URBAN IMPROVEMENT TRUST,KOTA vs. DCIT (EXEMPTIONS), CIRCLE, JAIPUR, JAIPUR

10 on the facts and in the circumstances of the case, the Id. CIT (A) has erred in allowing expenses of Rs.1111.08 lakhs out of total expenses claimed at Rs.1567.79 lakhs under the head "Other miscellaneous expenses" and disallowed by the Α.Ο. 11 Appellant craves the right to add, alter or amend any grounds of appeal before the Hon'ble ITAT in the interest of justice. In (A.Y 2006-07), the revenue has raised the following grounds of appeal: -

1. Order of the Ld. CIT(A) is bad in law and needs to be quashed

2. Whether order passed by the Ld. CIT (A) is justified, ignoring the facts and circumstances of the present case and without applying the correct preposition of law

3. Whether Ld. CIT(A) is justified in holding that the AO has erred in not allowing the benefit provided in the order passed by the respective CIT(A) and Hon'ble ITAT while computing the total income of the Appellant Trust in spite of the facts that the Hon'ble ITAT in para 6 of order dated 08.06.2016 has directed to set aside the orders passed by the authorities below 4. on the facts and in the circumstances of the case, the Ld. CIT (A) has erred in treating the rental income of Rs.33.13 lakhs assessed under the head "income form house property" as "income from business.

5. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in allowing the expenses of Rs.576.13 lakhs by treating the same as revenue expenditure viz: Non-plan expenditure incurred for development work amounting to Rs. 469.82 Lakhs Expenditure incurred for development of Kachhi Basti amounting to Rs. 100.74 Lakhs . Expenditure incurred for repair and maintenance of vehicles under the head 'Machinery & Plant' amounting to Rs. 5.57 Lakhs. The expenditure incurred on account of taxes payable to various departments accounted for under head 'other misc.

6. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in allowing the deduction of Rs.791.53 lakhs (15% of Rs. 5276.86 Lakhs received under head 'receipts from sale of plots) by holding that ground rent, conversion charges, transfer fee etc. collected by the assessee also constituted the shares of State Government and Municipal Bodies and were never part of assessee's income

7. Whether Ld. CIT(A) is justified in allowing deduction from the amount of Rs. 326.29 lakhs under the head receipts from land regularization and conversion and Nagariya Kar

(Lease Rental) considering the same as share of receipts payable to the other parties and holding that the same do not partake the character of income of the assessee. 8. Appellant craves the right to add, alter or amend any grounds of appeal before the Hon'ble ITAT in the interest of justice. In (A.Y 2007-08), the revenue has raised the following grounds of appeal: -

1. Order of the Id. CIT (A) is bad in law and needs to be quashed.

2. Whether order passed by the Ld. CIT (A) is justified in ignoring the facts and circumstances of the present case and without applying the correct preposition of law.

3. Whether Ld. CIT(A) is justified in holding that the AO has erred in not allowing the benefit provided in the order passed by the respective CIT(A) and Hon'ble ITAT while computing the total income of the Appellant Trust in spite of the facts that the Hon'ble ITAT in para 6 of order dated 08.06.2016 has directed to set aside the orders passed by the authorities below. 4. on the facts and in the circumstances of the case, the ld. CIT (A) has erred in treating the rental income of Rs.34.35 lakhs assessed under the head "income form house property" as "income from business. 5 On the facts and in the circumstances of the case, the Id. CIT (A) has erred in allowing the expenses of Rs. 1673.46 lakhs by treating the same as revenue expenditure viz: The non-plan expenditure incurred for development work amounting to Rs. 907.92 lakhs. The expenditure incurred for development of Kachhi Basti amounting to Rs. 352.14 lakhs. The expenditure of Rs. 406.95 lakhs under head 'payment to RUIDP'. The expenditure for repair and maintenance of vehicles under head 'Machinery & plant' amounting to Rs. 0.34 Lakhs. The expenditure of Rs 6.11 lakhs incurred for social welfare under head 'Mahila and BAL Vikash Pariyojana. 6 On the facts and in the circumstances of the case, the Id. CIT(A) has erred in allowing the deduction of Rs.793.79 lakhs by holding that ground rent, conversion charges, transfer fee etc. collected by the assessee also constituted the shares of State Government and Municipal Bodies and were never part of assessee's income viz: 15 percent of Rs. 1428.92 Lakhs being the amount under the head "Receipts from sale of residential plots". 15 percent of Rs. 755.92 Lakhs being the amount under the head "Receipts from sale of Commercial plots". 15 percent of Rs. 1089.95 Lakhs being the amount under the head "Receipts from sale of constructed Houses/Shops 2/3 rd of Rs.

