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Facts
M/s. Telangana State Medical Council, a statutory body regulating the medical profession, filed its return for AY 2018-19 claiming exemptions under Sections 11 and 10(23A) of the Income Tax Act. The Assessing Officer disallowed these exemptions and assessed the total income at Rs. 5.47 crore. The CIT(A) dismissed the assessee's appeal, leading to the present appeal before the Tribunal.
Held
The Tribunal dismissed the assessee's appeal. It ruled that the assessee is not an 'instrumentality of the State' for immunity under Article 289 of the Constitution, being a distinct legal entity. It also denied exemption under Section 11 due to belated filing of the return of income and Form 10B, as required by Section 12A(1)(ba) read with Section 139(1), and the absence of a condonation application under Section 119(2)(b).
Key Issues
1. Whether the assessee qualifies as an 'instrumentality of the State' for tax immunity under Article 289 of the Constitution. 2. Whether exemption under Section 11 can be granted despite the belated filing of the return of income and Form 10B, and the absence of condonation from CBDT.
Sections Cited
11, 10(23A), 12A, 12A(1)(ba), 12A(2), 12AA, 143(3), 143(3A), 143(3B), 139(1), 119(2)(b)
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Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: SHRI RAVISH SOOD & SHRI MADHUSUDAN SAWDIA
आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M. : This appeal is filed by M/s. Telangana State Medical Council (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”), dated 08.06.2023 for the A.Y. 2018-19.
The assessee has raised the following grounds of appeal :
1. “ 1. On the facts and in the circumstances of the case, the order passed by the Ld. Commissioner of Income Tax (Appeals) (NFAC) is erroneous and unsustainable on facts and in law.
2. The Ld. CIT(A) erred in rejecting the contention of the Appellant that it is an instrumentality of state, and that its income is not liable to tax under Article 289 of the Constitution of India. The findings of the ld. CIT(A) on this issue are incorrect on facts and in law.
3. The Ld. CIT(A) erred in denying the benefit of registration under section 12A of the Act granted on 16.09.2019 for the asst. year under consideration in spite of specific proviso to section l2A to that effect. The findings of the ld. CIT(A) on this issue are incorrect on facts and in law.
4. The ld. CIT(A) erred in denying the benefit of registration under section 11 of the Act on the alleged ground that FORM 10B was filed belatedly. The findings of the ld. CIT(A) on this issue are incorrect on facts and in law.
For these and other grounds that may be urged, it is prayed that the appeal be allowed as prayed for.”
Brief facts of the case are that, the assessee is established by an Act of the Government of Telangana for the purpose of regulating the medical profession. Its primary responsibilities include registration of medical graduates and issuance of licences to practice medicine either privately or in government service. The functions of the assessee are framed under statutory delegation from the State Government. For the Assessment Year 2018–19, the assessee filed its return of income declaring Rs.Nil income, while claiming exemption of Rs. 1,10,65,681/- under Section 11 of the Income Tax Act, 1961 (“the Act”) and Rs. 4,36,82,093/- under Section 10(23A) of the Act. The case of the assessee was selected for complete scrutiny, and the learned Assessing Officer (“Ld. AO”) completed the assessment under Section 143(3) read with Sections 143(3A) and 143(3B) of the Act on 15.04.2021, disallowing the claim of exemption under both Sections 11 and 10(23A) of the Act, and assessed the total income of the assessee at Rs.5,47,47,774/-.
Aggrieved with the order of Ld. AO, the assessee filed an appeal before the Ld. CIT(A)., which was dismissed.
Aggrieved with the order of Ld. CIT(A), the assessee is in appeal before the Tribunal. The assessee has raised four grounds of appeal before us. The learned Authorised Representative (“Ld. AR”) did not press Ground No. 1, which is general in nature, and accordingly the same is dismissed as not pressed.
6. Ground No. 2 pertains to the assessee’s claim that it is an instrumentality of the State, and therefore, its income is not liable to tax by virtue of Article 289 of the Constitution of India. Grounds 3 and 4 of the assessee relate to the denial of exemption under Section 11 of the Act.
7. On Ground No. 2, the Ld. AR submitted that the assessee is engaged in a public function of regulating the medical profession, which otherwise ought to have been performed by the State. The State Government, instead of carrying out such regulatory functions directly, has delegated the same to the assessee.
It was submitted that the assessee functions solely under the authority, supervision, and financial oversight of the Government of Telangana.
Therefore, it was argued that the assessee qualifies as an instrumentality of the State, and its income is immune from income-tax under Article 289 of the Constitution.
