AI Drafter 
TaxTMI 
TaxTMI 
2020 (3) TMI 1019
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....to consider that the grant given by the Government were for specific purposes and it could not be treated income of the assessee and therefore the same should have been excluded in the assessment. 5. For that the lower authorities failed to consider that income which did not accrue or arise to the appellant was assessed wrongly as its income. 10. For that in the facts and circumstances of the case the receipts of the Board are covered under Article 289 of the Indian Constitution and hence not liable to tax." 3. The relevant facts of the case apropos these Ground Nos. 4, 5 & 10 are that the assessee is a Government Organisation with the main objective of performing activities of controlling pollution. The return of income for the year under consideration was filed by it on 19.11.2015 declaring total income at nil after claiming exemption u/s 10(46) of the Income Tax Act, 1961. During the course of assessment proceedings, the AO noticed that the assessee was notified u/s 10(46) on 04.04.2016 from A.Y. 2016-17 to 2021-22 vide Notification No. 25/2016in F. No. 196/11/2015-ITA-I. He also noted that the assessee was not in possession of any certificate or notificatio....
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.... for the prevention and control of water pollution and the maintaining or restoring of wholesomeness of water, for the establishment, with o view to carrying out the purposes aforesaid, of Boards for the prevention and control of water pollution and for conferring on and assigning to such Boards powers and functions relating thereto." 40. From the preamble itself it can be seen that the assessee-board was created to discharge governmental function relating to environment and in particular for prevention & control of water pollution as' well as for maintaining / restoring wholesomeness of water. The assessee-board was also entrusted with the task of prevention, control and abatement of air pollution and giving effect to decisions taken in United Nations Conference and Human Environment. Further the assessee-board was empowered to act as state-agent for preservation of natural resources of the earth which includes quality of air and control of air pollution. 41. Under various provisions of the environment legislatures, namely the Water (Prevention and Control of Pollution) Act, 1974 and The Air (Prevention and Control of Pollution) Act, L981, it can be seen that....
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....nctions of the State is not liable to tax under Article 289(1) / 289(31of the Constitution of India. 40. Apart from the above, the distinguishing features of the assessee which entitles to consider its income as 'state income' are as follows: a) The appellant board does not carry on any business / commercial activity. b) The appellant board is only a regulatory body for public welfare. c) The appellant board was appointed exclusively for carrying out the state function or the state obligation mandated by the Constitution of India as well as by the statute. d) The functions to be discharged by the Board are set out in the Water (Prevention and Control of Pollution) Act, L974 and The Air (Prevention and Control of Pollution) Act, 1981. e) The appellant board is vested with powers which only a state discharge and not any private entity or a private organization. f) lf the veil of the assessee board is lifted, it would be seen that state is the person running and controlling the board. g) Even possessing of own funds or PAN No. does not make any difference since the appellant board is acting as an exclusive....
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..... Further other provisions of both the aforesaid Acts, including assimilation of funds, preparation of budget, spending of money, borrowings for short term & long term etc. leaves no room for doubt that the state government exercises control over the functioning of the board. 44. Further section 62of The Water (prevention and control of pollution) Act, 1974 empowers the state government to supersede the state pollution control board and upon such supersession, the state government takes over all the powers, functions and duties performed by the state board and also property owned or controlled by the board shall vest in the state government. Therefore, from the aforesaid provisions, it can be seen that though the board apparently seems to possess an independent entity, in fact it is not so. Mere possession of PAN or having separate logo will not change the real situation. 45. Therefore, examining the provisions contained under the Water Act, 1974 or the Air Act, 1981 vis-a-vis the provisions contained under Article 48A read with Article 289 of the Constitution of India, it is evident that the board is exercising the powers/functions as an agent/extended arm of the....
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....d control of Pollution) Act, 7974 and by the central government from the consolidated funds of India u/s 8 of the Water (Prevention and Control of Pollution) Cess Act, 1977 from the proceeds collected under the Act. The funds so released by the government / collected by the assessee-board on behalf of the government, requires to expend only to meet the specified objectives as enumerated in the respective enactments. In other words, the assessee was not the owner of the fund and cannot claim any right to use the fund in any manner that it desires, rather the assessee was under obligation to spend the fund for the specific purpose as enumerated in the Water Act, L974, the Air Act, 1981 & the Water Cess Act, 1977. In essence the whole fund as held by the assessee-board is meant to protect the environment, to conserve the natural resources as well as to promote the state's overall objective of public welfare. Thus by nature all the receipts in the hands of the assessee-board are capital receipts and therefore not liable to be includible in the total income for levy of income tax u/s 4 of the lncome Tax Act" 48. It is well settled that every receipt or amount received/accounted, is ....
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.... 50. In the case of CIT vs. Bazpur Coop. Sugar Factory Ltd (1988) 172 ITR 321 (SC), the question arise as to whether the amounts credited to loss equalization and capital redemption reserve fund were held to be income/profit. The Apex Court held that all realizations do not get impressed with the character of revenue receipts includable in the taxable income and when the assessee does not have unfettered dominion over the money, the same cannot be treated as income. The Supreme Court expounded that the following questions should be raised and answered: "(1) Do the receipts bear a character of income at the time it reached the hands of the assessee? (2) Does the title in the receipt vest with the assessee? (3) Does the assessee exercise complete dominion over the funds in question? (4) Does the assessee regarded the money as that of a third party or treat the money of that of a third party/, with assessee having no unfettered dominion over the same? (5) Does the assessee stand in the position of debtor in relation to those funds/deposits? (6) What is the primary purpose of collection of said amount?" 51. In the p....