Ganesh Housing Corporation Ltd. vs Padam Singh, Under Secretary and Others

Akilkureshi, J.—The petitioner-company, registered under the Companies Act, 1956, has challenged communication dt. 16th Feb., 2009 issued by the respondent No. 2 proposing to withdraw the approval of an industrial park constructed by the petitioner. The petitioner has further prayed for a direction to the respondent No. 1 to notify the said industrial park of the petitioner under r. 18C of the income tax Rules, 1962.

The issue arises in the following factual background :

The petitioner desired to develop an Industrial Park in the nature of "Pharmaceutical Park" in terms of the Industrial Park Scheme, 2002 (hereinafter referred to as, "the Scheme"). The petitioner applied for the above purpose to the Ministry of Commerce on 6th Aug., 2002 for granting approval for setting up of such a park in terms of the said Scheme. The said approval was granted by the Ministry on 5th Nov., 2004.

It is the case of the petitioner that the petitioner completed all works by developing infrastructural facilities. The petitioner was also required to make six monthly progress reports. Eventually, according to the petitioner, the entire development work was completed before 31st March, 2006. The Pharmaceutical Park proposed by the petitioner and approved by the Ministry envisaged 32 sub-plots on which pharmaceutical industries would be located. It is the case of the petitioner that before 31st March, 2006, all sub-plots were sold to different pharmaceutical companies, and these companies were in turn required to set-up their pharmaceutical units/factories on the plots assigned to them. It is thus the case of the petitioner that whatever the petitioner was required to do was completed before 31st March, 2006.

We would take note of various provisions contained in the said Scheme later. However, at this stage, it may note that the Industrial Park which the petitioner was permitted to construct require a minimum of 30 units and further that the last date for implementation of the Scheme was 31st March, 2006.

It is not in dispute that for those companies, which provide such industrial parks at the relevant time, tax benefit u/s 80-IA(4)(iii) was available. It is also not in dispute that the petitioner claimed such deduction for the assessment year 2005-06 and after a scrutiny assessment, such deduction was granted. It also appears that the petitioner claimed similar benefits in the subsequent years also.

It is the case of the petitioner that in terms of sub-r. (2) of r. 18C of the IT Rules, 1962 ("Rules" for short), since the industrial park of the petitioner was approved by the Ministry, the Central Board of Direct Taxes ("CBDT for short) was required to notify the industrial park of the petitioner. The grievance of the petitioner, is that despite the Government having approved the industrial park of the petitioner and despite the petitioner having constructed such a park and completed all the development works before 31st March, 2006, the respondent No. 2 did not notify such park in terms of sub-r. (2) of r. 18C of the Rules.

It appears that the CBDT did not notify the industrial park of the petitioner since it was of the opinion that the approval itself should be withdrawn. This was on the basis of communication of the Chief CIT dt. 27th Oct., 2008 to the CBDT suggesting that all units had not come into existence. It was conveyed that as against the lay out plan envisaging 32 units, only four units had been set-up and none of the units were functional as on 25th April, 2008. Based on such material, CBDT sent a communication to the Ministry of Commerce & Industries dt. 24th Dec, 2008 stating as under :

The undersigned is directed to refer to DIPP OM No. 15/21/2004 IP & ID dt. 2nd Jan., 2008 on the subject above and to enclose herewith a copy of the report of the Chief CIT, Ahmedabad in the matter, I am further directed to request you to consider withdrawing the approval accorded to the undertaking viz., M/s Ganesh Housing Corporation Ltd. vide letter No. 15/21/04-IP & ID dt. 5th Nov., 2004 under cl. 8 of the Industrial Park Scheme, 2002 for the failure to develop the Industrial Park by the prescribed date.

On the basis of such communication, the Ministry sent the impugned communication dt. 16th Feb., 2009 to the petitioner indicating that the CBDT had, in view of the fact that only four units having come up in the park, requested to withdraw the approval accorded to the petitioner. Under the circumstances, it is proposed to withdraw the proposal. The petitioner was, therefore, required to state why such action should not be taken. The petitioner made a very detailed representation in response to such proposal under communication dt. 3rd April, 2009. In the said representation, the petitioner raised several contentions, mainly that the entire developmental work was completed within time; that it was not obligatory on the petitioner to ensure that the industrial units be set-up by the companies to whom plots were allotted; by allotting the plots, the petitioner had fulfilled the requirement of 30 units being located in the Park.

