVERNMENT WAS NOT THERE UNTIL INTRODUCTI ON OF SUB- SECTION (7) TO SECTION 58 OF THE APHB ACT IN 2010. THAT IS THE REASON THE ASSESSEE HAD NEVER TAKEN THIS STAND ALL THESE YEARS. IN FACT THE ASSESSEE HAD ALL ALONG FILED RETURNS DE CLARING INCOME AND CLAIMING DEDUCTION U/S 80-IB OF THE ACT. DEDUCT ION U/S 80-IB CAN ONLY BE CLAIMED BY AN ASSESSEE WHO IS AN INDUST RIAL UNDERTAKING HAVING INCOME FROM PROFITS AND GAINS FR OM BUSINESS SPECIFIED THEREIN. THEREFORE, ASSESSEES OWN CONDUC T GOES TO SHOW THAT THE INCOME FROM HOUSING PROJECTS WERE TREATED AS BUSINESS BY THE ASSESSEE. THE ASSESSEE HAS NOT REVISED THIS STAND BY FILING ANY REVISED RETURN. ONLY AFTER THE AMENDMENT WAS MA DE TO THE APHB ACT IN THE YEAR 2010, THE ASSESSEE CAME FORWAR D WITH A CLAIM THAT ITS INCOME IS THE INCOME OF THE STATE GO VERNMENT THEREFORE IMMUNE FROM INCOME-TAX ACT IN VIEW OF THE ARTICLE 289(1) OF THE CONSTITUTION OF INDIA. AS HAS BEEN H ELD BY THE HONBLE SUPREME COURT IN CASE OF APSRTC V/S. ITO (SUPRA) WHICH WAS SUBSEQUENTLY APPROVED BY THE CONSTITUTION BENCH DECISION OF THE HONBLE SUPREME COURT IN CASE OF NE W DELHI MUNICIPAL COUNCIL V/S. STATE OF PUNJAB [1997] 7 SC C 339 AND FOLLOWED BY THE HONBLE BOMBAY HIGH COURT IN CASE O F VIDARBHA HOUSING BOARD V/S. ITO (SUPRA), IMMUNITY UNDER ART ICLE 289 OF THE CONSTITUTION IS SUBJECT TO FULFILLMENT OF THE C ONDITIONS LAID DOWN IN SUB-CLAUSES (1), (2) & (3) OF ARTICLE 289 W HICH ARE INTERRELATED. AS PER ARTICLE 289, ONLY INCOME OR PR OPERTY OF THE STATE CANNOT BE TAXED UNDER ANY OTHER LAW. 46. AS CAN BE SEEN FROM THE FACTS ON RECORD THE ASS ESSEE IS HAVING ITS DISTINCT AND SEPARATE IDENTITY FROM THE STATE GOVERNMENT, HENCE, IT CANNOT CLAIM IMMUNITY UNDER A RTICLE 289 OF 58 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD THE CONSTITUTION OF INDIA. THAT BESIDES BOTH THE AO AS WELL AS THE CIT(A) HAVE OBSERVED THAT THE ASSESSEE BOARD IS PAY ING TAXES AND DUTIES TO THE STATE GOVERNMENT WHEREVER IT IS DUE. THIS FINDING HAS NOT BEEN CONTROVERTED BY THE ASSESSEE. THAT BEI NG, THE CASE THE ASSESSEE IS ALSO REQUIRED TO DISCHARGE ITS LIAB ILITY UNDER THE INCOME TAX ACT. EVEN SECTION 58(7) CANNOT BE CONSTR UED IN A MANNER TO MEAN THAT THE INCOME OF THE BOARD IS THE INCOME OF THE STATE. ON THE CONTRARY, WHAT SUB-SECTION (7) OF SEC TION 58 SAYS THAT AFTER MEETING ALL EXPENDITURES, THE SURPLUS RE VENUE SHALL VEST WITH THE CONSOLIDATED FUND OF THE STATE GOVERNMENT, BUT, THAT DOES NOT MAKE THE INCOME OF THE BOARD THE INCOME OF THE STATE GOVERNMENT. THE LEARNED AR HAS RELIED UPON A NUMBER OF DECISIONS OF THE APEX COURT IN HIS SUBMISSIONS. HOW EVER, IN NONE OF THE DECISIONS, THE RATIO LAID DOWN IS IN THE CON TEXT OF CHARGEABILITY OF INCOME UNDER THE INCOME-TAX ACT VI S--VIS ARTICLE 289(1) OF THE CONSTITUTION OF INDIA. THEREFORE, THO UGH THERE IS NO DISPUTE WITH REGARD TO THE RATIO LAID DOWN IN THOSE DECISIONS, HOWEVER, THEY ARE NOT APPLICABLE TO THE FACTS OF TH E CASE OF THE ASSESSEE. IT WILL BE PERTINENT TO MENTION HERE THAT THE LEARNED AR PLACED STRONG RELIANCE UPON THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF HOUSING BOARD OF HARYANA VS. HARYA NA HOUSING BOARD EMPLOYEES UNION AND OTHERS [1996] 1 SCC 95. I N THIS CONTEXT, THE LEARNED AR DRAWING A PARALLEL BETWEEN THE PROVISIONS OF HARYANA HOUSING BOARD ACT, 1971 AND APHB ACT, 19 56 SUBMITTED THAT THE HONBLE SUPREME COURT ON CONSIDE RING THE PROVISIONS OF HARYANA HOUSING BOARD ACT HAS HELD TH AT THE CONTROL OF THE GOVERNMENT IS SO PERVASIVE THAT THE BOARD DO ES NOT HAVE EVEN A SEMBLANCE OF INDEPENDENCE. IT WAS SUBMITTED THAT IN ASSESSEES CASE ALSO DUE TO THE CONTROL OF THE STAT E GOVERNMENT THE ASSESSEE DOES NOT HAVE ANY INDEPENDENT EXISTENC E. THE AFORESAID DECISION OF THE HONBLE APEX COURT IS NOT APPLICABLE TO 59 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD THE ASSESSEE FIRSTLY BECAUSE THE OBSERVATION MADE B Y THE HONBLE SUPREME COURT WAS IN THE CONTEXT OF WHETHER HARYANA HOUSING BOARD IS A LOCAL AUTHORITY AND SECONDLY THE HONBLE SUPREME COURT WAS NOT CONSIDERING THE ISSUE WHETHER INCOME OF THE BOARD IS THE INCOME OF THE STATE GOVERNMENT. ON THE OTHER HAND, THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF AP SRTC VS. ITO (SUPRA) AND OF THE HONBLE BOMBAY HIGH COURT IN CAS E OF VIDARBHA HOUSING BOARD VS. ITO (SUPRA) ARE DIRECTLY ON THE I SSUE. IN AFORESAID VIEW OF THE MATTER, WE HOLD THAT ASSESSEE S INCOME CANNOT BE HELD TO BE THE INCOME OF THE STATE AND AS SUCH CANNOT BE EXEMPT FROM TAXATION UNDER ARTICLE 289 OF THE CO NSTITUTION OF INDIA. AS A COROLLARY THE INCOME EARNED IS THE INCO ME OF THE ASSESSEE BOARD AND AS SUCH IS ASSESSABLE AT ITS HAN DS ONLY. 47. DIVERSION OF INCOME BY OVERRIDING TITLE THE ASSESSEE IN HIS WRITTEN SUBMISSIONS HAS ALSO TA KEN THE PLEA THAT THERE BEING DIVERSION OF INCOME BY OVERRI DING TITLE THE INCOME CANNOT BE TAXED AT THE HANDS OF THE ASSESSEE . IN THIS REGARD, THE ASSESSEE HAS SUBMITTED AS UNDER: IN THE WRITTEN SUBMISSION OF THE ORIGINAL GROUNDS, AS ALSO IN THE WRITTEN SUBMISSIONS IN THE ADDITIONAL GROUNDS, THE APPELLANT HAD ARGUED THAT THE INCOME OF APHB IS DIV ERTED TO THE GOVERNMENT OF ANDHRA PRADESH BY OVERRIDING TITL E AND IS NEVER A PART OF ITS TAXABLE INCOME. THE CIT(A) HAS REFERRED TO SECTION 58(7) OF THE ANDHRA PRADESH HOUSING BOAR D ACT, WHICH MANDATES THAT SURPLUS NET REVENUE AFTER MEETI NG THE EXPENDITURE OF APHB SHALL VEST IN THE CONSOLIDATED FUND OF THE ANDHRA PRADESH, AND THAT SUCH SURPLUS NET REVEN UE SHALL BE TRANSFERRED TO THE STATE GOVERNMENT ON QUARTERLY BASIS, AS THE STATE GOVERNMENT FROM TIME TO TIME MAY INSTR UCT OR ADVISE APHB. THE CIT(A) HAS HELD THAT STATE ACT CAN NOT OVERRIDE THE CENTRAL ENACTMENT IN INCOME TAX ACT. THEREFORE, THE ABOVE PROVISIONS SHOULD BE INTERPRET ED THAT THE SURPLUS REVENUE AFTER MEETING ALL EXPENDITURE I NCLUDING INCOME TAX CAN ALONE BE TRANSFERRED TO THE GOVERNME NT OF ANDHRA PRADESH. WHILE DEALING WITH THIS ISSUE, THE CIT(A) 60 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD HAS COMPLETELY OVERLOOKED THE FOLLOWING RULINGS CIT ED BY THE APPELLANT IN THE REJOINDER AND WRITTEN SUBMISSION O N THE ORIGINAL GROUNDS. IN CIT VS. SITALDAS'IIRATHDAS (1961) 41 I TR 367 (SC) AND MOTILAL CHHADAMILAL JAIN V. CFT [1991J 190 ITR 1 (SC) , THE SUPREME COURT HAS HELD THAT WHERE THE OBLIGATION IS NOT SELF-IMPOSED OR GRATUITOUS, A ND IT FLOWS OUT OF AN ANTECEDENT AND INDEPENDENT TITLE, IT WILL CONSTITUTE DIVERSION OF INCOME BY OVERRIDING TITLE. IN CFT VS. NIZAM SUGAR FACTORY LTD. (2002) 253 FTR 68 (AP), UNDER MOLASSES CONTROL ORDER, 1972, ONE THIRD OF THE SALE PRICE OF MOLASSES WAS REQUIRED TO BE SET APART FROM CONSTRUC TION OF STORAGE TANKS. THE AMOUNT WAS CLAIMED BY THE ASSESS EE AS NOT TAXABLE HAVING BEEN DIVERTED BY OVERRIDING TITL E UNDER THE AUTHORITY OF THE LAW. THE HIGH COURT FOUND THAT THE ASSESSEE HAD NO