MIDC Exempted from Income Tax Payment on Land Receipts

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The government of India has passed the Income Tax Act of 1961 which stipulated that income generated through a land lease is in fact taxable. This is applicable for all individuals, businesses as well as corporations.

About Maharashtra Industrial Development Corporation or MIDC

The MIDC or Maharashtra Industrial Development Corporation is a project of the Maharashtrian government in India.  It is the leading corporation in the state of Maharashtra. The goal of this corporation is to provide multiple businesses with a different infrastructural provision like land, roads, water system and supply, drainage facilities and also street lights. The land provisions given to business by MIDC are in the form of open plots or built-up spaces to carry out the respective business ventures. The CEO of the Maharashtra Industry Development Corporation is Mr. P. Anbalagan.


The MIDC till date has been able to perform smoothly and have achievements that crown their work progress and efficiency. MIDC has successfully built over two hundred industrial complexes in a land area of thirteen lakh acres. This corporation has also developed many specialized parks for different industrial sectors in the regions of Maharashtra including IT, BT, wine parks, textiles, leather, chemical industries, food processing, electronic and many others.

A Brief History

The state of Maharashtra was formed on May 1st, 1960. After its formation, the government of Maharashtra had followed up by constituting a “Board of Industrial Development” which was on 1st October, of the same year. All the recommendations received by the committees were taken up by the department of industries to be implemented and put to action.


The Maharashtra Industrial Development Corporation had since then taken up tasks and objectives that proved to be change inducing as these historical undertaking of policies managed to bring about reformation in the socioeconomic side of the state as the activities of the corporation progressed more and more toward the interior of the state.

Since the Maharashtra Industrial Development Corporation began its work, the overall economic and the industrial progress of the State has grown by leaps and bounds and is now recognized as one of the most industrially developed States in all of India, and it will continue to grow and prosper with the passage of time.


In the earlier stages of the MIDC, one of the most crucial and wise steps that were taken into the initiative and successfully pulled off was the setting up of a portable water system with an independent filtration which had sufficient capacity for water retention. This project proved to be an essential and integral part of the industrial progress and development during the beginning stages of the MIDC. This allowed industries to be set up in areas that are nearer to population sectors. As the growth continued, the key choice of providing water to the adjacent populated area helped further elevate the rate of growth and urbanization of the nearby towns and villages. This choice of supplying the adjacent villages and rural residential areas with their own water supply created a phenomenal achievement in the overall scale of development of the rural village areas. This growth is owed to MICD for making a choice to implement the policies of kalian complex and primpri-chinchwad and consequently act on it.

Till date, the Maharashtra Industrial Development Corporation has successfully developed 233 industrial land areas spanning over 53, 120 hectors of land. The MIDC has built five-star industrial areas in nine different locations considering that facilities of international standards are required to get the attention and attract multinational companies to promote business propositions and ventures.  


The state of Maharashtra has a staggering count of approval from special economic zones which are from the Indian government. This places the Maharashtra government in the top position in comparison to the other state bodies of India. In the case of economic performance, government efficiency, productivity, business prowess and overall competitive nature, the state of Maharashtra has always persevered and came out on the top place first owing to its carefully planned and organised development and growth of the industrial sector. As of 2006, according to the world competitive report, Maharashtra managed to be ranked 37th on the list beating many powerful countries like South Korea, Brazil, South Africa, and Russia as well.


In the state of Maharashtra, the MIDC has efficiently and successfully acquired around 57, 650 plots under its name. Similarly, this corporation has since allotted and leased over 48,701 plots to business organizations and other entrepreneurs who require land and plots for their business operation. To benefit and provide assistance, the Maharashtra Industry Development Corporation has built and managed to supply adjacent areas with water pipelines of up to 3, 238.60 kilometers in Maharashtra. This has allowed the MIDC to cater to the requirements of flourishing industry and thus aid in the overall development of the stats urbanization and economic stature.  

Through this water supply, MIDC has been able to generate annual revenue of 432 corers. The MIDC is one of the major causes for which the State of Maharashtra can continue to develop at an exponential rate. The functionality of the corporation is what helps empower the rural areas with the knowledge and amenities for moving forward with their own business ventures. The MIDC has achieved a lot in its past tenures. The MIDC has been able to supply water to both domestic and industrial networks. Increasing the facilities to establish proper residency and business operation is what one of the main targets of the MIDC is. This corporation has specialized in multiple industrial sectors from IT, jewelers, textile, leather, parks, food processing, and packaging, electronic and even in the chemical industry. A staggering achievement accomplished by the MIDC is being able to build over 200 complexes which are now being used for business and industrial purposes in a land area of 1, 300,000 acres. The roads constructed by the MIDC allow good quality avenues for transportation to and fro from different business and industry complexes and areas. 