On the basis of above factual background, the petitioner has approached this Court in the present petition raising mainly two grievances : firstly, it is the grievance of the petitioner that the impugned show cause notice is based on completely impermissible grounds. It is the case of the petitioner that the entire industrial park having been set'' up within the time prescribed, the approval granted earlier cannot be withdrawn on the ground that some of the units had not been set-up. The second grievance of the petitioner is that under r. 18C(2) of the Rules, the CBDT is required to notify the industrial park of the petitioner. Instead, the CBDT intimated to the Government that action should be initiated for withdrawal of approval itself.

In response to the notice issued, the respondents have appeared. Separate replies have been filed by CBDT and the Ministry.

Learned counsel for the petitioner vehemently contended that the Scheme envisages providing of, and construction of infrastructural facilities, allotment of plots to a minimum 30 units. When the petitioner had done both these things, the petitioner cannot be asked to do anything further and the approval granted to the petitioner cannot be withdrawn merely on the ground that in turn some of the units have not been set-up and the production has not commenced. Counsel further submitted that under r. 18C(2) of the Rules, the Ministry had approved the Industrial Park and it was incumbent upon the CBDT to notify the same. In any case, such a requirement was purely procedural in nature.

Counsel further submitted that for withdrawal of the approval, it was the satisfaction of the Ministry which was necessary. It could not have been guided by the opinion of the CBDT.

On the other hand, learned counsel for the CBDT took us through various provisions of the Scheme and other related documents to contend that the scheme envisages creation of the Industrial Parks which should become functional before the last date i.e., 31st March, 2006. He submitted that mere providing infrastructural facilities would not satisfy such a requirement. In the present case, upon verification, it was found that only four out of 32 units had put up their plants and on the date of inspection not a single unit was functional. He, therefore, submitted that the proposal for withdrawal of the approval of the park was justified. The petition should, therefore, be dismissed.

Learned Asstt. Solicitor General Mr. P.S. Champaneri appearing for the Ministry submitted that the petitioner had approached against a show-cause notice. The petition, therefore, should not be entertained. He submitted that the petitioner would have full opportunity to raise all contentions before the authorities.

Having thus heard learned counsel for the parties, we would like to record relevant provisions of the Scheme and other connected documents. The said Scheme was formulated in exercise of powers under el. (iii) of sub-s. (4) of section 80-IA of the IT Act, 1961. It was called, "Industrial Park Scheme, 2002". Clause (2)(f) of the Scheme defines the term "Infrastructure development" as follows :

(2)(f) "infrastructure development" includes, roads (including approach roads), water supply and sewerage, common effluent treatment facility, telecom network, generation and distribution of power, air conditioning and such other facilities as are for common use for industrial activity which are identified and are provided on commercial terms.

Clause 2(h) of the Scheme defines the term "Undertaking" as under :

(2)(h) "undertaking" means any undertaking which is engaged in the business of developing, developing and operating or maintaining and operating an industrial park notified by the Central Government in accordance with this Scheme.

Clause 2(i) defines term "unit" as under :

(2)(i) "unit" means any separate and distinct entity for the purpose of one or more state or central tax laws.

Clause 3 of the Scheme provides for period of operation of the scheme and reads as under :

Period of operation of the Scheme.--This Scheme shall be applicable for any undertaking which develops, develops and operates or maintains and operates an Industrial Park for the period beginning on the 1st day of April, 1997 and ending on the 31st March, 2006. In a case, where an undertaking develops and Industrial Park on or after the 1st day of April, 1999 and transfers the operation and maintenance of such Industrial Park to another undertaking (transferee undertaking), the benefits shall be allowed to such transferee undertaking for the remaining period in the ten consecutive assessment years in a manner as if the operation and maintenance were not so transferred to the transferee undertaking.

Clause 4 of the Scheme pertains to objectives of the industrial park. The purpose of objectives of infrastructural industrial park is provided in sub-clause (b) thereof reads as under :

Objectives of the industrial park--Any project, being an industrial park, shall aim at setting up of--

(a)...............

