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TMI Blog2024 (6) TMI 920X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the case of M/s Goetze (India) Ltd. [ 2006 (3) TMI 75 - SUPREME COURT] wherein it is provided that assessee cannot make any fresh claim before the assessing officer except by revising its return of income. As in this case no revised return has been filed by the assessee but the same case law doesn t stop the CIT(A) and ITAT to entertain the fresh claim of the assessee whether a revised return has been filed or not. We have thoroughly gone through the order of AO and found that assessee is applying more than 85% of the gross income towards objects of the institution. The surplus of the institution has been invested in the modes prescribed u/s 11(5) of the act. Assessee filed an audit report to form no. 10B. In view of these facts and the reason given by AO for not applying provisions of section 11 and 12 in the case of assessee, we found that the order of CIT (A) is correct and we find no perversity in the order of CIT (A). we do not find any sustainable reason assigned by AO which can justify the denial of assessee s claim for exemption under the provisions of sec 11 and 12 hence, ground nos. 1,2 and 3 raised by revenue are dismissed. Status of the Assessee as State - As there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kept in focus while considering the question of taxability of interest earned on FDRs by an Instrumentality of the State and/or Department/Organization of the State: (1) Interest income arising out of the business/trading activity carried out by the instrumentality of the State would be taxable in its hands; (2) The statute under which the instrumentality of the State is brought into existence must expressly provide for principal and agent relationship betwixt the State and such instrumentality; and in the absence thereof, any interest income derived by such instrumentality would be taxable as income in their hands.; (3) Any income by way of interest earned by the instrumentality of the State after having received any amount of grant or subsidy for the implementation of project/scheme i.e., earmarked purpose of the State would not be taxable as income in the hands of such instrumentality of the State or the State.; (4) Any income by way of interest much less any income earned by a Department/Organization of the State would not be taxable in the hands of either the State and/or such Department/Organization of the State. (5) Carrying on business activity for profit motive by an instr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being raised before the coordinate bench as additional ground. Again AO, disallowed all the claims made by assessee and assessed the income at Rs. 1,71,63,060/-. Assessee being aggrieved with this re-assessment order passed u/s. 143(3) r.w.s. 254 of the Act, preferred an appeal before the Ld. CIT (A), who in turn allowed the appeal of the assessee on the ground that assessee is eligible for exemption u/s. 11 and 12 of the Act without deciding the issue of exemption u/s. 10(23C) (iv) of the Act and additional ground raised before the coordinate bench and AO of being "State". Now there is a cross-appeal before us, i.e., both from Revenue and assessee against the order of Ld. CIT (A) for giving relief to the assessee and not declaring assessee as "State" respectively. Assessee raised its grievance through filing of C.O. and main appeal was filed by the Revenue against the order of Ld. CIT (A). We are first taking up the appeal of the Revenue for sake of convenience in understanding the issue. 4. We have gone through the order of AO passed u/s. 143(3) r.w.s. 254 of the Act, order of Ld. CIT (A) passed u/s. 250 of the act and detailed submissions of the assessee. Assessee is a labour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of assessee claim by the AO is that such a claim has not been made in the original return filed before him hence he relied upon the judicial pronouncement on honorable supreme court in the case of M/s Goetze (India) Ltd. 284 ITR 323 (S.C) wherein it is provided that assessee cannot make any fresh claim before the assessing officer except by revising its return of income. As in this case no revised return has been filed by the assessee but the same case law doesn't stop the Ld.CIT(A) and ITAT to entertain the fresh claim of the assessee whether a revised return has been filed or not. 7. We have thoroughly gone through the order of AO and found that assessee is applying more than 85% of the gross income towards objects of the institution. The surplus of the institution has been invested in the modes prescribed u/s 11(5) of the act. Assessee filed an audit report to form no. 10B. In view of these facts and the reason given by AO for not applying provisions of section 11 and 12 in the case of assessee, we found that the order of Ld.CIT (A) is correct and we find no perversity in the order of Ld.CIT (A). we do not find any sustainable reason assigned by AO which can justify the deni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such activities and for certain other purposes]; It is hereby enacted as follows:-- 1. (1) This Act may be called [the Maharashtra Labour Welfare Fund Act] [(2) It extends to the whole of the State of Maharashtra.] (3) It shall come into force in such area and on such date as the State Government may, by notification in the Official Gazette, appoint in this behalf. 