CONTROL OVER THE FUND, AND THE SAME WAS DIVERTED FROM THE SOURCE AND DID NOT REACH IT. THER EFORE, IT WAS NOT TAXABLE. SIMILAR VIEW WAS TAKEN IN THE FOLL OWING CASES: SOMAIYAORGENO-CHEMICALS LTD. VS. CIT (1995) 216 ITR 291 CIT VS. NEW HORIZON SUGAR MILLS (P) LTD. (2003) 128 TAXMAN 300 (MAD) : (2000) 244 ITR 738 (MAD) COMMISSIONER OF' INCOME-TAX VS. PANDAVAPURASAHAKARASAKKAREKHARKANE LTD, (1992) 198 ITR 690 (KAR.) IN CIT VS. NEW HORIZON SUGAR MILLS P. LTD., (2004) 269 ITR 397 (SC) AND CIT VS. AMBUR CO-OP. SUGAR MILLS LTD., (2004) 269 ITR 398 (SC), THE SUPREME COURT HAS DISMISSED CIVIL APPEALS BY THE REVENUE ON THIS ISSUE. IT SHOULD BE NOTED THAT IN ALL THESE CASES, THERE WAS NO PLEA THE AMOUNT WAS TAXABLE ON THE GROUND THAT INCOME TA X ACT WILL PREVAIL OVER THE MOLASSES CONTROL ORDER. INCOM E TAX LAW APPLIES TO INCOME RECOGNISED BY THE ABOVE PRINCIPLE CONSIDERED BY THE COURT. THE CIT(A) SHOULD NOT HAVE IGNORED THE IMPORTANCE OF THESE RULINGS ON THE PLEA TAKEN B Y THE APPELLANT ON THE ISSUE OF DIVERSION OF INCOME BY OV ERRIDING TITLE. 48. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUB MITTED THAT THERE IS NO DIVERSION OF INCOME BY OVERRIDING TITLE AS THE INCOME HAS ALREADY ACCRUED TO THE ASSESSEE BOARD AND AFTER MEETING ITS EXPENDITURE WHATEVER SURPLUS REVENUE REMAINS IS TRA NSFERRED TO 61 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD CONSOLIDATED FUND OF THE STATE GOVERNMENT OF AP. T HEREFORE, IT IS ONLY AN APPLICATION OF INCOME AFTER ITS ACCRUAL TO THE ASSESSEE. 49. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES ON THIS ISSUE. FROM THE FACTS ON RECORD, IT IS QUITE O BVIOUS THAT THE INCOME ACCRUES TO THE ASSESSEE. SECTION 58(4) OF AP HB ACT IS VERY CLEAR ON THIS ASPECT, WHICH READS AS UNDER: ALL MONEYS RECEIVED BY OR ON BEHALF OF THE BOARD BY VIRTUE OF THIS ACT, ALL PROCEEDS OF LAND OR ANY OTHER KIND OF PROPERTY SOLD BY THE BOARD, ALL RENTS, BETTERMENT CHARGES AN D ALL INTEREST, PROFITS AND OTHER MONEYS ACCRUING TO THE BOARD SHALL CONSTITUTE THE FUND OF THE BOARD. 50. IT MAY BE A FACT THAT BY THE OPERATION OF SECTI ON 58(7) OR BY WAY OF GOVERNMENT DIRECTIVE THE SURPLUS INCOME OR S OME FUND HAS BEEN DIVERTED TO THE CONSOLIDATED FUND OF THE STATE GOVERNMENT OR ANY OTHER GOVERNMENT CORPORATION, BUT, THAT BY N O MEANS WOULD AMOUNT TO DIVERSION OF INCOME BY OVERRIDING T ITLE. SECTION 58(7) OF THE APHB ACT, WHICH WAS BROUGHT TO THE APH B ACT IN 2010 WITH RETROSPECTIVE EFFECT FROM 01/04/2002 READ S AS UNDER: (7) NOW WITHSTANDING ANYTHING CONTAINED IN SUBSECTI ONS (1), (4) AND (5) OF THIS SECTION, THE SURPLUS NET R EVENUE AFTER MEETING THE EXPENDITURE OF THE BOARD SHALL VE ST IN CONSOLIDATED FUND OF THE STATE OF ANDHRA PRADESH. S UCH SURPLUS REVENUE SHALL BE TRANSFERRED TO THE STATE GOVERNMENT OF ANDHRA PRADESH INTO SUCH ACCOUNT ON QUARTERLY BASIS, AS THE STATE GOVERNMENT FROM TIME TO TIME INSTRUCT OR ADVICE THE BOARD IN THIS BEHALF. AS AME NDED BY ACT NO. 12 OF 2010 AND PROVISIONS SHALL BE DEEMED T O HAVE COME INTO FORCE WITH EFFECT FROM 1 ST APRIL, 2002. 51. A READING OF THE AFORESAID PROVISION WOULD MAKE IT CLEAR THAT ONLY AFTER ACCRUAL OF INCOME TO THE ASSESSEE AND AF TER MEETING ALL ITS EXPENDITURE THE SURPLUS NET REVENUE SHALL VEST IN CONSOLIDATED FUND OF THE GOVERNMENT. IT FURTHER PROVIDES THAT SU CH SURPLUS 62 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD REVENUE SHALL BE TRANSFERRED TO THE STATE GOVERNMEN T OF AP ON QUARTERLY BASIS AS PER THE INSTRUCTION OR ADVICE OF THE GOVERNMENT. THEREFORE, SO FAR AS THE ACCRUAL OF INC OME IS CONCERNED, THERE IS NO DISPUTE TO THE FACT THAT THE INCOME HAS ALREADY ACCRUED TO THE ASSESSEE. ONLY AFTER THE ACC RUAL OF INCOME TO THE ASSESSEE THE SURPLUS HAS BEEN DIVERTED TO TH E GOVERNMENT ACCOUNT. THE HONBLE SUPREME COURT IN CASE OF CIT V /S. SRI SITALDAS TIRATHDAS, 41 ITR 367 (SC) HELD AS FOLLOW S: THERE IS A DIFFERENCE BETWEEN AN AMOUNT WHICH A PER SON IS OBLIGED TO APPLY OUT OF HIS INCOME AND AN AMOUNT WHICH BY T HE NATURE OF THE OBLIGATION CANNOT BE SAID TO BE A PART OF THE I NCOME OF THE ASSESSEE. WHERE BY THE OBLIGATION INCOME IS DIVERTE D BEFORE IT REACHES THE ASSESSEE, IT IS DEDUCTIBLE; BUT WHERE T HE INCOME IS REQUIRED TO BE APPLIED TO DISCHARGE AN OBLIGATION A FTER SUCH INCOME REACHES THE ASSESSEE, THE SAME CONSEQUENCE, IN LAW, DOES NOT FOLLOW. IT IS THE FIRST KIND OF PAYMENT WHICH CAN T RULY BE EXCUSED AND NOT THE SECOND. THE SECOND PAYMENT IS MERELY AN OBLIGATION TO PAY ANOTHER A PORTION OF ONE'S OWN INCOME, WHICH HA S BEEN RECEIVED AND IS SINCE APPLIED. THE FIRST IS A CASE IN WHICH THE INCOME NEVER REACHES THE ASSESSEE, WHO EVEN IF HE WERE TO COLLECT IT, DOES SO, NOT AS PART OF HIS INCOME, BUT FOR AND ON BEHAL F OF THE PERSON TO WHOM IT IS PAYABLE. 52. THE SAME PRINCIPLE HAS ALSO BEEN REITERATED IN OTHER DECISIONS RELIED UPON BY THE ASSESSEE. THEREFORE, C ONSIDERING THE PRINCIPLES LAID DOWN IN THE AFORESAID DECISION THE ASSESSEE HAVING DIVERTED A PART OF THE INCOME AFTER IT HAS ACCRUED TO IT THE DIVERSION OF SUCH INCOME CAN ONLY BE CONSIDERED TO BE AN APPLICATION OF INCOME AND NOT DIVERSION OF INCOME B Y OVERRIDING TITLE. THEREFORE, WE ARE UNABLE TO ACCEPT THE CONTE NTION OF THE ASSESSEE, WHICH IS ACCORDINGLY REJECTED. IN THE RES ULT, THIS ISSUE IS DECIDED AGAINST THE ASSESSEE. 53. THE NEXT ISSUE IS WITH REGARD TO DISALLOWANCE OF INFRASTRUCTURE EXPENDITURE AMOUNTING TO RS. 1180 CR ORES. THIS ISSUE IS COMMON TO ASSESSMENT YEARS 2006-07 AND 200 8-09. 63 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD 54. THE ASSESSEE IN ITS WRITTEN SUBMISSIONS HAS SUBMITTED AS UNDER: THE CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE E XPENDITURE IN QUESTION WAS NOT AN ALLOWABLE BUSINESS EXPENDITU RE. UNDER GOVT. ORDER, APHB HAD REMITTED RS.1180 CRORES TO A.P. STATE HOUSING CORPORATION WHO WAS TO PROVIDE INFRAS TRUCTURE FACILITIES ON THE LAND ASSIGNED TO THE APPELLANT. [ THE APPELLANT HAD SIMILARLY TRANSFERRED RS.285 CRORERS IN A.Y. 2006-07.] THE LAND ASSIGNED BY A.P. GOVT. WAS HELD BY APHB, ON WHICH A.P. STATE HOUSING CORPORATION WAS T O PROVIDE HOUSING AND INFRASTRUCTURE FACILITIES TO TH E RESIDENTS OF THE STATE, MAINLY BELONGING TO LOWER AND MIDDLE INCOME GROUPS. SINCE INCEPTION OF APHB, GOVT. OF A.P. HAS BEEN ALLOTTING/ASSIGNING LAND WITHOUT OR AT NOMINAL COST WHICH WAS USED FOR CONSTRUCTING AND PROVIDING HOUSING ACCOMMO DATION TO THE PUBLIC. THIS WAS THE FIRST TIME THAT THE GOV T. HAD DEMANDED PAYMENT OF WHICH WAS COMPLIED WITH. THE APPELLANT IS A WHOLLY OWNED GOVERNMENT ORGANIZATION AND IT IS TO OBEY THE DICTATES OF ITS MASTER. THE PURPOSE OF THE EXPENDITURE IS WITHIN THE MANDATE OF THE APPELLANT. UNLESS IT CARRIES OUT THE ORDERS OF ITS SOLE OWNER, THE STATE GOVERNMENT, ITS BUSINESS WILL BE IN JEOPARDY. THE A PPELLANT IS NOT A COMMERCIAL ORGANIZATION BUT DEVELOPMENTAL ORGANIZATION. ITS