(b) an industrial park for development of infrastructural facilities or built up space with common facilities in any area allotted or earmarked for the purposes of industrial use specified in explanation to para 6 sub-clause (c).

Explanation to para 6 sub-clause (c) of the Scheme provides that for the purpose of this clause, the Industrial use shall include any activity defined in the National Industrial Classification 1987 Code; except certain industries excluded therein.

We may notice that clause (5) and (6) of the said Scheme pertain to automatic approval and criteria for automatic approval of such industrial parks. Whereas, cl. (7) pertains to non automatic approval. We are, however, not directly concerned with such niceties, except for recording that in cases of an industrial park referred to in cl. (b) of para 4 viz., industrial park for development of infrastructural facilities, the minimum number of units to be provided in such Park is 30.

Clause (8) of the Scheme pertains to withdrawal of approval and reads as under :

Withdrawal of approval--The Central Government may withdraw the approval given to an undertaking under this Scheme when such undertaking fails to comply with any of the conditions of grant of approval :

Provided that before withdrawal of approval, the undertaking being industrial park, shall be given an opportunity of being heard.

Clause (9) of the Scheme pertains to general conditions. Relevant conditions thereof are the following :

General conditions--(I)...............

(2) The tax benefits under the Act can be availed only after the number of units indicated in the application, are located in the Industrial Park.

(3)...............

(4)...............

(5) Every undertaking, which has been granted approval shall continue to furnish to the Central Government on 1st January and 1st July of every year, a report in the form number IPS- II during the period in which the benefits under the Act are to be availed.

Form IPS-I under the said Scheme provides for Model Application Form for setting up Industrial Parks/Model Town, etc. Paragraph 4 of the said form pertains to details pertaining to location, area, proposed activities, proposed investment, etc., in such proposed industrial park. Paragraph 4 reads as under :

4

I.

Proposed location of the Industrial model town/ industrial park/growth centre

Address

State

Pin Code

Fax

II

Proposed area of industrial model town/industrial park/growth centre (in acres/sq. mtrs. Specify)

III

Proposed'''''''' allocable'''''''' area'''''''' of'''''''' industrial model town/industrial park/growth centre (in acres/sq. mtrs. Specify)

IV

Proposed activities [please specify item codes as defined under the National Industrial Classification of all Economic Activity (NIC), 1987]

V

Proposed percentage of allocable area earmarked for industrial use;

VI

Proposed No. of Industrial units

VII

(a) Total Investment proposed (amount in rupees)

(b) Proposed investment on built-up space for industrial use (if applicable) (amount in Rs.)

(c) Proposed'''''''' investment'''''''' on'''''''' infrastructure development [including (b)] (amount in rupees)

(d) Percentage of (c) to (a);

IX

Total foreign equity proposed (amount in rupees)

X

*Expected/actual date of commencement of industrial model town/industrial park/growth center.

*The "Expected/actual date of commencement of industrial model town/ industrial park/growth centre" denotes the date when all the infrastructural facilties for the proposed number of industrial units have been provided. If the park is proposed to be developed in phases, the details information on the same may be also suitably mentioned along with the application.

In terms of para 9(5) of the Scheme, the developer has to submit 6 monthly progress reports. Form IPS-II prescribes proforma for such reports. Paragraph 5 thereof, inter alia, pertains to number of industrial units in the project; para 7 requires developer to indicate briefly the effective steps taken towards implementation eg., installation of common facilities, number of units sold or leased, number of units commencing the industrial activity.

Having taken note of the provisions of the Scheme and other related documents, we may also, at this stage, take note of r. 18C of the IT Rules, 1962 which pertains to Eligibility of Industrial Parks and Special Economic Zones for benefits u/s 80-IA(4)(iii). The said r. 18C of the Rules read as under :

18C Eligibility of Industrial Parks and Special Economic Zones for benefits u/s 80-IA(4)(iii).--(1) The undertaking shall begin to operate an industrial park during the period beginning on the 1st day of April 1997, and ending on the 31st March, 2002.

(1A) The undertaking shall begin to develop or develop and operate or maintain and operate a special economic zone any time during the period beginning on the 1st day of April 2001 and ending on 31st March, 2006.

