State-controlled entity qualifies as instrumentality under Article 12, granted complete tax exemption

ITAT Visakhapatnam held that the appellant, incorporated under special legislation with complete state government control over appointments and policy decisions, qualifies as an instrumentality of state under Article 12 of the Constitution. Applying the Som Prakash Rekhi criteria, the tribunal found the appellant satisfied majority conditions for state status. Despite AO's view that appellant was a partnership firm liable to tax, ITAT determined the appellant was entitled to tax immunity under constitutional provisions. The tribunal noted appellant's bona fide belief in tax exemption status and allowed cancellation of wrongly issued PAN. Appeal allowed with complete tax exemption granted.

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Issues Involved:
1. Condonation of Delay
2. Validity of Notice Issued u/s 148
3. Status of the Assessee as an Instrument of State and Exemption from Taxation
4. Addition of Unexplained Cash Deposits u/s 69A

Summary:

Condonation of Delay:
The appeals were filed by the assessee with a delay of 17 days due to preoccupation with implementing an educational program and adherence to the Model Code of Conduct for General Elections 2024. The Tribunal found valid and sufficient cause for the delay and admitted the appeals for hearing in the interest of justice.

Validity of Notice Issued u/s 148:
The assessee did not press this ground, and it was dismissed as not pressed.

Status of the Assessee as an Instrument of State and Exemption from Taxation:
The assessee argued that it is a statutory body under the AP State Council of Higher Education Act, 1988, and falls within the definition of 'State' as per Article 12 of the Constitution of India, thus exempt from filing Income Tax Returns. The Tribunal examined the APSCHE Act and concluded that the assessee is under the complete superintendence and control of the State Government, both financially and administratively. Therefore, the assessee qualifies as an instrumentality of the State and is entitled to immunity from taxation under Article 289 of the Constitution of India. The Tribunal allowed this ground, stating that the assessee is fully exempt from tax.

Addition of Unexplained Cash Deposits u/s 69A:
Given that the assessee is exempt from taxation, the Tribunal held that there cannot be any taxation on the income or receipts of the assessee. Consequently, the addition of Rs. 18,99,93,014/- made by the AO towards unexplained cash deposits was not justified.

Conclusion:
The appeals for the A.Y. 2013-14 to 2017-18 were allowed, and the order was pronounced in the open court on 28th May, 2024.

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