2. in this Act, unless the context otherwise requires-- (1) "Board" means [the Maharashtra Labour Welfare Board] constituted under section 4; 7[(1A) "contribution" means the sum of money payable to the Board in accordance with the provisions of section 6BB;] [(2) " Employee " means any person who is employed for hire or reward to do any work, skilled or unskilled, manual, clerical, supervisory or technical in an establishment directly by the employer or through contractor or any Other agency, but does not include any person-- (i) Who is employed mainly in a managerial capacity? (ii) who, being employed in a supervisory capacity, draws wages exceeding three thousand and five hundred rupees per mensem, or exercises powers or carries out, either by the nature of the duties attached to the office, or by reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly so carried on ; (ii) Which is deemed to be a factory under section 85 of the said Act;] (6) "Fund" means the 2[Labour Welfare Fund] constituted under section 3; (7) "Independent member" means a member of the Board who is not connected with the management of any establishment or who is not an employee, and includes an officer of Government nominated as a member; (8) "Inspector" means an Inspector appointed under section 12; (9) "Prescribed" means prescribed by rules made under this Act; (10) "Unpaid accumulation" means all payments due to the employees but not made to them within a period of three years from the date on which they became due whether before or after the commencement of this Act including the wages, and gratuity legally payable [but not including the amount of contribution if any, paid by an employer to a provident fund Established under the Employees' Provident Funds Act, 1952]; [(11) "wages" means wages as defined in section 2 (vi) of the Payment of Wages Act, 1936, and includes bonus payable under the Payment of Bonus Act, 1965] ; (12) " Welfare Commissioner" means the Welfare Commissioner appointed under section 11. 2A. [Construction of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by this Act, the term of office of the members of the Board shall be three years commencing on the date on which the names are notified in the Official Gazette. (4)The allowances if any, payable to the members of the Board shall be such as may be prescribed. (5) [The Board shall be a body corporate by the name of the Maharashtra Labour Welfare Board having perpetual succession and a common seal, with power to acquire property both moveable and immovable, and shall by the said name sue and be sued. [(6) Notwithstanding anything contained in this section, until the Board for the State of Maharashtra is duly constituted in accordance with the provisions of sub-section (1), the existing Board functioning and operating immediately before the commencement of the Bombay Labour Welfare Fund (Extension and Amendment) Act, 1961, in any area of the State shall continue to function and operate in that area and shall be the Board for the purpose of this Act for that area ; and on the constitution of the Board for the whole of the State of Maharashtra under sub-section (1)-- (a) Such existing Board shall stand dissolved, and the members, thereof shall vacate office; (b) all properties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Act in respect of an employee in an establishment shall comprise contribution payable by the employer (hereinafter referred to as 'the employer's contribution'), contribution payable by such employee (hereinafter referred to as 'the employee's contribution') and the contribution payable by the State Government, and shall be paid to the Board and form part of the Fund. 2[(2) The amount of contribution payable every six months in respect of every employee and an employee for each such employee shall be at the following rates, namely :-- (a) (i) in respect of an employee drawing wages up to and inclusive of [three thousand rupees per mensem, six rupees]; and (ii) in respect of an employee drawing wages exceeding 4[three thousand rupees per mensem, twelve rupees], only if the name of such employee stands on the register of an establishment on the 30th June and 31st December, respectively : [Provided that, the State Government may, on receipt of a proposal from the Board, by notification in the Official Gazette, increase once in every three years, the rate of employees' contribution so, however that, such increase shall not exceed 30 per cent. of the rates of contribution. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... half the employee's contribution for the period from the 31st December 2000 to the 31st March 2003; and an amount equal to twice the employee's contribution with effect from the 1st April 2003, in respect of every employee referred to in sub-clause (i) and (ii) of clause (a) of sub-section (2).] 7. (1) The Fund shall vest in and be held and applied by the Board as Trustees subject to the provisions and for the purposes of this Act. The moneys therein shall be utilized by the Board to defray the cost of carrying out measures which may be specified by the State Government from time to time to promote the welfare of labour and of their dependents. (2) Without prejudice to the generality of sub-section (1) the moneys in the Fund may be the utilized by the Board to defray expenditure on the following:-- (a) Community and social education centres including reading rooms and libraries ; (b) Community necessities (c) Games and sports; (d) Excursions, tours and holiday homes; (e) Entertainment and other forms of recreations; (f) Home industries and subsidiary occupations of women and unemployed persons; (g) Corporate activities of a social nature; (h) Cost of admeasurin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of this Act and the rules made thereunder are duly carried out and for this purpose he shall have the power to issue such orders not inconsistent with the provisions of the Act and rules made thereunder as he deems fit including any order implementing the decisions taken by the Board under Act or rules made thereunder. 