(2) The undertaking shall be duly approved by the Ministry of Commerce and Industry in the Central Government under the scheme for Industrial Park or Special Economic Zones notified by that Ministry.

(3) The undertaking shall continue to fulfil the conditions envisaged in the scheme.

(4) On approval under sub-r. (2), the CBDT, shall notify industrial parks for benefits u/s 80-IA.

From the Scheme, we have noticed that "an undertaking" is defined to mean, "any undertaking which is engaged in the business of developing, developing and operating or maintaining and operating an industrial park notified by the Central Government in accordance with the Scheme." The undertaking, thus to be notified by the Central Government in accordance with the Scheme, falls in three different categories viz., (a) those engaged in the business of developing; (b) those engaged in the business of developing and operating; and (c) those engaged in the business of maintaining and operating an industrial park. These three categories are thus separate and distinct. Admittedly, the petitioner approached the Central Government with a proposal for developing an Industrial Park providing infrastructural facilities for Pharmaceutical industries. The petitioner, thus made a proposal to the Government with a scheme for development of an Industrial Park for Pharmaceutical industries. The application of the petitioner and the approval granted by the Government, therefore, has to be seen as one granting permission to the petitioner for developing an industrial park by providing infrastructural facilities. The petitioner had not applied for, nor was it granted, permission for developing and operating the Industrial Park, or for maintaining and operating such a Park. In view of this, one has to ascertain what exactly were requirements which the petitioner was to fulfil. Section 80-IA(4)(iii) of the IT Act, 1961; as applicable at the relevant time, read as under :

80-IA. Deductions in respect of profits and gains from industrial undertakings or enterprise engaged in infrastructure development,'''''''' etc.

(I)-.......

(iii) Any undertaking which develops and operates or maintains and operates an industrial park or special economic zone notified by the Central Government in accordance with the scheme framed and notified by that Government for the period beginning on the 1st day of April, 1997 and ending on the 31st day of March, 2006.

Provided that in a case where an undertaking develops an industrial park on or after the 1st day of April, 1999 or a special economic zone on or after the 1st day of April, 2001 and transfers the operation and maintenance of such industrial park or such special economic zone, as the case may be, to another undertaking (hereafter in this section referred to as the transferee undertaking), the deduction under sub-s. (1) shall be allowed to such transferee undertaking for the remaining period in the ten consecutive assessment years as if the operation and maintenance were not so transferred to the transferee undertaking.

Under the Scheme, the petitioner as an undertaking engaged in the business of developing an Industrial Park, was required to fulfil the general conditions on which such approval was granted. Clause 9 of the Scheme, as already noted, provides such general conditions. Sub-clause (2) of cl. 9 requires that the tax benefits under the Act can be availed only after the number of units indicated in the application are located in the Industrial Park. Sub-clause (5) of cl. 9 further requires the developer to submit six monthly progress report.

Much has been argued by the counsel for the respondents with respect to such requirements. They have tried to link the application form in format IPS-I, which is appended to the said Scheme, to contend that the petitioner was required not only to develop an industrial park but also had to ensure that all units put up their industries and start their manufacturing activities as well.

We, however, look at the requirements of the Scheme differently. Sub-clause (2) of cl. 9 required the petitioner before availing the tax benefits to ensure that all units indicated in the application are located in the Industrial Park. As noted earlier, term "unit" has been defined in definition cl. 2(i) to mean, "any separate and distinct entity for the purpose of one or more state or central tax laws."

The question arises--Did the petitioner fulfil this requirement ? For this purpose, we may note that the entire infrastructural facilities were created by the petitioner before the last date envisaged under the Scheme by providing various facilities such as roads, drainage, electricity, lights, water, etc. The entire plot on which the Industrial Park was located was further sub-divided into several plots. The petitioner had in fact sold all 32 plots to different units before 31st March, 2006. These assertions of the petitioner are not seriously disputed by the respondents. Even the impugned show-cause notice is not based on non-fulfillment of above requirements. We, therefore, proceed on the premise that considerably had taken these steps before 31st March, 2006 in furtherance of implementation of the Scheme. To our mind, under the Scheme, the petitioner had fulfilled all the requirements for availing the tax benefits. The petitioner was required to develop the infrastructural facilities. In short, the petitioner was required to set-up an industrial park with all infrastructural facilities to enable the pharmaceutical industries to set-up their units on the plots so allotted. Term "locate" used in sub-clause (2) of cl. 9 of the Scheme must be viewed from the angle of having allocated the plots to the producing industries.