STRUCTURE AND FUNCTION ARE LIKE T HAT OF THE GOVERNMENT THOUGH GIVEN A SEPARATE SHAPE. GENERATIO N OF SOME SURPLUS IN COURSE OF ITS OPERATION DOES NOT NE CESSARILY MAKE THIS WHOLLY OWNED GOVERNMENT BODY AN ORGANIZAT ION WITH PROFIT MOTIVE. THIS ASPECT HAS ALSO BEEN EXPLA INED IN DETAIL IN THE REJOINDER ON THE REMAND REPORT OF A.O . WITH SUPPORTIVE CASE LAWS. FUNDING OF THE INFRASTRUCTURE CREATED BY THE A.P. STATE HOUSING CORPORATION AT THE BEHEST OF STATE GOVERNMENT IS INCIDENTAL TO THE MAIN ACTIVITY OF TH E APPELLANT. IT DID DIRECTLY BENEFIT FROM THIS EXPEND ITURE AS SUCH INFRASTRUCTURE WAS MEANT FOR THE HOUSES SOLD B Y IT. ITS EXISTENCE AND PURPOSE ARE SERVED AS LONG AS IT PLAY S DIRECT OR INDIRECT ROLE IN DEALING WITH AND SATISFYING THE NEED OF HOUSING ACCOMMODATION IN THE STATE. THE EXPENDITURE IN QUESTION IS IN COURSE OF ITS NORMAL BUSINESS OPERAT ION WHICH, THOUGH, HAD NOT TAKEN PLACE PREVIOUSLY. THE APPELLA NT IS WORKING IN A DYNAMIC SOCIO-ECONOMIC ENVIRONMENT AND KEEPING IN VIEW THE CHANGING NEED THE NECESSITY OF SUCH EXPENDITURE HAD ARISEN. 64 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD IN THE EARLIER PROCEEDINGS, THE A.O. AND CIT(A) HAV E WRONGLY CONCLUDED THAT THE AMOUNT PAID TO A.P. STAT E HOUSING CORPORATION UNDER THE ORDER OF THE STATE GOVERNMENT WAS CAPITAL EXPENDITURE. DEVELOPMENT OF HOUSING FACILITY IS THE PURPOSE FOR WHICH THE APPEL LANT HAS BEEN CONSTITUTED. THE STATE GOVERNMENT HAS SET UP S EVERAL EXECUTING AGENCIES TO PROVIDE HOUSING ACCOMMODATION AND CREATE HOUSING INFRASTRUCTURE. IT IS THE ULTIMATE D ECISION MAKING AUTHORITY AS TO WHICH AGENCY IS TO EXECUTE W HICH WORK FOR THIS PURPOSE. THE STATE GOVERNMENT, IN ITS WISDOM, HAD DECIDED THAT CERTAIN HOUSING INFRASTRUC TURE FACILITIES ARE TO BE DEVELOPED BY A.P. STATE HOUSIN G CORPORATION, AND THAT THE APPELLANT WOULD TRANSFER THE STIPULATED AMOUNT TO THE CORPORATION FOR THIS PURPO SE. THEREFORE, THE PURPOSE FOR WHICH THE AMOUNT IS TO B E SPENT IS VERY MUCH CONNECTED WITH THE ACTIVITIES UNDERTAK EN BY THE APPELLANT. IN LAKSHMIJI SUGAR MILLS CO. P. LTD. VS. CIT (1971) 82 ITR 376 (SC), THE ASSESSEE WAS A PRIVATE COMPANY, CARRYING ON THE BUSINESS OF MANUFACTURING AND SALE OF SUGAR, PA ID TO THE CANE DEVELOPMENT COUNCIL CERTAIN AMOUNTS BY WAY OF CONTRIBUTION FOR THE CONSTRUCTION AND DEVELOPMENT O F ROADS BETWEEN THE VARIOUS SUGARCANE PRODUCING CENTRES AND THE SUGAR FACTORIES OF THE ASSESSEE. THIS EXPENDITURE W AS INCURRED UNDER AN OBLIGATION TO MAKE THE AFORESAID CONTRIBUTION UNDER THE PROVISIONS OF U'P. SUGARCANE REGULATION OF SUPPLY AND PURCHASE ACT, 1953. THE RO ADS REMAINED THE PROPERTY OF THE GOVERNMENT AND THERE W AS NO FINDING THAT THE ASSESSEE WOULD GET AN ENDURING BEN EFIT FROM THOSE ROADS. THE SUPREME COURT HELD THAT APART FROM THE ELEMENT OF COMPULSION, THE DEVELOPMENT OF ROADS FACILITATES THE BUSINESS AND THE EXPENDITURE WAS RE VENUE IN NATURE. IN L.H. SUGAR FACTORY AND OIL MILLS (P.) LTD. VS. CIT, (1980) 1251TR 293 (SC), THE ASSESSEE HAD CONTRIBUTED TOWARDS COST OF CONSTRUCTION OF ROADS I N THE AREA AROUND THE FACTORY. THE ARGUMENT OF THE REVENU E WAS THAT THE NEWLY CONSTRUCTED ROADS, THOUGH NOT BELONG ING TO THE ASSESSEE, BROUGHT TO THE ASSESSEE AN ENDURING ADVANTAGE FOR THE BENEFIT OF ITS BUSINESS AND, THER EFORE, THE EXPENDITURE WAS CAPITAL IN NATURE. REJECTING THIS A RGUMENT, THE SUPREME COURT HELD THAT IT IS NO DOUBT TRUE THA T THE ADVANTAGE SECURED FOR THE BUSINESS WAS OF A LONG DU RATION, BUT IT WAS NOT AN ADVANTAGE IN THE CAPITAL FIELD, B ECAUSE NO TANGIBLE OR INTANGIBLE ASSET WAS ACQUIRED BY THE AS SESSEE, NOR THERE WAS ANY ADDITION TO OR EXPANSION OF THE P ROFIT 65 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD MAKING APPARATUS OF THE ASSESSEE. IN CIT VS. COATS VIYELLA INDIA LTD. (2002) 253 ITR 667 (MAD.), THE ASSESSEE HAD MADE PAYMENT TO THE GOVERNMENT FOR CONSTRUCTION OF NEW BRIDGE, PROVIDING ACCESS TO THE ASSESSEE'S FACTORY FOR ITS WORKMEN AND MOVEMENT OF GOODS. THE HIGH COURT HELD THAT THE ASSESSEE DID NOT ACQUI RE ANY OWNERSHIP OVER THE BRIDGE AND THERE WAS NO ADDITION TO THE VALUE OF THE ASSETS OWNED BY IT. THEREFORE, THE PAY MENT MADE TO THE GOVERNMENT WAS REVENUE EXPENDITURE. IN NAVSARI COTTON AND SILK MILLS LTD. (1982) 135 ITR 546 (GUJ.), THE ASSESSEE DISCHARGED AN EFFLUENT CAUSING HEALTH HAZARD, WHICH WAS PROTESTED BY THE CITIZENS OF THE AREA. APPREHENDING A SPATE OF SUITS THEREFROM, AND IN VIE W OF THE MUNICIPALITY BEING UNABLE TO REMEDY THE SITUATION, AND PREVENT LITIGATION, THE ASSESSEE MADE CONTRIBUTION TO THE MUNICIPALITY FOR PROVIDING UNDERGROUND PIPELINE THR OUGH THE MUNICIPAL LAND FOR DISPOSAL OF EFFLUENTS. IT WAS AR GUED THAT THE PURPOSE OF THIS EXPENDITURE WAS TO AVOID LOSING MARKET, CUSTOMERS AND GOODWILL. THE HIGH COURT ACCEPTED THI S AND HELD THAT THE EXPENDITURE WAS ALLOWABLE UNDER SECTI ON 37 THE LT. ACT. IN JOINT COMMISSIONER OF INCOME TAX VS. DEVERSON INDUSTRIES LTD. (2007) 290ITR (A.T.) 287 (ITAT - AHM), THE ASSESSEE HAD PAID AN AMOUNT TO THE STATE GOVERNMENT TO HELP VILLAGERS AFFECTED BY EFFLUENT D ISCHARGED FROM THE ASSESSEE'S FACTORIES AND SUCH AMOUNTS WERE PAID TO MUNICIPAL CORPORATION FOR TREATING EFFLUENTS. IT WAS ARGUED BY THE ASSESSEE THAT THE EXPENDITURE WAS LAI D OUT TO PROTECT ITS BUSINESS AS AN ONGOING ENTITY AND TO AV OID POSSIBLE PROTRACTED LITIGATION. THE TRIBUNAL HELD T HAT THE ASSESSEE HAD BUSINESS REASONS TO PARTICIPATE IN A S CHEME FRAMED BY THE HIGH COURT TO MAKE CONTRIBUTIONS FOR THIS SOCIAL CAUSE. THEREFORE, THE ENTIRE EXPENDITURE INC URRED WAS DEDUCTIBLE. IN VIEW OF THESE RULINGS, THE APPELLANT WOULD SUBMIT THAT THE AMOUNT PAID TO A.P. STATE HOUSING CORPORATION WAS NOT CAPITAL, BUT REVENUE EXPENDITUR E. THE CIT(A) HAD OBSERVED THAT THE AMOUNT PAID TO A.P . STATE HOUSING CORPORATION WAS APPLICATION OF INCOME AND THE ORDER OF THE STATE GOVERNMENT WAS NOT A LEGAL CHARGE. THE APPELL ANT WOULD SUBMIT THAT SECTION 79(1) OF THE A.P. HOUSING BOARD ACT PROVIDES THAT THE GOVERNMENT MAY GIVE THE APPEL LANT SUCH DIRECTION AS AND WHEN NECESSARY OR EXPEDIENT F OR CARRYING ON THE PURPOSES OF THIS ACT. THEREFORE, SU CH DIRECTION HAD STATUTORY FORCE. THE APPELLANT WOULD NOT HAVE 66 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD BEEN ABLE TO CONTINUE ITS ACTIVITIES LAWFULLY WITHO UT OBEYING THE ORDER OF THE STATE GOVERNMENT TO PAY THE AMOUNT TO A.P. STATE HOUSING CORPORATION. IN THIS CONTEXT, TH E APPELLANT WOULD CITE THE FOLLOWING OBSERVATION OF T HE GUJARAT HIGH COURT IN U.K. ACHARYA VS. STATE OF GUJARAT, AIR 1989 GUJARAT 81, IN WHICH SIMILAR PROVISION IN THE GUJARAT STATE HOUSING BOARD WAS EXAMINED: DISPOSAL OF PROPERTY REGULATIONS CANNOT BE SAID TO BE MERELY CONTRACTUAL IN CHARACTER NOR CAN THEY BE SAI D TO BE FRAMED FOR MERELY REGULATING INTERNAL AFFAIRS OF THE STATUTORY BODY, AS, WITH RESPECT, WRONGLY ASSUMED