12. (1) The State Government may appoint Inspectors to inspect records in connection with the sums payable into Fund. 2[Inspectors appointed, whether by a local authority or the State Government under the Bombay Shops and Establishments Act, 1948, in relation to any area, shall be deemed to be also Inspectors for the purposes of this Act, in respect of establishments to which this Act applies, and the local limits within which such Inspector shall exercise his functions under this Act shall be the area for which he is appointed under the said Act.] (2) Any Inspector may-- (a) with such assistance, if any, as he thinks fit, enter at any reasonable time any premises for carrying out the purposes of this Act ; (b) Exercise such other powers as may be prescribed. 13. (1) The Board shall take over and employ such of the existing staff under the control of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose. 19. (1) The State Government may, by notification in the Official Gazette and subject to the condition of previous publication, make rules to carry out the purposes of this Act. (2) In particular and without prejudice to the generality of the foregoing power, such rules may be made for all or any of the following matters, namely:-- 3[(a) the intervals at which or the period within which any of the sums referred to in section 3 shall be paid to the Board or into the Fund, the manner of making such payment and the agency for, and manner of, collection of any such sum;] (b) the manner in which the accounts of the Fund shall be maintained and audited under sub-section (3) of section 3 ; (c) The procedure for making grants from the Fund under section 7; (d) the procedure for defraying the expenditure incurred in administering the Fund ; (e) the number of representatives of employers and employees, independent members and representatives of women on the Board, and the allowances, if any, payable to them, under section 4 ; (f) The manner in which the Board shall conduct their business; (g) The duties and powers of the Inspectors and the conditions of service of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s proposal of government contribution for the period from 01.04.2016 of Rs. 10, 48, 09,964/- for approval. Approval is provided to the Maharashtra Labour Welfare board for Government Contribution of Rs. 10.80 Crore (Rupees Ten Crore Eighty Lakh only) Now out of this contribution 90 % amount is disbursed i.e. Rs. 9.72/- as per Government Resolution dated 06.03.2017. Remaining 10% Le Rs. 1.08 will be disbursed as per the terms and conditions as mentioned below. a) As per the Government resolution of Industries, Energy and Labour Dept. No. MIW-1171/119016/kamgar-3b, 15 Jan 1972, Labour Commissioner, Mumbai is declared drawing and disbursing officer for payment of Government Contribution, Commissioner of Labour will prepare the bill of payment and funds shall be disbursed to MLWB. b) Maharashtra Labour Welfare Board will be required to submit its books of Accounts along with the necessary documents, as per the Bombay Financial Rules, 1969 para No.2, Schedule No 32. Board shall invest and spend its funds as per regular directions and as per the norms as prevailed. c) This expenditure shall be made "Magani Kamgar -164, mahalekha shirshak 2230, kamgar va seva yojana 103, General Lab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at make the payments. This government resolution is issued with reference to the approved government resolution: Anoupchart & sandarbha 131/ seva 9 dated 29/04/2017 This government resolution is available on www.maharashtra gov on this website. Its code is 201707191142509210. This is digitally signed, this does not required signature. As per the order of Maharashtra Governor and in their name. Sd/- (Pravin B. Gaikwad) Desk Officer, Maharashtra Government Copy 1- 1. Hon'ble Minister (finance) Maharashtra State, Mantralaya, Mumbai their personal secretary. 2. Hon'ble Minister (labour) Maharashtra State, Mantralaya, Mumbal their personal secretary 3. Hon'ble state Minister (labour) Maharashtra State, Mantralaya, Mumbai their personal secretary 4. Hon'ble State Minister (finance) Maharashtra State, Mantralaya, Mumbai their personal secretary 5. Secretary (labour), Industry, energy and labour department, Mantralaya Mumbai 32 personal secretary 6. Accountant General ( audit and License ) 1, Maharashtra State, Mumbai 7. Accountant General ( audit and ------------) 2, Maharashtra State, Mumbai 6.12 I have considered the submissions made by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income made from such trade or business is the income of the State. But difficulties arise when we are dealing with trade or business carried on by a corporation established by a State by using a notification under the relevant provisions of the Act. The corporation, though statutory, has a personality of its own and this personality is distinct from that of the State or other shareholders. It cannot be said that a shareholder owns the property of the corporation or carries on the business with which the corporation is concerned The doctrine that a corporation has a separate legal entity of its own is so firmly rooted in our notions derived from common law that it is hardly necessary to deal with it elaborately, and so, prima facie, the income derived by the appellant from its trading activity cannot be claimed by the State which is one of the shareholders of the corporation." The Hon'ble Supreme Court after analyzing the different clauses