B.C. Patel, J. - (1.) Gujarat Municipal Finance Board (hereinafter referred to as the Board) constituted under the provisions contained in the Gujarat Municipal Finance Board Act, 1979 (hereinafter referred to as "the Boards Act") has filed this petition under Article 226 of the Constitution of India, interalia praying to quash and set aside the notices dated 24.3.1995 for Assessment Years 1984-85 to 1993-94 issued under Sec. 148 read with Sec. 147 of the Income Tax Act (hereinafter referred to as the I.T. Act) and to permanently restrain the respondents from making any assessment in respect of the said Assessment Years.
(2.) Succintly stated, the facts leading to the filing of the present petition are as under: The petitioner Board came into existence in 1979 under the Boards Act and has a perpetual succession and a common seal with powers subject to the provisions of the Boards Act. The Board used to receive grants on various occasions from the consolidated fund of the State and in discharge of its duties, the same was required to be disbursed for the purposes such as roads, drainage, street lights, water supply, scheme for primary facilities, sanitation, play ground, public toilets/bathrooms, community hall, service vehicles etc. etc., to the local authorities, i.e., a Municipality or Municipal Corporation under the provisions contained in the Gujarat Municipalities Act (hereinafter referred to as the Municipalities Act or the Bombay Provincial Municipal Corporations Act, 1949 (hereinafter referred to as "the BPMC Act'). The Board had some surplus amount with it and the same was invested, as a result of which there was income arising out of such investment. The State Government decided that the interest amount which may be earned be retained by the Board as a part of grant-in-aid given to it by the Government. This intimation was given, vide letter Annexure 'A' dated 28.5.1982 and was reiterated vide letter dated 15.4.1996 at page 110 of the petition. In view of this amount of interest, the Income Tax Department called upon the Board indicating that the Assessment Officer has reason to believe that the income of the Board chargeable to tax for the assessment years 1984-85 to 1993-94 has escaped assessment within the meaning of Sec. 147 of the I.T. Act and therefore proposed to assess for the said assessment years and called upon to deliver within 30 days from the date of service of the notices, returns in the prescribed form of the income of the Board for the Assessment Years in question. In reply thereto, the Board filed return under protest indicating therein that the entire income is not taxable under I.T. Act as the Board is a "State" and even otherwise, under Article 289 (1) of the Constitution, the whole of the income is exempt. It was pointed out that under Sec. 10 (20.A) of the Income Tax Act, the Board is an authority constituted by an enanetment for planning, development etc., of the cities and towns through monitoring funds and activities of Municipalities, Nagar panchayats etc. The Board also pointed out that the Board is a State Government Authority and carries on functions for and on behalf of the State Government and, therefore, the income of the Board is not liable to Income Tax. It was also pointed out that the accounts of the Board are audited by the Comptroller and Auditor General of India as per Art. 149 of the Constitution of India and the audited annual accounts are placed before the legislative assembly and unsettled objections of the audit are subject to review by the Public Accounts Committee also.
(3.) Mr. Shelat, learned counsel for the Revenue submitted that this Court should not interfere at the stage of show cause notice and that the Board should place all relevant materials before the assessment officer who shall decide the matter in question in accordance with law and if the Board is aggrieved, may prefer an appeal in accordance with law and can't approach this Court by filing a petition under Article 226 of the Constitution of India. It was contended that there is an income by way of interest and, therefore, the Board is liable to be assessed. It was contended that the Board cannot claim the benefit of the provisions contained in sec. 10 (20A) of the I.T. Act, as the Board has not satisfied the need of housing accommodation or for the purpose of planning. development or improvement of cities, towns and villages or for both. It was contended by him that even reading the entire Boards Act, functions of the Board are very limited and is that of disbursing the amount of grant and loans, assessment of income of local bodies and giving advice to the local bodies or to the Government regarding sound Municipal finance, and, therefore, the Board cannot claim the benefit of exemption under Sec. 10 (20.A) of the Income Tax Act. With regard to Art. 289 (1) of the Constitution of India, Mr. Shelat contended that the Board is a financial Corporation established by an act and as this Board has an income, it is liable to be taxed. With regard to the concurrence given by the State Government, it is contended that the Finance Department has agreed that interest amount may be retained as a grant-in-aid given to it by the Government, but looking to the letter as whole, it is only a proposal and therefore, it cannot be said that the proposal is accepted by the Board and, therefore, it is a grant. It was further submitted that the amount is required to be disbursed for the purposes laid down under the Act and if there is any amount with the Board, the same should be kept in the Bank account, if the Board wants to avoid liability to pay income tax. Mr. Shelat has read out the entire affidavit filed by Deputy Commissioner of Income Tax and has argued that the Board is not discharging any sovereign functions of the State and, therefore, is not entitled to claim the benefit under Art. 289 of the Constitution of India.;