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of <h1>High Court rules kist money pre-transfer is State's income, not Corporation's under Income-tax Act</h1> <h3>Commissioner Of Income-Tax Versus Arunachal Pradesh Forest Corporation Limited</h3> Commissioner Of Income-Tax Versus Arunachal Pradesh Forest Corporation Limited - [1993] 201 ITR 129, 71 TAXMANN 571 Issues:Interpretation of Income-tax Act, 1961 regarding assessment of kist money received by the assessee.Analysis:The judgment pertains to a reference made under section 256(1) of the Income-tax Act, 1961, concerning the assessment of kist money received by the respondent, a Corporation formed by the Arunachal Pradesh Government. The core issue revolved around whether the kist money received by the Corporation should be assessed as its income. The Corporation had entered into agreements with the State Government, transferring the operation and management of forest areas to the Corporation. The Corporation received kist money both before and after a specific date, with differing views on the taxability of the amounts received.The facts established that the Corporation had received substantial amounts as kist money, with a portion being due before the operational transfer date. The Income-tax Officer contended that the Corporation had transferred the entire amount to the Government, while the Corporation claimed it was a mistake. The lower authorities held that the Corporation's right to the kist money was limited to amounts due after the operational transfer date, not including the pre-existing dues. The agreements between the State Government and the Corporation outlined the revenue-sharing model, indicating that the Corporation was entitled to a percentage of the net income after deducting operational costs.The High Court analyzed the agreements and the nature of the Corporation's relationship with the State Government. It observed that the Corporation functioned as an agent of the State Government for pre-existing dues, as it had stepped into the State Government's shoes regarding those transactions. The Court upheld the Tribunal's finding that the kist money received before the operational transfer date was not the Corporation's income but belonged to the State Government. Therefore, the Court ruled in favor of the Corporation, affirming that the pre-transfer kist money should not be assessed as the Corporation's income for the relevant assessment year.In conclusion, the High Court answered the referred question in favor of the assessee, i.e., the Corporation, and against the Revenue. The judgment emphasized the agency relationship between the Corporation and the State Government regarding the pre-existing kist money, leading to the non-taxability of those amounts in the Corporation's hands for the assessment year in question.
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