of Article 289(1) in the context of the claim made by the assessee held as under: The main point which we are examining at this stage: is the income derived by the appellant from its trading activity, income of the State under artic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obligation and which can be utilized by the State Government only for the specific purpose for which it is entrusted to Therefore, we are satisfied that the income derived by the appellant from its trading cannot be said to be the income of the State under article 289(1), and if that is so, the facts that the trading activity carried on by the appellant may be covered by article 2892) does not really assist the appellant's case Even if a trading activity falls under clause (2) of article 289, it can sustain a claim for exemption from Union taxation only if it is shown that the income derived from the said trading activity is the income of the State. That is how ultimately, the cure of the problem is to determine whether the income in question is the income of the State and on this vital test, the appellant fails." In view of the ratio, as decided in the case of APSRTC by Hon'ble Supreme Court, the assessee cannot be treated as agent of state government and its income cannot be treated as income of Maharashtra State Government. 11. The exemption in the CBDT notification dated 29-3-2016 is valid for financial years 2015-16 to 2018-19. Admittedly no return of income wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alleged surplus is not yet spent on various objects of the appellant does not mean the surplus becomes from trade or business. Therefore, unless it is shown that the appellant is carrying on trade or business and parliament by law has provided to tax such activity, no tax can be levied. 14. It was argued that meaning of State as per Constitution of India Article 12 of Constitution the word "State" has different meanings depending upon the context in which it is used. The expression "The State" when used in Parts III & IV of the Constitution is not confined to only the federating States or the Union of India or even to both. By the express terms of Article 12, the expression "the State" includes: 1. The Government and the parliament of India; 2. The Government and Legislature of each state. 3. All local or other Authorities within the territories of India. 4. All local and other authorities under the control of the government of India. 15. The term 'State' thus includes executive as well as the legislative organs or the "Authorities" of the Union & States. Further, it may be noted that according Webster's Dictionary &quo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titution which principles are declared by Article 37 to be fundamental to the governance of the country and enjoins upon the State to apply making laws. The State is an abstract entity and it can, therefore only set through its agencies or instrumentalities, whether such agency or instrumentality is human or juristic. 19. The ld. AR further submits that so far as exemption under section 10 of the Act is concerned, it was submitted that with the omission of clause (20) of section 10, income of such local authorities was subject to tax which are engaged in the business activities or running with profit motive. However, on insertion of clause (46) to section 10 of the Act, by Finance Act 2011 w.e.f. 01.06.2011. On application made to the Board, the CBDT vide its notification published in the Gazette of India dated 29.03.2016 notified the streams of income disclosed by the Board in its return of income as exempt for the purpose of clause (46) of the section 10 of the Act. The notification made by CBDT covers Assessment Years 2015-16 to 2018-19 but that would not take away the status of assessee "State" within the meaning of Article-12 r.w.s. Article 289 of the Constitution o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are capital filed before us, the entire share capital is contributed by the State Government and the Central Government and there is no private participation. We further find that MSRTC is incorporated under special legislation i.e., Road Transport Corporation Act, 1950. We have examined the provisions of the said enactment. As per section 5 of the said Act, the State Government is only having power to appoint the Chairman and other Members in the Managing body. There is a full control of the State Government on the policy decisions as well as management. In our opinion, if we apply the test of the control and management as well as the equity participation, MSRTC is a State within Article 12 of the Constitution. Applying the above test, the Hon'ble Supreme Court has held, as discussed hereinabove, that the autonomous bodies like State Road Transport Corporation or Warehousing Corporation where there is a full control by the Government, either Central or State, these are the instrumentalities of the Government only. 21. The term Government is very much wide under the constitutional set up. Government may be central or State or it may be Local Government which is envisaged by ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Corporation enjoys monopoly status which is State conferred or State protected. 4. If the functions of the corporation are of public importance and closely related to governmental functions. It would be a relevant factor in classifying the corporation as an instrumentality or agency of the Government. 5. If a department of a government is transferred to a corporation, it would be a strong factor supporting this inference of the corporation being an instrumentality or agency of the Government." 