In the Advanced Law Lexicon by P. Ramanatha Aiyar (2009 Edition), while explaining the term "Locate", it is stated that according to the context the word may be employed as meaning : To ascertain and determine the place of; to state the locality of; to designate the site or place of; to determine the situation or limits. So according to the context it may mean to direct, or to lead to; to fix in place; to select or determine the bounds or place; to set in a particular spot or position; as applied to land, to select, survey, and settle the boundaries of a particular tract of land, or to designate a particular portion of land by limits.

Similarly, in Blacks Law Dictionary, the term "location" has been explained as to mean, "the specific place or position of a person or things; the act or process of locating". In context of real estate to mean, "the designation of the boundaries of a particular piece of land, either on the record or on the land itself."

On part of the petitioner, therefore, the requirement was to ensure that before claiming the tax benefit, units indicated in the application are located in the Industrial Park. It is not in dispute that the petitioner in addition to developing the entire park by providing infrastructure, sub divided the plots into smaller units, sold the plots to individual industries and such industries were allocated specific plots for such purpose. The requirement of ensuring that the industries, as indicated in the application approved, by the Government were located before the last date prescribed, was thus fulfilled.

Counsel for the respondents, however, relied on forms of declaration annexed along with the Scheme to contend that the requirement went much beyond and the petitioner was required to ensure that such industries must set up their units on the plots so allotted. To our mind, such requirement can neither be read in the Scheme nor can it be fastened on the petitioner in any other manner. The petitioner was a developer of the Industrial Park. The duty and responsibility of the petitioner, to be able to claim tax deductions, was to set-up an industrial park by providing necessary infrastructural facilities. We have seen that the development of such a park would require providing of all infrastructural facilities; sub plotting the entire plot and also ensuring that the number of units indicated in the application are sold to the intending industries. In short, the duty and responsibility of the petitioner was to ensure that the industrial activity is facilitated on the Industrial Park so developed by it. It was thereafter not responsible to ensure that industries do in fact set-up their units and commence production activities'''''''' on such'''''''' units--that'''''''' too'''''''' before the last date envisaged in the Scheme. To our mind, such responsibility fastened on the petitioner is not borne out from the Scheme. The duty and responsibility of the petitioner was to provide infrastructural facilities which would be a catalyst for industrial growth by enabling the intending industries to set-up their industry in such a Park. Such manufacturing units or the intending industries were in no way under the control of the petitioner. There can be variety of reasons why such industries may not be able to start their units, such as, non-availability of funds for setting up of the units, pending approval and clearances from the Government and other agencies and such similar reasons which can be attributed only to the intending industries and not to the petitioner. In fact, the scheme requires that the petitioner not only fulfil but continue to fulfil all conditions of approval assessing the period when the tax benefit is available. If we accept the strict requirements insisted by the respondents, it would mean that not only number of industrial units indicated in the application for approval of Industrial Park must be operational on the last date of expiry of the Scheme, they must continue to operate till the petitioner avails of all the tax benefits. In a given situation, it may happen that the number of units, after initially coming into existence, may have to be closed down for variety of reasons such as non-availability of market for their product or non-availability of raw materials, or even labour problems. Would in such a case the petitioner be denied tax benefits ? To our mind, the answer has to be empathetically in the negative.