109.07 Lakhs under head "Receipts from sale of land in Rajiv Gandhi Nagar Yojana". 40% of Rs.109.49 Lakhs under head "Receipts from Land Regularization and Conversion"; 60% of Rs. 310.10 lakhs under head Receipts from Nagariya Kar (Lease Rental) 7. Appellant craves the right to add, alter or amend any grounds of appeal before the Hon'ble ITAT in the interest of justice. In (A.Y 2009-10), the revenue has raised the following grounds of appeal: -

1. Order of the ld. CIT (A) is bad in law and needs to be quashed

2 Whether order passed by the Ld. CIT (A) is justified, ignoring the facts and circumstances of the present case and without applying the correct preposition of law

3 Whether Ld. CIT(A) is justified in holding that the AO has erred in not allowing the benefit provided in the order passed by the respective CIT(A) and Hon'ble ITAT while computing the total income of the Appellant Trust in spite of the facts that the Hon'ble ITAT in para 6 of order dated 08.06.2016 has directed to set aside the orders passed by the authorities below

4 on the facts and in the circumstances of the case, the ld. CIT (A) has erred in allowing the expenses of Rs. 6110.00 lakhs by treating the same as revenue expenditure viz. The non-plan expenditure incurred for development work amounting to Rs. 5281.77 lakhs. The expenditure incurred for development of Kachhi Basti amounting to Rs. 304.50 lakhs. The expenditure for development work included under head "Deposit Work" amounting to Rs. 493.40 Lakhs. The expenditure for repair and maintenance of vehicles under head 'Machinery& plant' amounting to Rs. 17.85 Lakhs. The expenditure of Rs 12.48 lakhs under the head Women and Child Development Program of state government for the benefit of pregnant/lactating women

5 On the facts and in the circumstances of the case, the Id. CIT(A) has erred in allowing the deduction of Rs. 827.60 lakhs by holding that ground rent, conversion charges, transfer fee etc. collected by the assessee also constituted the shares of State Government and Municipal Bodies and were never part of assessee's income viz: 15 percent of Rs. 5146.61 lakhs under head Receipts from sale of Residential and Commercial plots. 15 percent of Rs. 370.74 lakhs under the head Receipts from sale of constructed houses/shops

6 on the facts and in the circumstances of the case, the ld. CIT (A) has erred in treating the rental income of Rs.31.99 lakhs assessed under the head "income form house property" as "income from business.

7. Whether Ld. CIT(A) is justified in allowing deduction from the amount of Rs. 908.46 lakhs under the head receipts from land regularization and conversion and Nagariya Kar (Lease Rental) considering the same as share of receipts payable to the other parties and holding that the same do not partake the character of income of the assessee.

8. Appellant craves the right to add, alter or amend any grounds of appeal

before the Hon'ble ITAT in the interest of justice In (A.Y 2016-17), the revenue has raised the following grounds of appeal: -

1. Order of the ld. CIT (A) is bad in law and needs to be quashed

2 Whether order passed by the Ld. CIT (A) is justified, ignoring the facts and circumstances of the present case and without applying the correct preposition of law.

