Legal status of the assessee as a State or an agent of the ...

Is a statutory body exempt from tax on interest income akin to the State?

Case Laws     Income Tax

October 15, 2024

Legal status of the assessee as a State or an agent of the State, based on Article 289 of the Constitution of India. It analyzes whether the assessee's activities are akin to those of the State, making it eligible for non-taxability. The assessee claimed deduction u/s 57 against interest income earned on fixed deposits with banks, offered under the head "income from other sources." The Tribunal applied the tests laid down by the Supreme Court in the Som Prakash Rekhi case to determine if the assessee falls within the term "State" under Article 12 of the Constitution. Agreeing that the assessee is an instrumentality/agent of the State, the Tribunal held that its interest income on fixed deposits is not chargeable to tax. Article 289(2) provides an exception for income derived from trade or business, but since the interest income was assessed under "income from other sources," this exception was deemed inapplicable. Consequently, the assessee's appeal was allowed.

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