2023 (1) TMI 1152 - AT - Income Tax

Assessee Qualifies as 'State' for Tax Immunity under Indian Constitution

WATCO, Versus CIT (Exemption), Hyderabad

The Tribunal allowed the appeal of the assessee, declaring that the assessee qualifies as a 'State' under Article 12 of the Constitution of India. As a ... Exemption u/s 11 - application for registration u/s 12AA rejected - whether assessee shall be held as “State” and thus no tax can be levied on it under the income tax act? - As per Commissioner (Exemption) appellant was carrying on activities in the nature of commerce & the object of the appellant were not to be treated as for Charitable purpose u/s 2(15) - HELD THAT:- As per the definition of “State”, if we check under which head the assessee company would fall, the probable answer is “Local or Other Authorities”. But, the definition of “Local or Other Authority” was not defined in the constitution or any other statute, however, a fundamental guidance was accorded by Som Prakash Rekhi vs Union Of India [1980 (11) TMI 113 - SUPREME COURT] wherein the Hon‟ble Apex Court has prescribed certain tests to determine as to whether an institution is “State‟ within the meaning of Article 12 of the Constitution of India or not. We have carefully perused the submissions of the assessee (supra) regarding fulfillment of the aforesaid tests/conditions carved out by the Apex court and found that the assessee company has satisfied the said tests, thus, we hold that the assessee company falls under the definition of “State” within the meaning of Article 12 of the Constitution of India and, therefore, in our considered opinion entitle for immunity from the taxation under the provisions of Income Tax Act 1961 as directed under article 289 of constitution of India 1949. WATCO, the assessee company hold the status of “State” within the meaning of Article 12 of the Constitution of India and entitle for immunity from taxation under the provisions of Income Tax Act 1961 as declared by Article 289 of the Constitution of India 1949. Consequently, the additional ground of the assessee stands allowed. Issues Involved:1. Validity of the order passed by CIT (Exemption), Hyderabad.2. Rejection of the application for registration under section 12AA of the Income Tax Act, 1961.3. Consideration of the assessee as a 'State' under Article 12 read with Article 289 of the Constitution of India.Detailed Analysis:1. Validity of the Order Passed by CIT (Exemption), Hyderabad:The assessee challenged the validity of the order passed by CIT (Exemption), Hyderabad, dated 06.12.2019, on the grounds that it was capricious, invalid, illegal, and bad in law. The CIT (Exemption) had rejected the assessee's application for registration under section 12AA of the Income Tax Act, 1961, on the basis that the assessee was carrying out activities in the nature of commerce and that its objectives did not qualify as charitable under section 2(15) of the Act.2. Rejection of the Application for Registration Under Section 12AA:The assessee, a wholly owned not-for-profit company set up by the Government of Odisha, filed an application in Form 10A seeking registration under section 12A of the Income Tax Act, 1961, on 30.06.2019. The CIT (Exemption) rejected this application, citing that the original objects of the company were not in the nature of charity and that the amendments to the Memorandum of Association (MoA) had not been registered with the Registrar of Companies (RoC), thus rendering the original objects valid. The CIT (Exemption) also noted that the assessee's activities were in the nature of business/commerce and did not fall within the ambit of charitable activity as prescribed by section 2(15) of the Act.3. Consideration of the Assessee as a 'State' Under Article 12 Read with Article 289 of the Constitution of India:The assessee argued that it should be considered a 'State' under Article 12 of the Constitution of India, making it exempt from income tax under Article 289. The Tribunal examined the definition of 'State' under Article 12 and the tests laid down by the Hon'ble Supreme Court in the case of Som Prakash Rekhi vs Union of India. The Tribunal found that the assessee satisfied the conditions for being considered a 'State,' including:- Entire share capital held by the Government.- Deep and pervasive State control.- Monopoly status conferred or protected by the State.- Functions of public importance closely related to governmental functions.- Transfer of a department of Government to the corporation.The Tribunal concluded that the assessee company falls under the definition of 'State' within the meaning of Article 12 of the Constitution of India and is therefore entitled to immunity from taxation under the provisions of the Income Tax Act, 1961, as per Article 289 of the Constitution of India. Consequently, the additional ground of the assessee was allowed, and the original grounds of appeal became academic and required no separate adjudication.Conclusion:The appeal of the assessee was allowed, and the Tribunal declared that the assessee holds the status of 'State' under Article 12 of the Constitution of India, granting it immunity from taxation under the Income Tax Act, 1961, as per Article 289 of the Constitution of India. The order was dictated and pronounced in the open court on 27/09/2022.