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TMI Blog2012 (8) TMI 386X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax Act alone is enough for an assessee to claim exemption in respect of its income under S.11 of the Act - Revenue's appeal is dismissed. - IT Appeal No. 875(Hyd.) of 2011 - - - Dated:- 4-5-2012 - CHANDRA POOJARI, SMT. ASHA VIJAYARAGHAVAN, JJ. M.S. Rao for the Appellant. Y. Ratnakar for the Respondent. ORDER Smt. Asha Vijayaraghavan, Judicial Member This appeal filed by the Revenue is directed against the order of the CIT(A)-IV, Hyderabad dated 28.2.2011 for the assessment year 2005-06. 2. The only grievance of the Revenue in this appeal is against the relief granted by the CIT(A), by accepting the claim of the assessee for ex-emption of its income under S.11 of the Income-tax Act, and also for exemption of its agricultural income under S.10(1) of the Act. 3. Facts of the case in brief are that the assessee, for the assessment year 2005-06 filed return of income, claiming exemption under S.11 of the Act, and thereby declaring income at Rs. NIL. The assessment was re-opened on 26.3.2007 and re-assessment order was passed by the assessing officer on 31.1.2007, determining the total income of the assessee at Rs. 9,67,92,152. On appeal by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income claimed as agricultural income Rs.10,11,65,524 Total Income Rs.11,38,73,120 5. During the course of appellate proceedings before the CIT(A), the learned Authorised Representative submitted that the assessee is a fully owned State Government Corporation and is administered by the Government. It is a charitable institution established with the main intention of promoting green cover in forest areas by agricultural operations, raising industrial plantation and preservation of forest environment. It was also averred that the surplus generated is being ploughed back for the above purposes only and not a single rupee was parted in the form of dividends or profits to the share holders, viz. the State Government. The assessee also submitted a copy of the note filed before the assessing officer, explaining the nature of agricultural operations undertaken by it during the year. It was averred that all the plantations are grown by it by performing manually and mechanically all agricultural operations. It was submitted that the assessee had contended that the income from agriculture is exempt under S. 10(1) of the Act, regardless of its applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw, it ceases to be an agricultural income. It was also argued that even if there is any violation of the State Act or any Central Act or any forest policy, it is for the concerned authorities to take action or penalise the assessee corporation and not for the assessing officer to take up the cause of other departments. It was also contended that the assessee's activities are being monitored by the State and Central Governments on a continuous basis, and therefore, as long as it is accepted that the plantations were raised by carrying on agricultural operations, any income derived therefrom would be agricultural income, exempt under S.10(1) of the Act. 7. As for the violation of provisions of S.13, the learned Authorised Representative submitted that the sum of Rs. 1,43,00,000 amounts to application of income and is not a loan or even an investment made for earning interest. Referring to the explanation dated 8.12.2009 submitted before the assessing officer, it was reiterated that the money spent by the Corporation was on behalf of the State Government, in pursuance of the role assigned to the assessee in relation to beedi leaf collectors, and it amounts to application and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereof, which in brief are as under- ( a ) Government is not a taxable entity. It is the authority that levies taxes and is not itself subject to the tax statute enacted by the legislature and that is the reason why "Government" has not been included in the definition of the term "person" under S.2(31)of the Act. ( b ) The Government does not have any financial stake in the assessee's Corporation. Despite having made substantial contribution, it is not 'a person who has a substantial interest' in the assessee corporation and it is not entitled to any part of the profits. ( c ) Even if funds are given by the assessee to the State Government as an 'advance', the Government did not get any 'personal benefit' nor granted any personal benefit to any other interested person of the assessee corporation. It is clear that no personal advantage or profit or privilege accrued to the Government itself or any other interested person in the present case. ( d ) Even if funds were provided by the assessee to the State Government as an 'advance', the same cannot be considered as a violation of the provisions of S.13, as the assessee was duly compensated by way of interest by the State G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on regarding 'benefit' to any 'interested persons', leave alone the State Government, which, according to him, cannot be considered as a person within the definition of that term in the Income-tax Act. 12. As for the assessee's claim for exemption under S.10(1) in respect of agricultural income, the CIT(A) held that the assessing officer was not justified in denying the same, as he has not disputed that the assessee has carried out agricultural operations. He also took note of the contents of the letter of the Principal Chief Conservator of Frosts, A.P. dated 10.2.2010, which was filed during the course of appellate proceedings by way of additional evidence, on which the assessing officer has not offered any comments in his remand report, despite opportunity given to him. 13. Further, placing reliance on the decisions of the Tribunal, in that behalf, he also found no merit in the conclusion of the assessing officer that the assessee was not registered under S.43(1) of AP Charitable and Hindu Religious Institutions and Endowments Act, 1987 and as such it was not eligible for exemption under S.11 of the Act. 14. The Commissioner of Income-tax(Appeals) thus allowed the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho can be said to be an 'interested person' and in the instant case, the State Government is an interested person, who has secured benefit of huge sum of Rs.1.43 crores as advance. He further submitted that in view of application of the said advance towards beedi leaf collectors and beedi leaf sales, the transaction of the advancing the amount by the assessee is not mere violation of the provisions of S.13 noted above, but is against the public health and State policies in that behalf, as smoking has serious harmful effects on the health and hygiene of the public at large. He invited our attention in that behalf to the elaborate discussion made by the assessing officer in that behalf in the impugned assessment order. The lease rent paid by the assessee to the State Government, which is the founder and author of the assessee-organisation is also in violation of the provisions of S.13(1)(c)(ii) read with s.13(3)(a) and (b) of the Act, irrespective of the quantum of lease rent paid or its reasonableness. He also strongly supported the order of the assessing officer with regard to denial of exemption in respect of agricultural income claimed by the assessee in terms of S.10(1) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated any provisions of law in the course either such agricultural operations or its sale of agricultural produce. He submitted that it is not the case of the assessing officer that what is derived by the assessee is not agricultural income, but it is his contention that while carrying on the operations, there was alleged infraction of statutory provisions. In this context, he submitted that even if there is any infraction of law, such an infraction does not change the nature or character of the agricultural income. In any event, it is submitted that all the activities of the assessee are approved by the State Government, viz. Forest Department and also by the Government of India, Ministry of Environment and Forests, as clarified by the Principal Chief Conservator of Forests of Government of Andhra Pradesh by his letter dated 8.2.2010. 19. Once agricultural income of the assessee is accepted to be exempt under S.10(1) of the Act, there is no income assessable in the hands of the assessee, because the total income as per the Act has to be first determined before applying the provisions of S.11 of the Act, and in determining the total income, agricultural income has to be first e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividend from the activities of the assessee-corporation. We find that the amount of advance of Rs. 11.43 crores by the assessee to the State Government is merely by way of incurring expenditure on behalf of the State Government, and it is neither by way of deposit nor investment which is prohibited by the provisions of S.11(5) of the Act. The interest received by the assessee from the State Government is also only of compensatory nature to reimburse the cost incurred by the assessee for making the advances in question. The harmful effects of the smoking on public health and other issues taken up by the assessing officer, as against public /State policy, are beside the point, as the assessee-corporation is a creature of the State itself, and its activities are guided, monitored and controlled on continuous basis by the authorities of the State Government, in accordance with the policies laid down by the Central and State Governments from time to time. For these very reasons, even the rents paid by the assessee corporation for the lands taken on lease from the State Government cannot constitute violation of the provisions of S.13 of the Act. 21. Even with regard to the assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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