B Y THE LEARNED JUDGE. IT HAS ALSO TO BE KEPT IN VIEW T HAT MEMBERS OF THE PUBLIC FOR WHOM HOUSING SCHEMES ARE FLOATED BY THE BOARD HAVE NO CONTROL OV ER THE IMPLEMENTATION OF THE REGULATIONS BY THE BOARD. HENCE, THESE HOUSING REGULATIONS HAVE TO BE CONSIDE RED AS MANDATORY IN CHARACTER, HAVING BINDING STATUTORY FORCE. WE ARE, THEREFORE UNABLE TO AGREE WITH T.U. MEHTA, J'S CONCLUSION THAT DISPOSAL OF PROPERTY REGULATIONS FRAMED BY THE HOUSING BOARD IN EXERCISE OF ITS STATUTORY POWER UNDER S.74(B) ARE N OT STATUTORY IN CHARACTER. WE HOLD THAT THEY ARE, OF NECESSITY, TO BE TREATED AS STATUTORY IN CHARACTER FOR THE REASONS AFORESAID. HOWEVER, THAT DOES NOT ADVAN CE THE CASE OF THE LEARNED ADVOCATE FOR THE PETITIONER S AN INCH FURTHER. EVEN THOUGH' REGULATION 33 OF THE REGULATIONS IS STATUTORY IN CHARACTER, THE DIRECTIO NS ISSUED BY THE STATE OF GUJARAT IN EXERCISE OF ITS STATUTORY POWERS UNDER S.82 CANNOT BE SAID TO BE IN ANY WAY INCONSISTENT WITH THIS REGULATION. THE SECOND REASON IS THAT UNDER S.82 OF THE ACT, TH E STATE OF GUJARAT IS ENTITLED TO GIVE DIRECTIONS TO THE HOUSING BOARD FOR THE PURPOSES OF THE ACT AND IF TH ESE DIRECTIONS ARE NOT FOUND TO BE ARBITRARY OR ILLEGAL , THEY ARE BINDING ON THE HOUSING BOARD AND THEY WOULD SUPERSEDE ANY OF THE EARLIER CONTRARY DECISIONS OF THE HOUSING BOARD AND IMPOSE A SPECIAL OBLIGATION ON TH E HOUSING BOARD TO COMPLY WITH SUCH DIRECTIONS. AS SE EN EARLIER, BY S.24 OF THE ACT, IT IS THE DUTY OF THE HOUSING BOARD TO INCUR EXPENDITURE AND UNDERTAKE WORKS OF SUCH HOUSING SCHEMES AS IT MAY CONSIDER NECESSARY FROM TIME TO TIME, SUBJECT TO THE CONTROL OF THE ST ATE GOVERNMENT. THUS, CONTROL OF THE STATE GOVERNMENT I S ALL PERVASIVE IN CONNECTION WITH ANY OF THE HOUSING 67 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD SCHEMES UNDERTAKEN BY THE BOARD. THUS, THE PAYMENT TO A.P. STATE HOUSING CORPORATION WAS DONE IN THE MANNER PRESCRIBED IN THE A.P. HOUSING B OARD ACT, UNDER WHICH THE APPELLANT HAS BEEN CONSTITUTED . THEREFORE, SUCH PAYMENT IS PART AND PARCEL OF ITS R EGULAR BUSINESS. ACCORDINGLY, THE AMOUNT SHOULD BE TREATED AS REVENUE EXPENDITURE LAID OUT WHOLLY FOR THE PURPOSE OF ITS BUSINESS UNDER SECTION 37 OF L.T. ACT. THIS EXPENDITURE IS DEFINITELY A CHARGE ON INCOME A ND NOT AN APPLICATION OF INCOME AS HELD BY THE CIT(A). IN CAS E OF APPLICATION OF INCOME, THERE IS DISCRETION WITH THE PERSON MAKING THE PAYMENT AS TO PAY IT OR OTHERWISE, WHERE AS IN CASE OF OBLIGATORY OR COMPULSORY PAYMENT THE SAME H AS TO BE CHARGE ON INCOME. IN THE INSTANT CASE, THE PAYME NT BY THE APPELLANT TO A.P. STATE HOUSING CORPORATION AS PER THE ORDER OF GOVERNMENT WAS NOTHING BUT STATUTORY OBLIG ATION IN NATURE FLOWING FROM SECTION 79(1) OF A.P.H.B. ACT. THIS EXPENDITURE IS ALSO IN THE NATURE OF DIVERSION OF I NCOME BY OVERRIDING TITLE. THE GOVERNMENT OF A.P. THROUGH IT S GOVT. ORDER REQUIRED THE APPELLANT TO TREAT THE AMOUNT PA ID TO A.P. STATE HOUSING CORPORATION AS ITS EXPENDITURE. THIS FURTHER SHOWS THAT THE APPELLANT HAD NO DISCRETION IN RETAINING THE AMOUNT AND THERE WAS LEGAL COMPULSION IN DIVERTING THE AMOUNT TO A.P. STATE HOUSING CORPORAT ION. THE INFRASTRUCTURE EXPENDITURE INCURRED BY THE APPELLAN T IS CLEARLY AN ALLOWABLE EXPENDITURE ON TWO GROUNDS; ON E IS ON COMMERCIAL EXPEDIENCY AND SECOND BEING OF LEGAL IMP OST BY VIRTUE OF GOVT. ORDER. THE HON'BLE ITAT HAD REMANDED THE APPEALS FOR THE A .YS. 2004-05,2005- 06 AND 2006-07 TO THE CIT(A) FOR FRES H CONSIDERATION. HEARING HAD TAKEN PLACE FOR THESE YE ARS ON ADDITIONAL GROUNDS. THE A.O. HAS SUBMITTED REMAND R EPORT ON THESE SUBMISSIONS AND THE APPELLANT HAS SUBMITTE D REJOINDER ON THE REMAND REPORT. FURTHER, THE APPELL ANT HAD SUBMITTED WRITTEN SUBMISSIONS ON THE ORIGINAL GROUN DS TAKEN IN THESE APPEALS AS THE ORDERS OF THE CIT(A) NO LON GER EXIST IN THE EYES OF THE LAW. THE A.O. HAS ALSO NOT SUBMI TTED ANY REMAND REPORT FOR THESE YEARS AS ALSO FOR THE A.Y. 2008-09 FOR WHICH THE CIT(A) HAS PASSED THE APPEAL ORDER. I N THIS SITUATION, THE CIT(A) SHOULD NOT HAVE RELIED UPON V ERBATIM REPRODUCTION OF THE PART OF THE EARLIER ORDER FOR T HE A. Y. 2006-07 IN HIS ORDER FOR A.Y. 2008-09. THE APPELLANT FINDS THAT THE LANGUAGE OF PARAGRAPHS 6.1 4 TO 68 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD 6.20 OF THE PRESENT ORDER HAS BEEN COPIED FROM THE PARAGRAPHS 6.13 TO 6.17 OF THE EARLIER APPELLATE OR DER FOR THE A.Y. 2006-07, WHICH HAS BEEN REMANDED. OBSERVAT IONS AND CONCLUSIONS IN THE EARLIER ORDER PASSED ON 30.1 0.2009 OF THE CIT(A) CANNOT BE EXPECTED TO TAKE INTO ACCOU NT THE SUBMISSIONS MADE AND RULINGS RELIED UPON BY THE APP ELLANT IN THE PRESENT PROCEEDING. IN THIS PROCESS, SOME ER RORS HAVE CREPT INTO THE APPEAL ORDER: I. AT PARAGRAPH 6.17 OF THE APPEAL ORDER FOR A.Y.20 08-09, THE CIT(A) HAS, MENTIONED THAT GOVERNMENT ORDERS QU OTED BY THE APPELLANT DOES NOT IN ANY WAY INDICATE THAT ANY MONEY IS TO BE PAID TO THE STATE GOVERNMENT IN LIEU OF LANDS PROVIDED. BUT THE CIT(A) HAS MISSED OUT THE CONTENT OF THE LETTER DATED 23.12.2005 FROM THE GOVERNMENT OF ANDH RA PRADESH, EXTRACTED BY HIM AT PAGE 39 OF HIS ORDER. THE HEADING OF THIS LETTER STATES' UTILISATION OF AN AM OUNT TO THE EXTENT OF VALUE OF GOVERNMENT LANDS TO BE PAID TO T HE GOVERNMENT BY THE APHB FOR INFRASTRUCTURE DEVELOPME NT OF RAJIV GRUHAKALPA'. AT PARAGRAPH 3 IN THIS LETTER, I T IS STATED THAT INFRASTRUCTURE COST UP TO THE EXTENT OF VALUE OF LAND TO BE PAID TO THE GOVERNMENT BY THE APHB WILL BE UTILI SED FOR INFRASTRUCTURE DEVELOPMENT UNDER RAJIV GRUHAKALPA S CHEME. IN THE EVENT OF SHORTFALL, THE GOVERNMENT WILL ALLO T ADDITIONAL LAND TO APHB. FURTHER, IN THE MINUTES OF MEETING HE LD IN CHAMBER OF HON 'BLE CHIEF MINISTER, EXTRACTED AT PA GE 41 OF THE ORDER OF THE CIT(A), IT IS NOTED THAT APHB WOUL D REMIT RS.150 CRORE IN OCTOBER AND RS.400 CRORE IN NOV. AN D ANOTHER RS.400 CRORE IN DECEMBER BY LEVERAGING LAND ALLOTTED TO IT. AT PAGE 55-56 OF THE APPEAL ORDER, THE CIT(A) HAS EXTRACTED GORT NO.432 OF GOVERNMENT OF ANDHRA PRADESH. AT PARAGRAPH 2 TO 4 IN THIS, IT IS MENTION ED THAT LAND HAS BEEN ALLOTTED TO APHB FOR WHICH IT HAS TO PAY THE LAND VALUE TO THE GOVERNMENT, WHICH WILL BEAR THE C OST OF INFRASTRUCTURE. IN THE EVENT OF SHORTFALL, THE GOVE RNMENT WILL ALLOT ADDITIONAL LAND. THE SIGNIFICANCE OF THESE HA VE BEEN MISSED OUT BY THE CIT(A) FOR THE SIMPLE REASON THAT HIS DISCUSSION AND CONCLUSION HAVE BEEN COPIED FROM AN ORDER PASSED IN 2009. II. AT PARAGRAPH 6.20, THE CIT(A) HAS STATED THAT T HE APPELLANT HAD ARGUED THAT IT IS A LOCAL AUTHORITY. IN THE SUBMISSIONS MADE BY THE APPELLANT FOR THE A.Y. 2008 -09, THERE WAS NO SUCH PLEADING. THIS OBSERVATION AND EL ABORATE DISCUSSION ALONG WITH CITATIONS OF RULINGS ON WHAT CONSTITUTES A LOCAL AUTHORITY BY THE CIT(A) HAVE FOUND PLACE IN THE ORDER 69 