24. After applying the cumulative effect of all the relevant factors mentioned above, if the body is found to be an instrumentality of the agency of the Government, it would be an authority included in term "State" under Article 12 of the Constitution of India. However, the tests indicated by the Hon'ble Apex Court in the case of Som Prakash Rekhi are merely indicative and not absolute and thus, have to be applied discretely. If any body or organisation falls within the criteria as laid down by the Hon'ble Apex Court it can be considered that it falls within the term "State". 25. In CIT v. Karnataka Urban Infrastructure Development & Finance Corpn., de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act as a nodal agency for implementation of Mega-city scheme worked out by the Planning Commission. Both the Central and the State Governments are expected to provide requisite finances for implementation of the said project. The funds from the Central and State Governments will flow directly to the specialised institutions/nodal agencies as grant and the nodal agency will constitute a revolving fund with the help of Central and state shares out of which finance could be provided to various agencies such as water, sewerage boards, municipal corporations, etc. The objective is to create and maintain a fund for the development of infrastructural assets on a continuing basis and, therefore, the assessee is a nodal agency formed/created by the Government of Karnataka as per the guidelines; there is no profit motive as the entire fund entrusted and the interest accrued therefrom on deposits in bank though in the name of the assessee has to be applied only for the purpose of welfare of the Nation/States as provided in the guidelines; the whole of the fund belongs to the State Exchequer and the assessee has to channelise them to the objects of centrally sponsored scheme of infrastructural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, or on behalf of, the Government of a State, or any operations connected therewith, or any property used or occupied for the purposes of such trade or business, or any income accruing or arising in connection therewith. (3) Nothing in clause (2) shall apply to any trade or business, or to any class of trade or business, which Parliament may by law declare to be incidental to the ordinary functions of Government. 27. Article 289 of the Constitution of India supplants the charging section i.e., Section 4 of the Act in as much as the income of the State Government is exempt from Union Taxation. Neither Section 4 and/or Section 2(24) of the Act i.e., chargeability provision and provision defining income lays down any exception with regard to any income earned by the State Government and/or its instrumentality overriding the provisions of Article 289 of the Constitution. Strictly, the income earned by the State through its instrumentalities carrying on a trade and/or a business is not exempt by virtue of Article 289 of the Constitution of India. 28. To perform the functions, the Government has its various departments and to facilitate its working, the Government itself may be divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereof, during the performance of such activity on behalf of the State, income is earned though utilised for the same purpose and instrumentalities carrying on trade and/or business activity of the State Government earning income. In both the cases aforesaid there is existence of deep and pervasive State Control. In the former case, the body to whom work has been entrusted and income is earned acts as a nodal agency of the State whereas in the latter case it is not so as the instrumentality having independent identity has income arising from its trading and/or business activity and conduct of such activity not being attributable to State in any manner. The aforesaid distinction is discernible from various cases decided by the Hon'ble Supreme Court as well as the High Courts. In the case of Andhra Pradesh State Road Transport Corporation v. CIT, the Andhra Pradesh State Road Transport Corporation constituted under the Road Transport Corporations Act, 1950, by a notification issued by the Andhra Pradesh Government, was held not be immune from liability to income-tax on income derived from its trading activities, under article 289 of the Constitution of India for the reason that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by the instrumentality of the State after having received any amount of grant or subsidy for the implementation of project/scheme i.e., earmarked purpose of the State would not be taxable as income in the hands of such instrumentality of the State or the State.; (4) Any income by way of interest much less any income earned by a Department/Organization of the State would not be taxable in the hands of either the State and/or such Department/Organization of the State. (5) Carrying on business activity for profit motive by an instrumentality and/or Department of the State is immaterial for determining the taxability of income. 32. In view of above facts and settled legal position, we hold that assessee is a "State" within the meaning of Article 289(1) of the Constitution of India being an instrumentality of State within the meaning thereof. Here there is an existence of deep and pervasive State control may afford an indication that the assessee is a state agency or instrumentality. Here the assessee enjoys monopoly status which is State conferred or State protected. Here the functions of the assessee are of public importance and closely related to governmental functions. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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