2019 (4) TMI 755 - AT - Income Tax

Liability to tax being as State under Article 289 of the Constitution of India and engaged in public utility services - immunity from the taxation - assessee board was set up by State Government by enacting law - CBDT notification dated 29.03.2016 exempting specified income u/s 10(46) - artificial juridical person as defined in section 2(31) - AO after re-opening of the assessment completed the assessment u/s 144 - AO took the view that assessee is a Body Corporate having perpetual successor and a common seal - HELD THAT - The assessee is not rendering any services in the nature of trade, commerce or business for a fees or any other consideration, rather, the assessee engaged in regulation of educational activities as per the statutory obligation conferred on the assessee Board. Even otherwise as we have noted earlier every activities of the assessee Board is subject to superintendence, instruction and control of the State Government. In our view, the assessee Board is completely controlled financially as well as administratively by the Government, thus, falls under the definition of State as per Article 12 of the Constitution of India. The exemption in the CBDT notification dated 29.03.2016 is valid for Financial Year 2015-16 to 2018-19. Admittedly no return of income was filed by the assessee for the assessment year under consideration. The ld. AR initially argued that under bonafide mistaken belief that the assessee is being instrument of state is exempted from filing return of income, the assessee has not file return of income for the assessment year under consideration. Considering the facts that the assessee Board is under complete superintendence, and control of the State Government financially as well as administratively falls under the definition of State as per Article 12 of the Constitution of India. And in our view is entitled for immunity from the taxation of its income under the provisions of Income-tax Act. our view is further got the support that CBDT vide its notification date 29.03.2016 has granted exemption of taxation to the assessee board. - Decided in favour of assessee.

Issues Involved:

1. Validity of the assessment under section 144 of the Income-tax Act.
2. Validity of the notice issued under section 148.
3. Whether the income of the appellant is exempt under Article 289 of the Constitution of India.
4. Whether the appellant is a "person" for the purposes of the Income-tax Act and liable to file a return of income.
5. Taxability of the surplus income of the appellant.
6. Applicability of section 10(46) of the Income-tax Act.
7. Disallowance under section 40(a)(ia) of the Income-tax Act.

Detailed Analysis:

1. Validity of the assessment under section 144 of the Income-tax Act:
The assessee challenged the assessment under section 144, claiming it was contrary to the facts and principles of equity and natural justice. The Tribunal noted that the assessee had not filed a return of income for the assessment year under consideration. The assessing officer issued a notice under section 148 based on available information, and the assessment was completed under section 144 after the assessee failed to provide the required details. The Tribunal upheld the assessment, as the assessee did not press this ground during the hearing.

2. Validity of the notice issued under section 148:
The assessee argued that the notice under section 148 was invalid as there was no reason to believe that income chargeable to tax had escaped assessment. The Tribunal noted that the assessee did not make any submissions on this ground during the hearing. Consequently, this ground was treated as not pressed and dismissed.

3. Whether the income of the appellant is exempt under Article 289 of the Constitution of India:
The assessee claimed exemption from Union taxation under Article 289, arguing that it is a "State" as defined in Article 12 of the Constitution. The Tribunal examined the Maharashtra State Board of Technical Education Act, 1997, under which the assessee was established. It concluded that the assessee is an instrumentality of the State, engaged in advancing general public utility services and not in trade, commerce, or business. The Tribunal held that the assessee's income is exempt under Article 289 and supported this view with a CBDT notification granting exemption under section 10(46) for subsequent years.

4. Whether the appellant is a "person" for the purposes of the Income-tax Act and liable to file a return of income:
The assessing officer and CIT(A) held that the assessee is an artificial juridical person under section 2(31) of the Income-tax Act and liable to file a return of income. The Tribunal disagreed, stating that the assessee is a "State" under Article 12 and not liable to file a return of income. The Tribunal emphasized the complete control of the State Government over the assessee's financial and administrative affairs.

5. Taxability of the surplus income of the appellant:
The assessing officer treated the surplus income of the assessee as business income and interest on fixed deposits as income from other sources. The Tribunal held that the assessee's activities are not in the nature of trade, commerce, or business. It concluded that the surplus income is not taxable, as the assessee is engaged in public utility services and exempt under Article 289.

6. Applicability of section 10(46) of the Income-tax Act:
The assessee argued that its income is exempt under section 10(46). The Tribunal noted that the CBDT granted exemption for specified incomes from FY 2015-16 to 2018-19. Although the exemption did not cover the assessment years in question, the Tribunal held that the assessee's income is still exempt under Article 289.

7. Disallowance under section 40(a)(ia) of the Income-tax Act:
The assessing officer disallowed certain expenses under section 40(a)(ia) due to non-deduction of TDS. The Tribunal found this ground academic, as it had already held that the assessee's income is exempt from taxation. Thus, the discussion on this ground was deemed unnecessary.

Conclusion:
The Tribunal partly allowed the appeals for AY 2007-08 and 2010-11, holding that the assessee's income is exempt under Article 289 of the Constitution of India and not liable for taxation. The grounds related to the reopening of the assessment and the validity of the notice under section 148 were dismissed as not pressed.

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