TMI Blog2023 (1) TMI 1152X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee company has satisfied the said tests, thus, we hold that the assessee company falls under the definition of State within the meaning of Article 12 of the Constitution of India and, therefore, in our considered opinion entitle for immunity from the taxation under the provisions of Income Tax Act 1961 as directed under article 289 of constitution of India 1949. WATCO, the assessee company hold the status of State within the meaning of Article 12 of the Constitution of India and entitle for immunity from taxation under the provisions of Income Tax Act 1961 as declared by Article 289 of the Constitution of India 1949. Consequently, the additional ground of the assessee stands allowed. - ITA No.78/CTK/2021 - - - Dated:- 27-9-2022 - SHRI GEORGE MATHAN, JUDICIAL MEMBER ANDSHRI ARUN KHODPIA, ACCOUNTANT MEMBER For the assessee : Shri B.R.Pattnaik, AR For the Revenue : Shri Suresh Shivnandan, CIT-DR ORDER Per Arun Khodpia, AM : This appeal is filed by the assessee against the order passed u/s 12A of the Income Tax Act, 1961 by the Commissioner of Income Tax (Exemptions), Hyderabad, dated 06.12.2019, on the following grounds :- 1. The o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and schemes for Operation Maintenance and supply of drinking water to the required national standards; (vii) To prepare Plan Scheme for creation of capital assets in sewerage network treatment and to prepare plans and schemes for Operation Maintenance of Sewerage, Sewage treatment and disposal of sewage to the required national standards; (viii) To collect water and sewerage service charges on behalf of the urban local body; (ix) To review and establish revision of the tariff, and charges of water supply and sewerage systems from time to time and implement in the areas of Urban Local Bodies; (x) To review annually the technical financial, economic and other aspects of water supply and sewerage system of every scheme; (xi) To outsource part of its activities to achieve higher efficiencies and outcomes in the achievement of its business goals. 6. The following persons/entities shall be promoters of the company and subscribers to the Memorandum and Articles of Association of the Company:- Sl.No. Name of Subscriber No. of Equity shares to be taken (i) Gove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject clause Revised object clause (viii) To collect water and sewerage service charges on behalf of the Urban Local Bodies i.e. BMC, Khorda and Jatni Municipalities. To collect water and sewerage user fees for sustaining the service provision without any intention of making profit on behalf of the urban local bodies i.e. BMC, Khorda and Jatni Municipalities. (ix) To review and establish revision of water and sewerage service charge from time to time To review and establish revision of water and sewerage user fee from time to time to accommodate the cost of escalation in service provision without any intention of making any profit and implement in the areas of the Urban Local Bodies. (xi) To outsource part of its activities in the achievement of its business goals To outsource part of its activities to achieve higher efficiencies and out comes in the achievement of the Company's main objective. 4. It is submitted that revised objective of the WATCO were appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and held that the object of the appellant are in the nature of business/commerce and thus not falls within the ambit of charitable activity as prescribed by section 2(15) of the Act. The appellant thus has strongly rebutted to the assertion of the Ld CIT(E). 9. Before arguing for the main grounds of this appeal, it was the prayer of the Ld AR to admit an additional ground as per Rule 11 of the Income Tax (Appellate Tribunal) rules 1963. The permission was granted. Additional ground pressed by the assessee was as under:- On the facts and in the circumstances of the case, the appellant may kindly be held as a ―State‖ making it not liable to pay income tax under the Income Tax Act, 1961 as per the provisions of Article 12 read with Article 289 of The Constitution of India. 10. Written submission in support of the additional ground submitted in paper book was as under:- Written submission for Additional Ground 1. The appellant has already sought the leave of this Hon'ble Bench to take the following additional ground. On the facts and in the circumstances of the case, the appellant may kindly be held as a State making it not liable to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the corporation being an instrumentality or agency of Government. 6. Applying the aforesaid tests, as enunciated in the case of Som Prakash Rekhi vs Union of India, it has been held in the case of Smt. Sapna Sanjay Raisoni v. ITO [2016] 70 taxmann.com 7 (Pune - Trib.) that Maharashtra State Road Transport Corporation is a 'State' and therefore payment to it could not be disallowed under section 40A(3) being protected by rule 6DD(b). [Annexure-A; Page-7-14] 7. In the case of DCIT v. Vinod Arora 137 taxmann.com 450 (Amritsar - Trib.), the Hon'ble Bench, applying the tests as propounded in the case of Som Prakash Rekhi vs Union of India, has also held that payment to (i) M/s Rajasthan State Beverages Corporation Ltd and (ii) M/s Rajasthan State Ganganagar Sugar Mills Ltd. would not be hit by the provisions of section 40A(3) of IT Act, 1961 as these undertakings fall within the meaning of the term Government . [Annexure-B; Page 15-21] 8. Similarly, in the case of Maharashtra State Board of Technical Education v. ITO [2019] 104 taxmann.com 98 (Mumbai - Trib.) it has been held that Maharashtra State Board of Technical Education, a statutory body establis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rperson Commissioner, Bhubaneswar Municipal Corporation Director Vice Chairperson, Bhubaneswar Development Authority Director Representative of Finance Department Director Engineer-in-Chief/Chief Engineer, Public Health Engineering Organisation Director Member Secretary, Orissa Water Supply and Sewerage Board Director Engineer-in-Chief/ Chief Engineer any professional (to be posted by Government) Managing Director 3 Nos. of Independent Directors to be nominated by the Government (at least one of whom shall be women) Ex-Officio Directors [Refer Page-22 of original paper book dated 27.05.2022] 14. WATCO, as empowered by Govt, of Odisha, is the sole governmental agency engaged in supply of water in its area of operation and therefore the 3rd test i.e. monopoly status which is the State conferred or State protected is also fulfilled. 15. WATCO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India. 14. As per the above definition of State , if we check under which head the assessee company would fall, the probable answer is Local or Other Authorities . But, the definition of Local or Other Authority was not defined in the constitution or any other statute, however, a fundamental guidance was accorded by the Hon‟ble Apex Court in the case of Som Prakash Rekhi vs Union Of India (supra), wherein the Hon‟ble Apex Court has prescribed certain tests to determine as to whether an institution is State‟ within the meaning of Article 12 of the Constitution of India or not. The conditions to claim eligibility of being a State as described in the said order by the Hon‟ble Apex Court, reads as under:- Let us cull out from Airport Authority (supra) the indicia of other authorities.........under the control of the Government of India bringing a corporation within the definition of the State . The following factors have been emphasised in that ruli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness, 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. 16. After thoughtful analysis of the facts, in the backdrop of aforesaid observations, mandates from the Article 12 289 of the Constitution of India and respectfully following the principle of law laid down by Hon‟ble Apex Court followed by coordinate benches of the ITAT, referred to supra, we are of the view that the WATCO, the assessee company hold the status of State within the meaning of Article 12 of the Constitution of India and entitle for immunity from taxation under the provisions of Income Tax Act 1961 as declared by Article 289 of the Constitution of India 1949. Consequently, the additional ground of the assessee stands allowed. 17. Since the additional legal ground of the assessee is allowed culminating that the income of the assessee is not taxable in terms of our aforesaid observations, the original ground Nos. 1, 2 3 of the appeal are became academic and thus needs no separate adjudica ..... X X X X Extracts X X X X X X X X Extracts X X X X
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