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD ONLY BECAUSE SEVERAL PARAGRAPHS HAVE BEEN COPIED FR OM THE EARLIER ORDER DATED 30.10.2009 OF THE CIT(A) FOR TH E A.Y. 2006-07. III. THE APPELLANT HAS MADE SUBMISSIONS ON ALLOWABI LITY OF DEDUCTION UNDER SECTION 80-1B. WITHOUT CONSIDERING THE SAME, THE CIT(A) HAS RELIED UPON THE FINDINGS OF HI S ORDER DATED 31.10.2009 FOR THE A.Y. 2006-07 FOR UPHOLDING THE DISALLOWANCE OF DEDUCTION CLAIMED UNDER SECTION 80- IB. THE APPELLATE ORDER FOR THE A.Y. 2006-07 HAS ALREADY BEEN SET ASIDE BY THE IT A T FOR FRESH CONSIDERATIO N. THEREFORE, THE SUBMISSIONS MADE BY THE APPELLANT ON THIS ISSUE HAS NOT BEEN CONSIDERED BY THE CIT(A). THE CIT(A) AT PARAGRAPH 5.7.9 HAS EXTRACTED SECTION 13 OF APHB ACT, AND AT PARAGRAPH 5.7.10 HE HAS STATED THA T APHB IS FULLY COMPETENT TO ENTER INTO CONTRACTS IN ITS O WN CAPACITY AND HAS REFERRED TO SECTION 14 TO STATE THAT THE VI CE CHAIRMAN SHALL MAKE EVERY CONTRACT ON BEHALF OF APH B. HOWEVER, HE HAS NOT REFERRED TO SEVERAL OTHER PROVI SIONS WHICH ARE IMPORTANT TO DECIDE THE EXTENT OF AUTONOM Y ENJOYED BY APHB. THE PROVISO TO SECTION 14 MANDATES THAT NO CONTRACT INVOLVING EXPENDITURE OF RUPEES MORE TH AN THE LIMITATION AS MAY BE FIXED BY THE GOVERNMENT SHALL BE MADE WITHOUT THE PREVIOUS SANCTION OF THE GOVERNMENT. TH IS AMOUNT WAS MENTIONED IN THIS PROVISO AS RS.3,0001- TILL THE AMENDMENT OF THE ACT IN 2010. THE CIT(A) HAS GIVEN THE FINDING THAT APHB IS CONTROLLING ITS OWN AFFAIRS AN D IS INDEPENDENT IN ENTERING INTO CONTRACTS AND TAKING L OANS. THEREFORE, IN PARAGRAPH 5.8.1 AND 5.8.2, HE HAS ARG UED THAT APHB IS NOT FUNCTIONING AS AN AGENT OF THE STATE GOVERNMENT. HE HAS NOT REFERRED TO SECTION 21 OF TH E APHB ACT, WHICH CLEARLY STATES THAT SUBJECT TO THE CONTR OL OF THE GOVERNMENT, BOARD MAY INCUR EXPENDITURE AND UNDERTA KE WORKS FOR FRAMING AND EXECUTION OF HOUSING SCHEMES. SECTION 60 ALLOWS APHB THE FREEDOM TO INCUR EXPENDI TURE NOT EXCEEDING RS.10,0001- IN EXTREME URGENCY, WHICH IS NOT INCLUDED IN THE ANNUAL PROGRAMME SANCTIONED BY THE GOVERNMENT. SECTION 62(1) PERMITS APHB FROM TIME TO TIME, WITH THE PREVIOUS SANCTION OF THE GOVERNMENT AND SUBJECT TO THE PROVISIONS OF THE APHB ACT AND TO SUCH CONDITIO NS AS MAY BE PRESCRIBED IN THIS BEHALF, BURROW ANY SUM RE QUIRED FOR THE PURPOSE OF THE ACT. SECTION 79 EMPOWERS THE STATE GOVERNMENT TO GIVE DIRECTION TO APHB AND OVERRULE A NY DECISION OR ORDER OF IT. THESE PROVISIONS, SEVERELY RESTRICTING THE FREEDOM TO OPERATE, SPEND, ENTER INTO CONTRACTS AND 70 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD BORROW MONEY HAVE NOT BEEN REFERRED TO OR DISCUSSED IN THE ORDER OF THE CIT(A). 55. THE CIT(A) WHILE UPHOLDING THE DISALLOWANCE O F THE AFORESAID EXPENDITURE HAS OPINED THAT FOR CLAIMING A PARTICUL AR EXPENDITURE IT IS TO BE EXAMINED WHETHER THERE IS ANY NEXUS BET WEEN THE MAIN ACTIVITY OF THE ASSESSEE AND THE EXPENDITURE IN QUE STION. IT WAS FURTHER HELD BY THE CIT(A) REFERRING TO VARIOUS GOV T ORDERS, AS PER WHICH ACCORDING TO THE CLAIM OF THE ASSESSEE AN AMO UNT OF RS. 1180 CRORES WAS TRANSFERRED TO AP STATE HOUSING COR PORATION, THAT THE MAIN OBJECTIVE OF THE APHB TO MAKE AND IMP LEMENT SCHEMES FOR PROVIDING OF HOUSING ACCOMMODATION IS B Y SELLING THE HOUSES TO PROSPECTIVE BUYERS AT THE MARKET RATE. FO R THIS PURPOSE, IT ACQUIRES LANDS, DEVELOPS AND SALES HOUS ES BUILD ON THOSE LANDS. THE GOVT. ORDERS DIRECTING TRANSFER O F FUNDS TO AP STATE HOUSING CORPORATION IS ONLY AN ADMINISTRATIVE INSTRUCTION AND NO LEGAL CHARGE IS CREATED. THEREFORE, THE AMO UNT TRANSFERRED SINCE DOES NOT FALL WITHIN THE CATEGORY OF TAXES, CESS, OR LEGAL CHARGES THEY CANNOT BE CONSIDERED AS EXPEN DITURE. IT WAS FURTHER HELD BY THE CIT(A) THAT THERE IS NO NEXUS B ETWEEN THE AMOUNT PAID BY THE ASSESSEE TO THE STATE GOVT AND T HE ACTUAL ACTIVITY OF THE ASSESSEE. IT WAS FURTHER OBSERVED T HAT THE ASSESSEE HAS ALSO NOT PROVED THAT THE PAYMENT HAS B EEN FOR BUSINESS EXPEDIENCY. 56. ON CONSIDERING THE SUBMISSIONS OF THE PARTIES IN THE LIGHT OF THE MATERIALS ON RECORD AND ALSO THE RATIOS CITED B EFORE US, WE ARE CONSTRAINED TO HOLD THAT IT IS NOT AN ALLOWABLE EXP ENDITURE BUT ONLY AN APPLICATION OF INCOME. IT IS NOT IN DISPUTE THAT THE AMOUNT OF RS. 1180 CRORES IS STATED TO HAVE BEEN GIVEN TO THE AP STATE HOUSING CORPORATION ON THE DIRECTIVE OF THE GOVERNM ENT. HOWEVER, THAT WOULD NOT AMOUNT TO AN EXPENDITURE IN CURRED FOR 71 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD THE PURPOSE OF BUSINESS. AN EXPENDITURE WHICH IS EX CLUSIVELY LAID OUT FOR THE PURPOSE OF BUSINESS IS A REVENUE EXPEND ITURE AND, THEREFORE, ALLOWABLE. ON APPRECIATION OF THE FACTS ON RECORD, IT IS QUITE EVIDENT THAT THE AMOUNT OF RS. 1180 CRORES WA S NOT SPENT BY THE ASSESSEE BOARD FOR THE PURPOSE OF ITS BUSINE SS. THE SAID AMOUNT WAS TRANSFERRED TO AP STATE HOUSING CORPORAT ION AT THE DIRECTIVE OF THE GOVERNMENT FOR IMPLEMENTING CERTAI N HOUSING PROJECTS. THE ASSESSEE IS NO WAY CONNECTED WITH IMP LEMENTING THE PROJECT. THIS CANNOT BE SAID TO BE AN EXPENDITU RE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE DECISIONS RELIED UPON BY THE LEARNED AR ARE FACTUALLY DISTING UISHABLE AS IN THOSE CASES THERE WAS NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE BUSINESS OF THE ASSESSEE. THEREFORE, IN OUR VIEW THE REVENUE AUTHORITIES WERE CORRECT IN DISALLOWING SUC H EXPENDITURE. 57. IN GROUND NO. 11, THE ASSESSEE HAS RAISED THE ISSUE OF DISALLOWANCE ON ACCOUNT OF PAYMENT OF PENSION TO EM PLOYEES. IN THIS REGARD, THE FOLLOWING SUBMISSIONS HAVE BEEN MA DE BY THE ASSESSEE: ON ALLOWABLITY OF PAYMENT OF PENSION TO EMPLOYEES A S DEDUCTION FOR COMPUTING TAXABLE INCOME, THE CIT(A) HAS REPRODUCED PARAGRAPH 15 - 16 FROM THE WRITTEN SUBMI SSION ON THE ORIGINAL GROUNDS BY THE APPELLANT. HE HAS GI VEN A FINDING THAT THE PENSION HAS NOT BEEN ROUTED THROUG H A PENSION FUND AND THEREFORE IS NOT AN EXPENSE CHARGE ABLE TO THE PROFIT AND LOSS ACCOUNT, WITHOUT CITING ANY LEG AL PROVISION OR RULING. HE HAS NOT REFERRED TO PARAGRA PH 17 OF THE WRITTEN SUBMISSION BY THE APPELLANT. IN THIS, I T HAD RELIED ON THE SUPREME COURT'S OBSERVATION IN GORDON WOODRO FFE LEATHER MFG. CO. V. CIT (1962) 44ITR 551 (SC), IN W HICH THE COURT HAS HELD THAT PENSION IS ALLOWED AS A DEDUCTI ON, WHEN CONCERNED EMPLOYEES HAD EXPECTATION OF GETTING IT A S TERMS OF THE EMPLOYMENT. FOLLOWING THIS RULING, THE KERAL A HIGH COURT IN TRAVANCORE RUBBER AND TEA CO. LTD. VS. STA TE OF KERALA (1999) 239 ITR 351 (KERALA), OBSERVED THAT T HE PENSION PAID TO AN EMPLOYEE WHO HAS GONE OUT OF SER VICE, 72 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD CAN, IN NO CASE, BE SAID TO BE A GRATUITOUS PAYMENT . THEREFORE, THE COURT HELD THAT IT IS ALLOWABLE AS DEDUCTION FOR COMPUTING TAXABLE INCOME. THE APPELLA NT HAD SUBMITTED THAT THE TERMS OF THE EMPLOYMENT THE EMPL OYEES OF APHB ARE THE SAME AS ARE APPLICABLE TO THE STATE GOVERNMENT EMPLOYEES. SINCE THE EMPLOYEES ARE ENTIT LED TO POST-RETIREMENT PENSION, THE SAME IS ALLOWABLE IN V IEW OF THE ABOVE QUOTED RULINGS. THE CIT(A) HAS NOT CONSIDERED THESE RULINGS. 