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Exemption from IT payment on a land lease

In recent events, the Income Tax Appellate Tribunal or ITAT in Mumbai, has officially announced that the MIDC has been granted exemption from income tax payment online for the amount of income generated from the land lease rent and other development charges placed by them on the land that is acquired by them. This state-run corporation has built 289 industrial areas with a land area of 66273.82 hectares of land. This land acquired by MIDC has been increased from 2450 hectares to the now 66273.82 hectares in the years following up to 2017. During the relevant years, the income of the assessee state run corporation was valued at 1, 212 crores.


Before the statement, if the Tribunal was released, the corporation had pleaded that the ownership of the land acquired by the corporation was the property of the Maharashtrian Government and that all income raised and gained from the lease premiums and all other consequential incomes were of the government itself and thus should be exempted from taxation.

As of a few ago in September 2018, the tribunal passed an official statement ordering that the Maharashtra Industry Development Corporation is not liable to pay income tax on the lands that are acquired by the corporation. A fifty-five page order had been passed by the tribunal which comprised of G S Pannu and Ravish Sood, has successfully given pardon to MIDC led by the Shiv Sena leader Subhash Desai.


According to the order which was passed on September 15, 2018, the Income Tax department will have to refund a total of Rupees  three hundred and ninety-five crore (395 crores) along with an additional interest of 12 % to the Maharashtra Industry Development Corporation. Along with that, a recovery amount of rupees nine thousand three hundred and eleven crores (9, 311 crores) from the MIDC will also be revoked.
 This order was accepted, and the tribunal was content in accepting that the corporation is exempted from paying income tax to the land lease receipt owned by it on the grounds that the land owned and acquired by the MIDC is vested with the state of Maharashtra and its government.

The ground for approving this order on which the MIDC claimed to be exempted from paying income tax was that the MIDC being an agency of the state should not have to pay income tax on its income generated from the land lease. Another point made by the MIDC was that the corporation was not engaged in any form of commercial activity. There was no attempt made to popularize the name of the corporation so as to stimulate the growth of the corporation and thereby increase the amount of earning generated from the land lease by attracting the attention of more business looking for land property to rent.

Another point that was laid down by the corporation was that there was an absence of profit motive. The Maharashtra Industry Development Corporation had no aim to generate profits through any of its activities and objectives. Furthermore, the Maharashtra Industry Development Industry Corporation is a body of local authority. Thus the amendment to provisions of Section 2 (15) of the Income Tax Act effective from first April 2009 stipulates that the corporation being a local authority is not required to pay income tax on the income that is generated from the land lease and rent.
These were the initial ground on which MIDC stood for the appeal to be benched from being liable to income tax payment on the land acquired by them and put on lease and rent to other businesses.

An MIDC official had said that in a speaking order, the tribunal had observed that the income tax department cannot levy income tax o n the lands that are acquired by MIDC. It is to be noted that while the lands are claimed to be acquired y the MIDC, the ownership of those land are rested with the State government of Maharashtra.  In such a case of land acquisition, the Maharashtra Industry Development Corporation simple acts a nominee of the state government and is not in any sense involved in the business for profit loss. This presentation of argument was accepted by the tribunal and thus forth MIDC was exempted from paying income tax on the land rent and lease given by it to other business ventures.

 

For appealing to the tribunal, the MIDC placed forward the ground that the activities that were carried out by the corporation in lieu of leasing the acquired land did not fall under any category of trade and commerce. Neither its activities could be considered a form of business venture and association.  Thus, it cannot be charged by the proviso to Section 2 (15) of the MIDC Act. The corporation further stated that the actions and propositions performed were sovereign functions of the government itself and not that of the corporation’s individual decision as a separate body from the State Government of Maharashtra. All the activities that were carried out were for both on account of itself and also as an agent for the government.

Since the appeal of the MIDC went through and was accepted by the tribunal, there remained no need for the corporate to pay the income tax department 9, 311 crores which were imposed on the MIDC for all earlier transactions. The dispute of whether the assessee was liable to pay income tax on the land lease was applicable or not has been going on between the corporation and the income tax department since 2006. After Subhash Desai took up the mantle of overseeing the industries department, he had personally dealt with this dispute and finally got the tribunal to agree to the MIDC’s appeal of tax exemption.

Thanks to the exemption from income tax on land lease, the Maharashtra Industrial Development Corporation can continue to operate as an agent of the government. This will lead to the continual development of the State and help further the cause for urbanization

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