Statutory Board income is not State income under Article 289, while assessment verification and mandatory interest were sustained.

Income retained in the accounts and funds of a statutory Pollution Control Board was treated as its own income, not the income of the State, so Article 289 immunity from Union taxation did not apply. Approval under section 10(23C)(iv) was to follow the status of the pending writ challenge before the High Court. The assessment was remitted for factual verification of the correct receipt figure and recomputation after hearing the assessee. Interest under sections 234A and 234B was treated as mandatory and was sustained.

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Issues: (i) Whether the income of the Pollution Control Board was the income of the State so as to be exempt from Union taxation under Article 289 of the Constitution of India; (ii) whether the assessee was entitled to approval under section 10(23C)(iv) of the Income-tax Act, 1961; (iii) whether the assessment income required verification and recomputation; and (iv) whether interest under sections 234A and 234B of the Income-tax Act, 1961 was leviable.

Issue (i): Whether the income of the Pollution Control Board was the income of the State so as to be exempt from Union taxation under Article 289 of the Constitution of India.

Analysis: The Board was held to be a separate juristic entity constituted under the pollution control enactments, with its own funds, receipts, assets and liabilities. The statutory scheme showed that the monies received by the Board did not go into the State's coffers but remained its own funds, and only on dissolution or supersession would the property and liabilities devolve on the State. Article 289(1) exempts only the property and income of a State, and the Board's income could not be equated with the income of the State merely because the State exercised control over it or because the Board discharged public regulatory functions. The reasoning in Adityapur Industrial Area Development Authority was applied.

Conclusion: The claim of immunity under Article 289 was rejected and decided against the assessee.

Issue (ii): Whether the assessee was entitled to approval under section 10(23C)(iv) of the Income-tax Act, 1961.

Analysis: The first appellate authority had noted that the Chief Commissioner had rejected the approval application, but the writ petition challenging that order was pending before the jurisdictional High Court. In that situation, the appellate direction was confined to ascertaining the present status and acting in accordance with the High Court's decision.

Conclusion: The direction regarding section 10(23C)(iv) was upheld.

Issue (iii): Whether the assessment income required verification and recomputation.

Analysis: The assessee contended that the receipts adopted in the assessment were higher than the figure reflected in the revised return. The matter was therefore restored only for factual verification of the correct receipt figure after affording an opportunity of hearing.

Conclusion: The Assessing Officer was directed to verify and adopt the correct income figure.

Issue (iv): Whether interest under sections 234A and 234B of the Income-tax Act, 1961 was leviable.

Analysis: Interest under these provisions was treated as mandatory and automatic, leaving no scope for interference on the facts of the case.

Conclusion: The levy of interest was sustained against the assessee.

Final Conclusion: The appeals were only partly successful: the constitutional immunity claim failed, the approval issue was left to follow the pending writ proceedings, the income computation was remitted for verification, and the interest levy was maintained.

Ratio Decidendi: Income retained in the accounts and funds of a statutory authority distinct from the State is not the income of the State within Article 289(1) of the Constitution of India, even if the authority performs public or regulatory functions under State control.

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