3 Whether the ld. CIT (A) is justified in holding that no adjustment is warranted in respect of amount of Rs. 34, 85,37,621/- made to the total income of the assessee on account of withheld amount ignoring the fact that the assessee has failed to furnish requisite details in this regard.

4 Whether Ld. CIT (A) has justified in deletion of addition of amount of Rs. 47, 37, 17,000/- received on account of share of state Govt. and Nagar Nigam in sale under affordable housing scheme ignoring the fact that same is part of gross receipts.

5. Whether Ld. CIT(A) has justified in deletion of addition of amount of Rs. 3,78,58,000/- received on account of Niyaman of Agriculture land and Urban Tax, ignoring the fact that amount was not actually paid during the year and assessee was following cash system of accounting and same has not been declared as income.

6. Whether Ld. CIT(A) has justified in deletion of addition of amount of Rs. 11,59,92,805/-on account of various expenditure treated as a capital expenditure ignoring the nature of expenditure

7. Appellant craves the right to add, alter or amend any grounds of appeal before the Hon'ble ITAT in the interest of justice. Assessee’s appeal (A.Y 2008-09), the assessee has raised the following grounds of appeal: - 1. Under the facts and the circumstances of the case and in law, the order dated 22.03.2024 passed by the Ld. CIT(A) u/s 250 of the Income Tax Act, 1961 is perverse, non-speaking, arbitrary and bad in law and without proper service as required under law. 2. under the facts and circumstances of the case and in law, Ld. CIT (A) erred in passing Impugned order u/s 250 of the Act without providing adequate opportunity of being heard 3. under the facts and the circumstances of the case and in law, the Ld. CIT (A) has erred in not providing the benefit u/s 11 and 12 of the Act to Appellant.

4. Under the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in not allowing the benefit of application of income as per Section 11 of the Act made by the Appellant Trust Towards the charitable objects of the Appellant Trust. 5. under the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in not allowing the allowing the statutory deduction under section 24 of the Income Tax Act, 1961 while determining the income of the Appellant Trust under head ‘income from house property’.

6. Under the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not allowing various expenditure incurred by Appellant Trust in entirety.

7. Under the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not allowing the set off of losses against the total income and has also erred in not allowing the carry forward of unabsorbed losses.

8. under the facts and the circumstances of the case and in law, the Ld. CIT (A) has erred in levying interest u/s 234A, 234B and 234C of the Act. 9. the appellant Company craves leave to add, amend and modify all or any ground of appeal on or before the date of hearing. In (A.Y 2003-04), the assessee has raised the following grounds of appeal: - 1. Under the facts and the circumstances of the case and in law, the order dated 27.03.2024 passed by the Ld. CIT(A) u/s 250 of the Income Tax Act, 1961 is perverse, non-speaking, arbitrary and bad in law and without proper service as required under law. 2. under the facts and circumstances of the case and in law, Ld. CIT (A) erred in passing Impugned order u/s 250 of the Act without providing opportunity of being heard including personal hearing, thereby violating the principle of natural justice 3. Under the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred in not providing the benefit u/s 11 and 12 of the Act to Appellant.

4. Under the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in not allowing the benefit of application of income as per Section 11 of the Act made by the Appellant Trust Towards the charitable objects of the Appellant Trust. 5. under the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in not allowing the development expense of Rs. 1367.4 Lakhs incurred and claimed by the Appellant. 6. under the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in not allowing the depreciation alternatively claimed by the Appellant. 7. under the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in not allowing various expenditures incurred by Appellant Trust in entirety.

8. Under the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not allowing the set off of losses against the total income and has also erred in not allowing the carry forward of unabsorbed losses. 9. under the facts and the circumstances of the case and in law, the Ld. CIT (A) has erred in levying interest u/s 234A, 234B and 234C of the Act.