In this regard, we may refer to the decision of the Bombay High Court relied by the learned counsel for the petitioner in the case of Commissioner of Income Tax Vs. ABG Heavy Industries Ltd., , wherein, the Bombay High Court was examining the eligibility of an assessee to deductions u/s 80-IA of the Act in terms of the policy of the Government to encourage private sector participation in development of infrastructural facilities. In this context, the Bombay High Court observed as under :

The obligations which have been assumed by the assessee under the terms of the contract are obligations involving the development of an infrastructure facility. Section 80-IA of the Act essentially contemplated a deduction in a situation where an enterprise carried on the business of developing, maintaining and operating an infrastructure facility. A port was defined to be included within the purview of the expression infrastructure facility. The obligations which the assessee assumed under the terms of the contract were not merely for supply and installation of the cranes, but involved a continuous obligation right from the supply of the cranes to the installation, testing, commissioning, operation and maintenance of the cranes for a term of ten years which the cranes were to vest in JNPT free of cost. An assessee did not have to develop the entire port In order to qualify for a deduction u/s 80-IA. Parliament did not legislate a condition impossible of compliance. A port is defined to be an infrastructure facility and the circular of the Board clarified that a structure for loading, unloading, storage, etc., at a port would qualify for deduction u/s 80-IA. The condition of a certificate from the Port Authority was fulfilled and JNPT certified that the facility provided by the assessee was an integral part of the port. The assessee developed the facility on a BOLT basis under the contract with JNPT. On the fulfilment,of the lease of ten years, there was a vesting in the JNPT free of cost." (underline, italicised in supplied by us)

We may notice that in the present case, there are no allegations that the plots were not actually sold by the petitioner before the last date envisaged under the Scheme i.e., 31st March, 2006. There is no allegation that infrastructural facilities were not provided because of which industrial units of the industries which purchased such plots could not be set-up. It is also not an allegation of the respondents that the petitioner had only shown Benami sale of the plots and had indirectly held on to such property for profiteering at a future date, only seeking to derive the benefit of price escalation in real estate. That being the situation, to our mind as per the Scheme, what was required to be done by the petitioner was to provide for infrastructural facilities before the last date envisaged under the Scheme. Thereafter, there was no obligation on the part of the petitioner to ensure that industrial units on such plots must also come into existence and commence their production activities.

In view of above conclusion, we are of the opinion that the petitioner has made out a case for interference even at this stage. We are conscious that the petitioner has approached the Court at a stage where Government has issued a show-cause notice calling upon the petitioner to answer to certain queries. However, the proposal to withdraw the approval is only on the basis that the industries had not commenced production even during the grace period. This allegation is based on premise that as per the respondents, out of thirty two units envisaged in the Park, only four had been set-up and none of them were functional on the date of the visit by the AO. We are conscious that ordinarily Courts do not encourage litigation at the show-cause notice stage. Under normal circumstances, we would also have insisted that the petitioner should appear before the authorities and reply to the show-cause notice and would have permitted the authorities to pass final order in accordance with law. However, in the present case, the entire show-cause notice is based on premise which we do not find legally sustainable. Under the circumstances,'''''''' we'''''''' are'''''''' inclined to'''''''' interfere'''''''' at this'''''''' stage.'''''''' No'''''''' useful purpose would be served in driving the petitioner to a long drawn litigation in the form of replies, orders and appeals.

We may, however before closing, dispose of couple of peripheral issues raised on behalf of the petitioner. It was contended that the show-cause notice is based on the opinion of the CBDT and that the Ministry cannot be guided by. such opinion, and that therefore, the show-cause notice was bad in law. We are, however, of the opinion that simply because the CBDT brought certain issues to the notice of the Ministry, that by itself would not mean that the Ministry was being guided or governed by the CBDTs opinion or that issuance of show cause notice on the basis of information provided by CBDT would be without jurisdiction.

Counsel for the petitioner had further argued that once the undertaking is approved by the Ministry of Commerce under the Scheme for Industrial Park, CBDT had necessarily to notify such industrial park for the benefits u/s 80-IA of the Act. Heavy reliance was also placed on sub-r. (3) of r. 18C of the IT Rules, 1962 which prevailed at the relevant time. On the other hand, counsel for the Revenue had contended that it was open for the CBDT to examine whether the assessee had fulfilled the requirements under the Scheme before issuance of any such notification. To our mind, in the present case, this issue has become one of academic interest. We, therefore, leave this question open.

In the result, the impugned Notice dt. 16th Feb., 2009 is quashed. Consequently, the respondents, and in particular, the respondent No. 2 shall take consequential steps to ensure that necessary notification in terms of r. 18C (4) of the IT Rules, 1962;_as prevalent at the relevant time, is issued by the CBDT with respect to the petitioners Industrial Park.