TaxTMI 
TaxTMI 
2026 (8) TMI 970
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....5, dated 05.12.2025, in issuing notice under Section 226(3) of the Income Tax Act, 1961 (for short 'the Act') to the petitioner's bank accounts (PAN number 'AAEAT0708R') and attaching the bank accounts, as illegal, arbitrary and in violation of principles of natural justice and further recognise the petitioner's constitutional immunity under Article 289(1) of the Constitution of India. 5. It was submitted that the petitioner (hereinafter referred to 'BIOSOT') is not a commercial entity, but a statutory society formed pursuant to the directives of the Hon'ble Supreme Court of India in the case of T.N. Godavarman Thirumulpad vs. Union of India [W.P (C) 202 of 1995] to execute critical ecological and conservation mandates. BIOSOT was initially registered under the Registrar of Societies, Hyderabad under the A.P. Societies Registration Act, 2001 and the Government of the then unified State of Andhra Pradesh constituted 'BIOSAP', vide G.O. Rt. No. 464, EFS&T, dated 13.10.2011, under the Chairmanship of the Chief Secretary to the Government of Andhra Pradesh. Following the bifurcation of the two States, the Government of Telangana constituted BIOSOT vide G.O.Ms. No.25, EFS&T, date....
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....SOT accepted the applicability of the income tax provisions to its operations. The BIOSOT has consistently maintained that it is a State controlled body, constituted pursuant to the directions of the Hon'ble Supreme Court and is entitled to constitutional immunity from Union taxation under Article 289(1) of the Constitution of India. 8. The BIOSOT had made repeated representations to respondent Nos.4 and 5 clearly asserting that it does not attract any income tax liability and that any correspondence or interaction with the Income Tax Department has been solely for the purpose of reiterating this constitutional position. Such communication does not and cannot constitute acquiescence to tax liability or waiver of constitutional protection. 9. Learned counsel for the BIOSOT submitted that upon a conjoint, harmonious and purposive reading of the Constitution of India and the Act it becomes unequivocally clear that the very jurisdictional foundation required for the application of the Income Tax Act is absent in the present case. The Constitution of India under Article 289(1) expressly declares that 'the property and income of a State shall stand exempted from Union taxation'....
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....taxation on its income, making all statutory proceedings entirely without jurisdiction and void under Article 265 and further argued that the entire scheme of the Act is premised upon the existence of a taxable 'person' who answers the description of an 'assessee' under Section 2(7) of the Act. According to him, Section 2(7) of the Act defines an 'assessee' as a person by whom any tax or any other sum of money is payable under this Act. The liability to be an assessee thus flows only from a valid charge to tax under Section 4, which is the charging provision of the Act. Section 4 authorises the levy of income tax only on the 'total income' of a 'person' for an assessment year, subject to constitutional competence. 12. Learned counsel for the BIOSOT argued that the aforesaid statutory scheme is wholly inapplicable to the BIOSOT for the fundamental reason that Article 289(1) of the Constitution of India imposes an absolute constitutional bar on the Union from levying tax on the income or property of a State. Once the petitioner is established to be an instrumentality of the State under Article 12, discharging sovereign and constitutional functions under Article 48A, its income-whe....
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....tisfies the ingredients of a 'work' within the meaning of Section 194C of the Act. The mere nomenclature ascribed to the payment as a 'statutory environmental mitigation deposit' purportedly made pursuant to conditions under the Forest (Conservation) Act, 1980 and the Environment (Protection) Act, 1986 cannot be determinative. What is required to be examined is the substance and character of the underlying arrangement and it is submitted that the same discloses the essential elements of a contractual payment liable to deduction of tax at source under Section 194C of the Act. 15. Having heard the contentions put forth on either side and on perusal of records, the question of law which arises for consideration in this case is 'whether the BIOSOT being a body constituted and functioning as an instrumentality of the State of Telangana in discharge of sovereign and constitutional obligations under Article 48A of the Constitution, can be subjected to the provisions of the Act in the teeth of the constitutional immunity engrafted under Article 289(1) of the Constitution of India?' 16. It would be trite at this juncture to refer to Article 289(1) of the Constitution, which for ready ....
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....ind considerable force in the submission that the BIOSOT bears all the classical indicators of a State instrumentality within the meaning of Article 12 of the Constitution, and within the ambit of 'deep and pervasive State control', functional and financial dependence, and the discharge of functions of public importance closely related to governmental functions and that the BIOSOT performs functions and to the obligations cast under the Wildlife Protection Act, 1972, the Forest (Conservation) Act, 1980 and the Biological Diversity Act, 2002 read with the constitutional mandate under Article 48A, reinforces this conclusion. 19. These are not activities undertaken in the pursuit of trade, commerce or profit; they are sovereign and welfare functions of the State delegated to and executed through the petitioner as its administrative vehicle. The circumstance that the BIOSOT does not undertake any commercial activity, does not deal in trade, and holds its corpus as a ring-fenced, non-fungible public fund earmarked for statutory conservation purposes, with only the incidental interest thereon being deployed towards such purposes and further fortifies the conclusion that the receipts i....