1. Under the facts and the circumstances of the case and in law, the order dated 27.03.2024 passed by the Ld. CIT(A) u/s 250 of the Income Tax Act, 1961 is perverse, non-speaking, arbitrary and bad in law and without proper service as required under law. 2. under the facts and circumstances of the case and in law, Ld. CIT (A) erred in passing Impugned order u/s 250 of the Act without providing opportunity of being heard including personal hearing, thereby violating the principle of natural justice 3. under the facts and the circumstances of the case and in law, the Ld. CIT (A) has erred in not providing the benefit u/s 11 and 12 of the Act to Appellant. 4. Under the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in not allowing the benefit of application of income as per Section 11 of the Act made by the Appellant Trust Towards the charitable objects of the Appellant Trust. 5. under the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in not allowing the depreciation alternatively claimed by the Appellant. 6. Under the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not allowing the set off of losses against the total income and has also erred in not allowing the carry forward of unabsorbed losses. 7. under the facts and the circumstances of the case and in law, the Ld. CIT (A) has erred in levying interest u/s 234A, 234B and 234C of the Act. 8. the appellant Company craves leave to add, amend and modify all or any ground of appeal on or before the date of hearing. In (A.Y 2006-07), the assessee has raised the following grounds of appeal: -

1. Under the facts and the circumstances of the case and in law, the order dated 31.03.2024 passed by the Ld. CIT(A) u/s 250 of the Income Tax Act, 1961 is perverse, non-speaking, arbitrary and bad in law and without proper service as required under law. 2. under the facts and circumstances of the case and in law, Ld. CIT (A) erred in passing Impugned order u/s 250 of the Act without providing opportunity of being heard including personal hearing, thereby violating the principle of natural justice 3. under the facts and the circumstances of the case and in law, the Ld. CIT (A) has erred in not providing the benefit u/s 11 and 12 of the Act to Appellant.

4. Under the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in not allowing the benefit of application of income as per Section 11 of the Act made by the Appellant Trust Towards the charitable objects of the Appellant Trust. 5. under the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in not allowing the depreciation alternatively claimed by the Appellant.

6. Under the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not allowing the set off of losses against the total income and has also erred in not allowing the carry forward of unabsorbed losses. 7. under the facts and the circumstances of the case and in law, the Ld. CIT (A) has erred in levying interest u/s 234A, 234B and 234C of the Act. 8. the appellant Company craves leave to add, amend and modify all or any ground of appeal on or before the date of hearing. In (A.Y 2016-17), the assessee has raised the following grounds of appeal: -

1. Under the facts and the circumstances of the case and in law, the order dated 30.03.2024 passed by the Ld. CIT(A) u/s 250 of the Income Tax Act, 1961 is perverse, non-speaking, arbitrary and bad in law and without proper service as required under law. 2. under the facts and circumstances of the case and in law, Ld. CIT (A) erred in passing Impugned order u/s 250 of the Act without providing adequate opportunity of being heard 3. under the facts and the circumstances of the case and in law, the Ld. CIT (A) has erred in not providing the benefit u/s 11 and 12 of the Act to Appellant.

4. Under the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in not accepting the Income tax Return and audit report submitted by Appellant Trust in compliance with the provisions of Section 12(1)(b) of the Act 5. Under the facts and circumstances of the case and in law, the Ld. CIT has erred in upholding the addition of Rs. 1,86,29,94,499/- made by the Ld.AO to the total income of the Appellant Trust in respect of surplus from income and expenditure account 6. Under the facts and the circumstances of the case and in law, the Ld. CIT has erred in upholding the action of Ld. AO in requiring the account of the Appellant Trust to be audited under section 142(2A) of the Income Tax Act, 196 1 by special auditor 7. Under the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in not allowing the benefit of application of income as per Section 11 of the Act made by the Appellant Trust Towards the charitable objects of the Appellant Trust. 8. under the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in not allowing various expenditures incurred by Appellant Trust in entirety. 9. Under the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not allowing the set off of losses against the total income and has also erred in not allowing the carry forward of unabsorbed losses. 10. under the facts and the circumstances of the case and in law, the Ld. CIT (A) has erred in levying interest u/s 234A, 234B and 234C of the Act. 11. the appellant Company craves leave to add, amend and modify all or any ground of appeal on or before the date of hearing. In (A.Y 2007-08), the assessee has raised the following grounds of appeal: -

