2020 (3) TMI 1019 - AT - Income Tax

Exemption u/s 10(46) - CIT(A) dismissed the appeal of the assessee since various grounds was not pressed by the assessee - Assessee is a Government Organisation with the main objective of performing activities of controlling pollution - HELD THAT - Appellant has contended that the said grounds were not only pressed by the assessee but even a detailed submission in support of the issues raised therein was made by the assessee which was extracted by the Ld. CIT(A) in his impugned orders. Keeping in view all the facts of the case as borne out from the record, we are inclined to accept this contention of the learned counsel for the assessee. Even the ld. DR has not raised any objection for sending the matter back to the AO for adjudication of these vital issues relating to the assessment of the assessee for both the years under consideration after proper and necessary verification. We accordingly set aside the impugned orders of the ld. CIT(A) on these issues and restore the matter to the file of the AO for deciding the same on merit in accordance with law after giving the assessee proper and sufficient opportunity of being heard.

Issues Involved:

1. Whether the grants received by the assessee from the government for specific purposes should be treated as income.
2. Whether income that did not accrue or arise to the appellant was wrongly assessed as its income.
3. Whether the receipts of the Board are covered under Article 289 of the Indian Constitution and hence not liable to tax.

Detailed Analysis:

Issue 1: Treatment of Government Grants as Income

The assessee argued that the grants given by the Government for specific purposes should not be treated as income. The lower authorities failed to consider this, and thus, the grants should have been excluded from the assessment. The Tribunal noted that the assessee is a Government Organisation with the main objective of controlling pollution. The assessee had claimed exemption under Section 10(46) of the Income Tax Act, 1961, but the Assessing Officer (AO) disallowed this claim as the notification for exemption was applicable only from Assessment Year (A.Y.) 2016-17 onwards. Consequently, the AO treated the entire surplus as income for A.Y. 2014-15 and 2015-16.

Issue 2: Assessment of Non-Accrued Income

The assessee contended that income which did not accrue or arise to it was wrongly assessed as its income. The Tribunal observed that the assessee made detailed submissions before the Commissioner of Income Tax (Appeals) [CIT(A)], highlighting that the Board was created to discharge governmental functions related to environmental protection. The funds received were meant for specific objectives under the Water (Prevention and Control of Pollution) Act, 1974, and the Air (Prevention and Control of Pollution) Act, 1981. The assessee argued that these funds were not income but capital receipts meant for public welfare and environmental protection, and thus, should not be included in the taxable income.

Issue 3: Applicability of Article 289 of the Indian Constitution

The assessee argued that its receipts are covered under Article 289 of the Indian Constitution, which exempts the property and income of a State from Union taxation. The Tribunal noted that the assessee-board was performing functions as an agent of the state government, and its income should be considered as the income of the state, which is exempt from tax under Article 289(1). The Tribunal also referred to various provisions of the Water Act and Air Act, which indicate that the state government exercises control over the Board's functioning. The assessee further argued that the Board does not carry on any business or commercial activity and acts solely as a regulatory body for public welfare, making its income immune from taxation.

Tribunal's Decision:

The Tribunal found merit in the assessee's arguments and noted that the CIT(A) had dismissed the relevant grounds by stating they were not pressed, despite detailed submissions made by the assessee. The Tribunal agreed that the matter should be sent back to the AO for proper verification and adjudication of these issues. Consequently, the Tribunal set aside the orders of the CIT(A) and restored the matter to the AO for a fresh decision on merits, providing the assessee with an opportunity to be heard.

Conclusion:

The appeals were partly allowed for statistical purposes, and the stay applications were dismissed as infructuous. The Tribunal directed the AO to reconsider the issues related to the treatment of government grants, assessment of non-accrued income, and the applicability of Article 289 of the Indian Constitution, ensuring a thorough and fair assessment.

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