58. THE LEARNED DR SUBMITTED THAT THE PENSION PAID DURING THE YEAR TO THE RETIRED EMPLOYEES WAS DIRECTLY DEBITED TO THE EXPENDITURE AND WAS CLAIMED AS EXPENDITURE. SINCE P ENSION IS NOT RECURRING REVENUE EXPENDITURE IT IS GENERALLY INCUR RED OUT OF RESERVE FUND. EVEN AS PER THE GOVT ORDER NO. 17 DAT ED 29/07/1984 PAYMENT OF PENSION IS TO BE ARRANGED THR OUGH CAO, APHB BY A CREATING SEPARATE PENSION CELL AND FUND A ND MEET THE EXPENDITURE FROM THAT FUND. IT WAS FURTHER SUBMITTE D THAT AS THE PENSION WAS NOT ROUTED THROUGH A PENSION FUND AND I S AN EXPENDITURE CHARGEABLE TO PROFIT AND LOSS ACCOUNT, THE EXPENDITURE CANNOT BE ALLOWED AS A DEDUCTION. 59. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH TH E PARTIES AND PERUSED THE RELEVANT MATERIALS ON RECORD. ON PERUSI NG THE ORDER OF THE CIT(A), WE FIND THAT THE DISALLOWANCE HAS BE EN SUSTAINED BY HIM ON THE FINDING THAT PENSION HAS TO BE ROUTED THROUGH A PENSION FUND AND IS NOT AN EXPENSE CHARGEABLE TO TH E PROFIT & LOSS ACCOUNT. HE HAD ALSO OBSERVED THAT NO DETAILS WHATS OEVER HAS BEEN PROVIDED BY THE ASSESSEE. FROM THE AFORESAID O BSERVATION OF THE CIT(A), WE ARE OF THE VIEW THAT THE CIT(A) HAS NOT GONE INTO THE DEPTH OF THE ISSUE AND HAS CONFIRMED THE DISALL OWANCE IN A MECHANICAL MANNER. IT IS NOT FORTHCOMING WHAT ARE T HE DETAILS ASKED FOR BY THE AO AND ON FAILURE ON THE PART OF T HE ASSESSEE TO FURNISH SUCH DETAILS, THE DISALLOWANCE WAS MADE. TH E LOWER AUTHORITIES HAVE NOT DISPUTED THE FACT THAT PENSION AMOUNT HAS 73 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD BEEN PAID. IT IS ALSO A FACT THAT PENSION IS PAYABL E AS PER THE SERVICE CONDITIONS. THAT BEING THE CASE IT IS AN AL LOWABLE DEDUCTION. THE DECISIONS CITED BY THE LEARNED AR AL SO SUPPORT SUCH VIEW. ACCORDINGLY, WE DIRECT THE ASSESSING OFF ICER TO DELETE THE ADDITION MADE. 60. THE NEXT ISSUE RELATES TO ESTIMATION OF INCOME FROM SINGAPORE PROJECT. THIS ISSUE ARISES IN APPEALS BEI NG ITA NOS. 1216, 1217 & 1218/H/12 FOR THE ASSESSMENT YEARS 200 4-05, 2005-06 AND 2006-07. 61. IN COURSE OF ASSESSMENT PROCEEDINGS, THE AO ON EXAMINING THE INCOME AND EXPENDITURE STATEMENT FILED WITH THE RETURN NOTICED THAT THE ASSESSEE THOUGH HAD SHOWN INCOME A ND EXPENDITURE TOWARDS SALE OF FLAT AT SINGAPORE PROJE CT (POCHARAM) BUT ACTUALLY AS PER ASSESSEES OWN ADMISSION THE SA ME REPRESENT THE ADVANCE RECEIVED FROM THE PROSPECTIVE BUYERS OF THE FLATS BEING BUILT AT POCHARAM. THE AO, THEREFORE, HELD TH AT SINCE THE SALE OF FLATS HAVE ACTUALLY NOT TAKEN PLACE, THE AD VANCES RECEIVED CANNOT BE TREATED AS INCOME AND SIMILARLY THE EXPEN DITURE CLAIMED ALSO CANNOT BE CONSIDERED. HE, THEREFORE, E XCLUDED BOTH THE INCOME AND EXPENDITURE. THE CIT(A) ALSO SUSTAIN ED SUCH EXCLUSION MADE BY THE AO BY ENDORSING THE VIEW OF T HE AO. DURING THE APPEAL PROCEEDINGS, THE FIRST APPELLATE AUTHORITY WAS OF THE VIEW THAT THE HOUSING PROJECT UNDERTAKEN BY THE ASSESSEE WAS UNDER CONSTRUCTION DURING THE PREVIOUS YEAR. HE WAS FURTHER OF THE VIEW THAT THE PROJECT BEING A CONSTRUCTION P ROJECT AND BEING IN THE NATURE OF CONSTRUCTION CONTRACT UNDERT AKEN BY THE 74 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD ASSESSEE IT OUGHT TO HAVE DISCLOSED THE ANNUAL INCO ME FROM THIS PROJECT. HE, THEREFORE, ASKED THE ASSESSEE TO EXPLA IN AS TO WHY NO INCOME FROM THE PROJECT HAS BEEN OFFERED FOR TAXATI ON AS PER THE PERCENTAGE OF COMPLETION METHOD OF ACCOUNTING. THE ASSESSEE WAS FURTHER ASKED TO FURNISH THE AMOUNT OF ESTIMATE D PROFIT AS PER THE PERCENTAGE OF COMPLETION METHOD OF ACCOUNTI NG FOR SINGAPORE PROJECT. THOUGH THE ASSESSEE SUBMITTED IT S REPLY TO THE QUERY MADE BY THE FIRST APPELLATE AUTHORITY, THE CI T(A) WAS NOT CONVINCED TO THE SAME AND HE PROCEEDED TO ESTIMATE THE PROFIT FROM THE SINGAPORE PROJECT BY APPLYING THE RATE OF 8% OF THE TOTAL EXPENDITURE INCURRED BY THE ASSESSEE. FURTHER NO DE DUCTION U/S 80-IB WAS ALSO ALLOWED ON THE PROFIT ESTIMATED ON T HE GROUND THAT THE ASSESSEE HAS NOT FULFILLED THE CONDITIONS FOR C LAIMING DEDUCTION U/S 80-IB. 62. BEFORE US, THE ASSESSEE IN THE WRITTEN SUBMIS SIONS HAS SUBMITTED AS UNDER: ONE OF THE MAIN DISPUTES OF THE APPELLANT WITH THE DEPARTMENT RELATES TO COMPUTATION OF TAXABLE INCOME , IF ANY, FROM THE SINGAPORE PROJECT. THE A.O. AND THE CIT(A) HAVE DISALLOWED THE BENEFIT ULS 80-IB TO THE APPELLANT O N DIFFERENT GROUNDS FOR DIFFERENT YEARS, SUCH AS INCONSISTENCY IN ACCOUNTS, INCOME AND EXPENDITURE BEING OF CAPITAL N ATURE, DELAYED FILING OF RETURN AND SO ON. YET THE CIT(A) ESTIMATED THE INCOME FROM THIS PROJECT TAKING INTO ACCOUNT TH E EXPENDITURE BY APPLYING ACCOUNTING STANDARD-7 AND FOLLOWING THE PRESCRIPTION IN SECTION 44AD. IN THIS REGARD, THE APPELLANT SUBMITS THAT WITHOUT REJECTING THE EN TRIES IN THE BOOKS OF ACCOUNTS, IT WAS NOT PERMISSIBLE FOR T HE CIT(A) TO RESORT TO ANY ESTIMATION OF INCOME. FOR THIS, HE HAD RELIED ON THE RULINGS OF IT AT IN ITA NO.1143/HYD.L2006 DA TED 13.07.2007 IN MADHAVA CONSTRUCTIONS PVT. LTD. VS. C IT. IN THAT, THE ITAT HAD HELD THAT, THOUGH PRESCRIPTION F OR ESTIMATING CONTRACT INCOME AT 8% IN SECTION 44AD IS APPLICABLE WHERE THE GROSS RECEIPTS OF THE CONTRACT OR IS UP TO RS.40 LACS, THE SAME PERCENTAGE CAN BE APPLIED FOR ESTIMATING INCOME FOR TURNOVER EXCEEDING RS.40 LACS . THE 75 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD CIT(A) WAS CLEARLY WRONG IN APPLYING THE PRESCRIPTI ON MEANT FOR CONTRACTOR TO THE APPELLANT WHO IS NOT A CONTRA CTOR. FURTHER, THIS PERCENTAGE IS APPLIED TO GROSS RECEIP TS AND NOT TO EXPENDITURE INCURRED DURING THE YEAR. FURTHER, I T DOES NOT PREVENT AN ASSESSEE FROM CLAIMING THAT THE ACTUAL P ROFIT FROM THE BUSINESS IS LOWER THAN WHAT IS ASCERTAINED ON THE BASIS OF ESTIMATING AT 8% OF THE TURNOVER. IN PYARE LAL MITTAL VS. ASSISTANT COMMISSIONER OF INCOME-TAX, (2007) 29 1 ITR 214 (GAU.), IT WAS HELD THAT INCOME HAS TO BE DEDUCED F ROM THE BOOKS OF ACCOUNT AND OTHER DOCUMENTS FURNISHED AND THERE IS NO SCOPE FOR ANY CONJECTURES AND SURMISES. SIMILARLY, IN M. DURAI RAJ VS. CIT, (1972) 83 ITR 484 (KER) , THE HIGH COURT HAS HELD THAT THE A.O. WAS NOT CORRE CT IN IGNORING THE BOOK ENTRIES AND ESTIMATING THE INCOME . THOUGH THE CIT(A) WAS INFORMED DURING THE APPEAL PROCEEDING THAT THE APPELLANT WAS FOLLOWING CASH SY STEM OF ACCOUNTING FOR SINGAPORE PROJECT', STILL THEN HE WE NT ON TO APPLY ACCOUNTING STANDARD - 7 TO DETERMINE INCOME O F THE APPELLANT ON PERCENTAGE COMPLETION METHOD, WHICH IS NOT APPLICABLE TO THE APPELLANT. THE APPELLANT ENGAGES CONTRACTORS FOR CONSTRUCTION OF HOUSES. IT IS NOT A CONTRACTOR ITSELF. IT IS SELLING FLATS ON