1. Under the facts and the circumstances of the case and in law, the order dated 31.03.2024 passed by the Ld. CIT(A) u/s 250 of the Income Tax Act, 1961 is perverse, non-speaking, arbitrary and bad in law. 2. under the facts and circumstances of the case and in law, Ld. CIT (A) erred in passing Impugned order u/s 250 of the Act without providing opportunity of being heard including personal hearing, thereby violating the principle of natural justice 3. under the facts and the circumstances of the case and in law, the Ld. CIT (A) has erred in not providing the benefit u/s 11 and 12 of the Act to Appellant.

4. Under the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in not allowing the benefit of application of income as per Section 11 of the Act made by the Appellant Trust Towards the charitable objects of the Appellant Trust. 5. under the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in not allowing the depreciation alternatively claimed by the Appellant. 6. Under the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not allowing the set off of losses against the total income and has also erred in not allowing the carry forward of unabsorbed losses. 7. under the facts and the circumstances of the case and in law, the Ld. CIT (A) has erred in levying interest u/s 234A, 234B and 234C of the Act. 8. the appellant Company craves leave to add, amend and modify all or any ground of appeal on or before the date of hearing. In (A.Y 2009-10), the assessee has raised the following grounds of appeal: - 1. Under the facts and the circumstances of the case and in law, the order dated 31.03.2024 passed by the Ld. CIT(A) u/s 250 of the Income Tax Act, 1961 is perverse, non-speaking, arbitrary and bad in law and without proper service as required under law. 2. under the facts and circumstances of the case and in law, Ld. CIT (A) erred in passing Impugned order u/s 250 of the Act without providing adequate opportunity of being heard 3. under the facts and the circumstances of the case and in law, the Ld. CIT (A) has erred in not providing the benefit u/s 11 and 12 of the Act to Appellant.

4. Under the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in not allowing the benefit of application of income as per Section 11 of the Act made by the Appellant Trust Towards the charitable objects of the Appellant Trust.

5. Under the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not allowing the allowing the depreciation alternatively claimed by the Appellant.

6. Under the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not allowing various expenditure incurred by Appellant Trust in entirety.

7. Under the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not allowing the set off of losses against the total income and has also erred in not allowing the carry forward of unabsorbed losses. 8. under the facts and the circumstances of the case and in law, the Ld. CIT (A) has erred in levying interest u/s 234A, 234B and 234C of the Act. 9. the appellant Company craves leave to add, amend and modify all or any ground of appeal on or before the date of hearing.

2. There are total five appeals by the revenue and total seven appeals for different assessment years are there by the assessee. The grounds raised by the assessee are purely legal in nature, to be decided by this bench. We observe that the grounds raised by the assessee as a direct bearing not only on the appeals filed by the assessee but also on outcome of the appeals filed by the revenue hence we deem it appropriate to take up and decide the appeal of the assessee first. Out of the seven appeals as mentioned (supra), we are taking as lead case, since issues involved in all the years are identical.

3. The issues involved in these seven appeals are of purely legal in nature and issue to be decided by us is as under:-

(i) Under the facts and the circumstances of the case and in law, the Ld. CIT (A) has erred in not providing the benefit u/s. 11 and 12 of the Act to Appellant.