On Grounds 3 and 4, the Ld. AR submitted that the assessee was granted registration under Section 12AA of the Act with effect from Assessment Year 2019–20, and that the case of the assessee for assessment year 2018–19 was pending at the time of such grant. Therefore, in view of the first proviso to Section 12A(2) of the Act , the assessee should be allowed the benefit of exemption under Section 11 of the Act for the current year. It was further submitted that although the return of income and audit report in Form 10B were filed belatedly on 31.03.2019, the delay should be condoned, and the exemption under Section 11 of the Act should be granted on equitable grounds. It was also candidly admitted that no condonation petition under Section 119(2)(b) of the Act had been filed by the assessee before the Central Board of Direct Taxes (CBDT) for condonation of delay.
Per contra, the learned Departmental Representative (“Ld. DR”) opposed the appeal of the assessee. On Ground No. 2, the Ld. DR submitted that although the State Government has delegated certain regulatory responsibilities to the assessee, it continues to function as an independent statutory body and not as a department of the State Government. The assessee is not financed from the Consolidated Fund of the State, and its functions are administrative and regulatory rather than sovereign. The Ld. DR invited our attention to section 3(1) and section 28 of the Andhra Pradesh Medical Practitioners Registration Act, 1968, placed at page no.24 and page no.33 respectively of the paper book and submitted that the assessee is a distinct entity with ability to sue or be sued on its own name. Hence, it cannot be regarded as the “State” for purposes of Article 289, and the said constitutional immunity is not available to it.
On Grounds nos. 3 and 4, the Ld. DR submitted that Section 12A(1)(ba) of the Act mandates timely filing of the return of income within the due date under Section 139(1) of the Act. Since the assessee failed to comply with this mandatory condition, and no condonation was obtained from the CBDT under Section 119(2)(b) of the Act, the exemption under Section 11 of the Act cannot be granted to the assessee.
We have considered the rival contentions and perused the material placed on record. As far as Ground No. 2 regarding the claim of the assessee as Instrumentality of the State is concerned, the assessee’s argument is that it performs functions delegated by the State Government, such as registration and regulation of medical professionals, and therefore it must be treated as an instrumentality of the State, whose income is immune from tax under Article 289 of the Constitution. We are unable to accept this contention of the assessee. Article 289 of the Constitution provides that the income of a State shall be exempt from Union taxation. However, this exemption is restricted to “income of the State” and not to that of statutory corporations or autonomous bodies created under State enactments. That merely performing public functions or being under the control of the State does not make an entity a “State” within the meaning of Article 289. The test lies in whether the income accrues to or is received by the State as such, or to a separate and distinct legal entity. We have gone through section 3(1) and section 28 of the Andhra Pradesh Medical Practitioners Registration Act, 1968, placed at page no.24 and page no.33 respectively of the paper book which are to the following effect :
“ 3(1) As soon as may be, after the commencement of this Act, the Government shall by notification, establish a Council called Andhra Pradesh Medical Council which shall be a body corporate having perpetual succession and a common seal and shall by its name, sue and be sued.”
“ 28. If, at any time, it appears to the Government, that the Council has failed to exercise or has exceeded or abused any of the powers conferred upon it by or under this Act, the Government may communicate the particulars of such failure excess or abuse to the Council and require the Council to remedy it; and if the Council fails to remedy such default, excess or abuse within such time as may be fixed by the Government in this behalf, the Government may for the purpose of remedying such default, excess or abuse cause any of the powers and duties of the Council to be exercised and performed by such person or agency and for such period as they may think fit.”
On perusal of above we found that, in the present case, the assessee is a distinct legal entity constituted under statute. The assessee is also having an independent PAN, its own accounts, and the ability to sue or be sued in its own name. Further, as submitted by Ld. DR, the income of the assessee does not accrue to the Consolidated Fund of the State of Telangana, and hence cannot be said to be the income of the State. The functions delegated to it by the State Government do not change its legal character. Accordingly, we hold that Article 289 is not applicable to the assessee, and Ground No. 2 of the assessee is dismissed.
As far as the claim of the assessee under Grounds 3 and 4 regarding Claim under Section 11 of the Act is concerned, it is an admitted fact that the assessee filed its return of income and audit report in Form 10B on 31.03.2019, whereas the due date under Section 139(1) was 31.10.2018.
Further, no application for condonation of delay was made by the assessee to the CBDT under Section 119(2)(b). Section 12A(1)(ba) of the Act mandates that to be eligible for exemption under Section 11 of the Act , the assessee must file its return of income within the time prescribed under Section 139(1) of the Act. The said requirement is a statutory precondition, and failure to comply disentitles the assessee from claiming the benefit of Section 11 of the Act.
In light of the above, we hold that the assessee has failed to comply with the mandatory procedural conditions for availing exemption under Section 11 of the Act for the year under consideration. We, therefore, do not consider it necessary to adjudicate on the substantive eligibility of exemption under Section 11 of the Act in this case. Accordingly, Grounds no. 3 and 4 of the assessee are dismissed on the ground of procedural non-compliance under Section 12A(1)(ba) of the Act.