INSTALLMENTS. THEREF ORE, ACCOUNTING STANDARD - 7 (REVISED 2002) PRESCRIBED B Y THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA IS NOT APPLICABLE TO IT FOR RECOGNITION OF INCOME FROM ITS ACTIVITY O F SELLING FLATS AFTER GETTING THE SAME CONSTRUCTED BY THE CONTRACTO RS. IN THIS REGARD, THE APPELLANT RELIES ON THE DECISION I N MLS UNIQUE ENTERPRISES VS. INCOME TAX OFFICER, MUMBAI, 010- (ID2)-GJX-0394-TBOM : 2010-(TIOL)-737- ITAT - MUM, WHEREIN IT HAS BEEN HELD THAT THE AS-7 CANNOT BE AP PLIED TO ENTERPRISES WHICH ARE IN THE BUSINESS OF REAL ESTAT E DEVELOPERS. AS-7 IS ALSO NOT APPLICABLE TO AN ASSES SEE FOLLOWING CASH SYSTEM OF ACCOUNTING. IT IS APPLICAB LE TO THOSE FOLLOWING MERCANTILE SYSTEM ONLY. THIS WAS SO HELD IN DCITVS. MLS STUP CONSULTANTS PVT. LTD., 2011-(ID1)- GJX- 2653-TBOM: 2011-TIOL-642-ITAT - MUM. IT IS FURTHER SUBMITTED THAT, WHEN THE APPELLANT HAD BEEN MAINTAI NING REGULAR BOOKS OF ACCOUNTS WHICH ARE AUDITED AND THE SAME HAD NOT BEEN REJECTED EITHER BY THE A.O. OR CIT(A), THERE WAS NO JUSTIFICATION TO DETERMINE THE APPELLANT'S I NCOME ON PRESUMPTIVE BASIS. 63. THE LEARNED DR ON THE OTHER HAND SUPPORTED TH E ORDER OF THE FIRST APPELLATE AUTHORITY. 76 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD 64. WE HAVE CONSIDERED THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE MATERIALS ON RECORD. WE HAVE ALSO APPLI ED OUR MIND TO THE DECISIONS CITED. ON PERUSAL OF THE ORDER OF THE CIT(A) IT IS QUITE EVIDENT THAT HE HAS ESTIMATED THE PROFIT AT T HE RATE OF 8% BY TAKING RECOURSE TO THE PROVISION CONTAINED U/S 4 4AD OF THE ACT. FOR THAT PURPOSE, HE HAS RELIED UPON A DECISION OF THE ITAT IN CASE OF MADHAV CONSTRUCTIONS (P) LTD. VS. CIT IN IT A NO. 1143/HYD/2006, DATED 13/07/2007. IT IS A FACT ON RE CORD THAT THE ASSESSEE IS A GOVERNMENT UNDERTAKING CREATED UNDER A STATUTE. IT MAINTAINS REGULAR BOOKS OF ACCOUNT. ITS BOOKS OF AC COUNT ARE NOT ONLY SUBJECT TO STATUTORY AUDIT UNDER THE PROVISION S OF INCOME-TAX ACT BUT ALSO SUBJECT TO INSPECTION BY OTHER GOVERNM ENT AGENCIES. THEREFORE, WITHOUT POINTING OUT DEFECT OR DISCREPAN CY IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE ESTIMATION OF INCOME CANNOT BE RESORTED TO. THAT BESIDES SECTION 44AD OF THE ACT IS APPLICABLE ONLY IN A CASE OF CONTRACTORS WHERE THE TURNOVER IS LESS THAN RS. 40 LAKHS. IN THE PRESENT CASE, NEITHER THE ASSESSEE IS A CONTRACTOR NOR ITS RECEIPTS ARE LESS THAN RS. 40 LA KHS. THEREFORE, ESTIMATION OF INCOME BY APPLYING THE RATE OF 8% THA T TOO ON THE EXPENDITURE BY INVOKING THE PROVISIONS OF SECTION 4 4AD IS NOT JUSTIFIED. IF THE DEPARTMENT IS OF THE VIEW THAT TH ERE IS A PROFIT ELEMENT WHICH HAS NOT BEEN DISCLOSED BY THE ASSESSE E, IT HAS TO BE DETERMINED AFTER PROPERLY VERIFYING THE BOOKS OF ACCOUNT AND OTHER EVIDENCES AND NOT MERELY ON PRESUMPTION AND G UESS WORK. WE, THEREFORE, REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WHO SHALL DECIDE THE SAME IN ACCORDANCE WITH LAW AF TER AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. WE ALSO DIRECT THE ASSESSEE TO COOPERATE WITH THE ASSESSING OFFICER BY PRODUCING ALL ITS BOOKS OF ACCOUNT AND OTHER RELEVA NT DOCUMENTS FOR VERIFICATION. IF THE ASSESSEE WILL NOT PRODUCE ITS BOOKS OF ACCOUNT THE ASSESSING OFFICER WILL BE AT LIBERTY TO COMPLETE THE 77 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD ASSESSMENT TO THE BEST OF HIS JUDGMENT. WE MAY FURT HER ADD THAT WHILE DECIDING THIS ISSUE THE ASSESSING OFFICER SHA LL ALSO CONSIDER ALLOWABILITY OR OTHERWISE OF THE ASSESSEES CLAIM O F DEDUCTION U/S 80IB OF THE ACT. 65. IN THE RESULT, ASSESSEES APPEALS BEING ITA NO. 717/HYD/12 FOR AY 2008-09 IS PARTLY ALLOWED AND ITA NOS. 1216, 1217 & 1218/H/12 FOR THE ASSESSMENT YEARS 2004-05, 2005-06 AND 2006- 07 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 715/HYD/2011 FOR AY 2007-08 BY THE ASSESSEE 66. THE FACTS ARE IDENTICAL TO THE APPEALS OF T HE ASSESSEE DEALT EARLIER IN THIS ORDER. THE LEARNED SR. COUNSEL SHRI S. RAVI APPEARING FOR THE ASSESSEE HAS FILED A WRITTEN SUBM ISSION SUBMITTING AS UNDER: AMONG VARIOUS GROUNDS THAT ARE RAISED IN THE MEMOR ANDUM OF APPEAL ONE GROUND RELATES TO THE AMENDMENTS MADE TO THE AP HOUSING BOARD ACT, 1958 (HEREINAFTER REFERRED TO AS 'THE ACT') RETROSPECTIVELY. THIS GROUND IS COMMON TO ALL THE YEARS UNDER CONSIDERATION INCLUDING THE ONES WHERE ANOTHE R LEARNED COUNSEL HAS APPEARED. THIS MEMORANDUM IS CONFINED T O THE UNDER MENTIONED GROUND, BUT ALL THE GROUNDS ARE PRE SSED BEFORE THE HON'BLE TRIBUNAL. BRIEFLY STATED, SECTION 58 OF THE ACT DEALS WITH BO ARD'S FUND UNDER CHAPTER VII CAPTIONED FINANCE, ACCOUNTS AND A UDIT. HAVING REGARD TO THE EXTENSIVE CONTROL THAT IS EXER CISED BY THE GOVERNMENT OF ANDHRA PRADESH ON THE FUNCTIONING OF THE APPELLANT, SUB-SECTION 7 WAS INTRODUCED INTO THE AC T BY STATE ACT 12 OF 2010 WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL, 2012. UNDER THE CONSTITUTION OF LNDIA, THE POWER TO LEGIS LATE IS VESTED IN THE PARLIAMENT AND/OR THE STATE LEGISLATU RES. THE POWER IS TRACEABLE TO ARTICLE 246 OF THE CONSTITUTI ON OF INDIA, AND THE POWER IS PLENARY WITH RESPECT TO THE SUBJEC TS SPECIFIED IN RESPECTIVE LISTS IN SCHEDULE 7 OF THE CONSTITUTION OF INDIA. THE PRINCIPLES THAT GOVERN THE INTERPRETA TION OF A 78 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD POWER OF LEGISLATION ARE AS FOLLOWS: (A). THE PARLIAMENT/LEGISLATURES HAVE THE POWER T O LEGISLATE BOTH PROSPECTIVELY AND RETROSPECTIVELY. REF: (I). RAI RAMKRISHNA & OTHERS V. STATE OF BIHAR 50 ITR 171 (SC) (II) A. MANJULA BHASHINI & OTHERS V. MANAGING DIRECTOR, ANDHRA PRADESH WOMEN'S COOPERATIVE FINANCE CORPORAT ION LIMITED & ANOTHER (2009) 8 SCC 431 (B). A STATUTE IS PRESUMED TO BE VALID UNLESS A CONSTITUTIONAL COURT OF COMPETENT JURISDICTION STRI KES DOWN THE STATUTE OR ANY PART THEREOF. (C). THE LEGISLATION CAN BE STRUCK DOWN ONLY IF: (I). IT IS BEYOND LEGISLATIVE POWER OF THE LEGISLAT ING BODY EXAMINED ON THE TOUCHSTONE OF SCHEDULE VII TO THE CONSTITUTION OF INDIA, OR DIFFERENT CLASSES OF PEOP LE ARE DISCRIMINATED WHILE LEGISLATING THEREBY OFFENDING A RTICLE 14 OF THE CONSTITUTION OF INDIA, OR THE LEGISLATION IS CONTRARY TO ANY OF THE FUNDAMENTAL RIGHTS GUARANTEED BY THE CONSTITUTION OF INDIA. (II). IN THE PRESENT CASE, THERE IS NOT EVEN A CHAL LENGE TO THE ACT AS AMENDED, AND FULLEST AND WIDEST MEANING SHOU LD BE GIVEN TO SECTION 58(7) OF THE ACT. BY THIS AMENDING PROVISION IT IS MADE EXPLICIT THAT THE SURPLUS AFTER INCURRING EXPENDITURE VESTS IN THE GOVERNMENT OF ANDHRA PRADESH. THE LIMITED RIGHT OF THE APPELLANT BOARD IS ONLY TO APPLY THE INCOME AND THAT TOO AS A TRUSTEE OF THE GOVERNMENT OF ANDHRA PRADESH FOR INCURRING EXPENDIT URE. THERE IS A STATUTORY DIVESTMENT OF THE INCOME AT SO URCE. THE FOLLOWING JUDGMENTS SHOW THAT UPON SUCH LEGAL R IGHT IN A THIRD PARTY THE INCOME DOES NOT BELONG TO THE TAX-P AYER AT ALL: THE COMMISSIONER OF INCOME-TAX, BOMBAY CITY- II V. SHRI SITALDAS TIRATHDAS AIR 1961 SC 728 MOTILAL CHHADAMI LAL JAIN V. COMMISSIONER OF INCOME TAX, DELHI (1991) 190 ITR 1 (SC) DELHI TOURISM & TRANSPORT DEVELOPMENT CORPORATION LTD. V. DEPUTY COMMISSIONER OF INCOME-TAX (1996) 56 ITD 524 79 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD (DEL) IN VIEW OF THE ABOVE, IT IS SUBMITTED THAT THE INCO ME DOES NOT ACCRUE OR ARISE FOR THE APPELLANT AND IT CANNOT BE TAXED IN ITS HANDS. 67. THE LEARNED DR REITERATED THE SUBMISSIONS MADE IN CASE OF OTHER APPEALS. 68. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED TH E RELEVANT MATERIALS ON RECORD. IN VIEW OF OUR DETAILED DISCUS SION AND FINDING IN ITA NO. 717/HYD/12(SUPRA), WE HOLD THAT THE INCO ME EARNED BY THE ASSESSEE IS NOT THE INCOME OF STATE AND AS SUCH THE ASSESSEE IS ASSESSABLE UNDER THE INCOME TAX ACT. 69. SO FAR AS THE DISALLOWANCE OF INFRASTRUCTURE EX PENDITURE OF RS. 784,32,00,000/- ON ACCOUNT OF PAYMENT MADE TO AP ST ATE HOUSING CORPORATION IS CONCERNED, IN VIEW OF OUR FI NDING IN PARAGRAPH 56 WE UPHOLD THE ORDER OF THE REVENUE AUT HORITIES AND DISMISS THE GROUND RAISED BY THE ASSESSEE. 70. IN RESPECT OF THE ADDITION OF AN AMOUNT OF RS. 3,31,168/-, PERUSAL OF THE ORDER OF THE CIT(A) IT IS TO BE SEEN THAT THE ASSESSEE HAS NOT RECONCILED THE DIFFERENCE BY SUBMI TTING ANY EXPLANATION. HENCE, IN THAT VIEW OF THE MATTER, THE ADDITION MADE IS SUSTAINED. 71. SO FAR AS THE GROUND RAISED WITH REGARD TO DIS ALLOWANCE OF CLAIM MADE U/S 80IB OF THE ACT FOLLOWING OUR OBSERV ATION IN CONCLUDING PART OF PARAGRAPH 65 HEREINBEFORE, WE RE MIT THE ISSUE TO THE FILE OF THE ASSESSING OFFICER, WHO SHALL CON SIDER THE ALLOWABILITY OR OTHERWISE OF THE SAME IN ACCORDANCE WITH LAW AFTER 80 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD T O THE ASSESSEE. 72. IN THE RESULT, APPEAL BEING ITA NO. 715/HYD/20 11 BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ITA NO. 1292/HYD/2012 FOR AY 2006-07 BY THE REVENUE 73. THE DEPARTMENT HAS FILED THE AFORESAID APPEAL CHALLENGING THE DELETION BY THE CIT(A) OF THE AMOUNT OF RS. 1,3 1,01,333/- ADDED BY THE ASSESSING OFFICER ON ACCOUNT OF DIFFER ENCE IN LETTERS OF CREDIT. 74. IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESS ING OFFICER NOTICED THAT THERE WAS A DISCREPANCY BETWEEN THE AM OUNTS THAT THE BOARD HAS AUTHORIZED ITS VARIOUS BRANCHES TO SP END AND BETWEEN THE ACTUAL EXPENDITURE MADE BY THE VARIOUS BRANCHES. THE EXPENDITURE IS INCURRED BY THE VARIOUS BRANCHES AFTER THE HEAD OFFICE ISSUES LETTERS OF CREDIT (LOC) TO THE B RANCHES. THOUGH, THE ASSESSEE SUBMITTED ITS REPLY TO THE QUERY MADE BY THE ASSESSING OFFICER, THE ASSESSING OFFICER REJECTED T HE EXPLANATION OF THE ASSESSEE AND ADDED THE AMOUNT BY OBSERVING T HAT THE DISCREPANCIES POINTED OUT WERE NOT RECONCILED BY TH E ASSESSEE. IN COURSE OF THE PROCEEDING BEFORE THE FIRST APPELLATE AUTHORITY, THE ASSESSEE CONTENDED THAT THE BOARD DISBURSED THE AMO UNTS TO VARIOUS DIVISIONS OR BRANCHES FOR EXPENDITURE IN AC CORDANCE WITH THE INDENTS RECEIVED FROM THE DIVISIONS WHICH ARE T ERMED AS LOC. THE AMOUNTS TRANSFERRED TO VARIOUS DIVISIONS ENABLE THEM TO INCUR THE EXPENDITURE. THEREAFTER, THE ACCOUNTS STATEMENT S ARE SENT TO 81 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD THE HEAD OFFICE WHICH RECONCILES THE SAME UNDER VAR IOUS HEADS. IT WAS FURTHER SUBMITTED THAT THE RECONCILED AMOUNTS C AN BE VERIFIED FROM THE BANK BALANCES. THE CIT(A) CALLED FOR A REM AND FROM THE ASSESSING OFFICER ON THE SUBMISSIONS MADE BY THE AS SESSEE. THE ASSESSING OFFICER IN THE REMAND REPORT STATED THAT THE ASSESSEE COULD NOT PRODUCE DETAILS DURING THE ASSESSMENT PRO CEEDINGS TO RECONCILE THE DIFFERENCE. THE CIT(A) AFTER CONSIDER ING THE SUBMISSIONS OF THE ASSESSEE, DELETED THE ADDITION M ADE BY OBSERVING IN THE FOLLOWING MANNER: 7.2 I HAVE GONE THROUGH THE VARIOUS SUBMISSIONS AND THE FACTS OF THE CASE AND I FIND THAT THE ISSUE OF LETTERS OF CREDIT AND TRANSFER OF FUNDS IS AN ONGOING PROCESS. AT ANY POINT OF TIME THERE WILL BE SOME DIFFERENCES WHICH REQUIRE RECONCILIATION. THE AO HAS NOT IDENTIFIED SPECIFIC EXPENDITURES WHICH HAVE BEEN INCURRED OVER AND ABOV E THE AUTHORIZATION OR WHICH ARE NOT ALLOWABLE AS PER THE INCOME TAX ACT. I ALSO FIND THAT THE LOCS ARE INTERNAL INS TRUMENTS BY WHICH ACCOUNTING IS DONE VIS--VIS THE VARIOUS B RANCHES. EVEN DURING THE REMAND PROCEEDINGS THE AO HAS NOT G IVEN A SPECIFIC FINDING ON THE EXPENSES WHICH ARE DISALLO WABLE, I, THEREFORE, FIND FORCE IN THE ARGUMENT OF THE APPELL ANT. ACCORDINGLY, THE ADDITION OF RS. 1,31,01,383/- IS O RDERED TO BE DELETED. 75. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMI TTED BEFORE US THAT THE ASSESSEE HAD EXPLAINED THAT THE AMOUNTS DISBURSED BY THE HEAD OFFICE AND THE DIVISIONS HAVE NO OTHER SOU RCE AND SO THE AMOUNTS SPENT HAD TO BE OUT OF FUNDS DISBURSED THRO UGH LOCS AND DEPOSITED IN THE BANK ACCOUNT. THE ASSESSEES E XPLANATION WAS CONSIDERED SATISFACTORY BECAUSE BY APPLYING THI S LOGIC THE DIVISIONS CAN NEVER SPEND MORE THAN WHAT IS RECEIVE D. WHEREAS EXACTLY THAT IS THE CASE BEFORE THE ASSESSING OFFIC ER. SINCE THE ASSESSEE COULD NOT RECONCILE PROPERLY THE ADDITION MADE BY THE ASSESSING OFFICER WAS JUSTIFIED. 82 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD 76. THE LEARNED AR ON THE OTHER HAND SUPPORTED TH E ORDER OF THE CIT(A). 77. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. ON PERUSAL OF THE ORDER OF THE CIT(A), W E FIND THAT THE ASSESSING OFFICER HAS NOT BEEN ABLE TO IDENTIFY THE SPECIFIC EXPENSES WHICH ARE DISALLOWABLE, HENCE, THE CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. AFTER GOING THROUGH THE FINDING OF THE CIT(A), WE DO NOT FIND ANY REASON TO INTERFERE WITH THE SAME, AS THE ASSESSING OFFICER HAS FAILED TO SU BSTANTIATE THE BASIS FOR DISALLOWANCE NOT ONLY AT THE TIME OF ASSE SSMENT PROCEEDING BUT DURING THE REMAND ALSO. ACCORDINGLY , WE UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE AND DISMISS T HE GROUNDS RAISED BY THE DEPARTMENT. 78. IN THE RESULT, APPEAL OF THE REVENUE BEING I TA NO. 1292/HYD/2012 IS DISMISSED. 79. TO SUM UP, ITA NO. 717/H/12 IS PARTLY ALLOW ED, ITA NO. 715/H/11 AND ITA NOS. 1216, 1217, & 1218/H/12 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AND ITA NO. 1292/H /12 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MAY, 2013. SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER SD/- (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED THE 31 ST MAY, 2013 KV 83 ITA NOS. 1216-18/H/12 & 717/H/12 & 715/H/11 AP HOUSING BOARD COPY FORWARDED TO: 1. 2. 3. 4. 5. M/S ANDHRA PRADESH HOUSING BOARD, 5-4-400, GRUHAKALPA, M.J. ROAD, HYDERABAD 500 001. DCIT, CIRCLE 5(1), HYDERABAD CIT (A)-IV, HYDERABAD. CIT CONCERNED, HYDERABAD. THE DR, ITAT, HYDERABAD.