The brief facts of the case are that the appellant is a statutory body created and established under the Rajasthan Urban Improvement Act, 1959 vide notification no. 5(3)/TP/70 dated 09/07/1970 in the Official Gazette with the object to carry out improvement of urban areas in the city of Kota, Rajasthan. In view of the statutory status and the object of the trust, the appellant claimed to be a local authority within the meaning of section 10(20) of the Income Tax Act, 1961 and claimed exemption of its income. There was an amendment in section 10(2) of the Act and an explanation was inserted as under:-

[Explanation- For the purposes of this clause, the expression “local authority” means-

(i) Panchayat as referred to in clause (d) of Article 243 of the Constitution; or (ii) Municipality as referred to in clause (e) of Article 243P of the Constitution; or (iii) Municipal Committee and District Board, Legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; or (iv) Cantonment Board as defined in section 3 of the Cantonments Act, 1924 (2 of 1924);]

4. It is observed that the assessee under consideration is not falling in any of the category above hence benefit of section 10(2) is no more available to the assessee w.e.f Assessment Year 2003-04. This issue further reached up to the Hon’ble Supreme Court in the case of ITO vs. Urban Improvement Trust (2018) 409 ITR 1 (SC), wherein it was held as under:-

“The Urban Improvement Trust constituted under the Rajasthan Urban Improvement Act, 1959 cannot be held to be covered by the definition of municipal committee as contained in Explanation (iii). The expression “municipal committee” occurring in clause (iii) has a definite purpose and object. The purpose and object was to cover those bodies which are discharging municipal functions but are not covered by the definition of municipalities as was required to be constituted by article 243Q of the Constitution of India.”

5. There was another section, i.e. section 10(20A) of the Act directly dealing with the facts of the matter was also abolished w.e.f A.Y 2003-04. Thereafter, the assessee chosen for registration u/s. 12A of the Act, which was denied to the assessee hence the assessee, is in appeal before us. We have gone through the order of authorities below and various judicial pronouncements relied upon by the assessee. In addition to the above documents, we have gone through the Urban Development Trust Laws. The relevant sections of the Rajasthan Urban Improvement Act, 1959 is as under:-

8. Establishment and incorporation of Trusts (1) The State Government may, by notification in the official Gazette, establish, for the purpose of carrying out improvement of any urban area in the State, whether a master plan in respect thereof has or has not been prepared, a Board of Trustees to be called the Improvement Trust of the place where its principal office is situated, hereinafter called 'the Trust'. (2) Every such Trust shall be a body corporate by the aforesaid name having perpetual succession and a common seal with power to acquire, hold and dispose of property both movable and immovable and to contract and shall by the said name sue and be sued.

9. Constitution of Trust (1) The Trust shall consist of- (a) A Chairman, (b) Two members of the Municipal Board, if any, having authority in the urban area, x x (bb) x x x (c) such number of other persons, as may be determined by the State Government for each Trust, of whom one shall be a person belonging to scheduled tribe or scheduled caste, if no person of such caste or tribe is represented in the Trust by virtue of clause (a) or clause (b). x x x (2) The Chairman and the persons referred to in clause (c) of sub-section (1) x x x shall be appointed by the State Government by notification. (3) The members of the Municipal Board referred in clause (b) of sub-section (1) shall be elected by the said Board (4) If the said Board does not, by such date as may be fixed by the State Government, elect two of its members to be Trustees, the State Government shall appoint two members of the said Board to be Trustees and every person so appointed shall be deemed to be a Trustee as if he had been duly elected by the Municipal Board. (5) If the said Board shall have been superseded or dissolved in accordance with the provisions of the Municipal law for the time being in force, it shall be represented on the Trust by persons appointed or elected, as the case may be, by the officer or authority appointed under the said law to discharge the functions and exercise the powers of the Board during the period of its supersession or dissolution (6) Of the person referred to in clause (c) of sub-section (1) at least one shall be a person in the service of the State Government. (7) The names of all persons appointed or elected to the Trust shall be notified by the State Government in the official Gazette. 14-A. Termination of appointment and re-constitution. - Notwithstanding anything contained in section 11, 12 or 15, the State Government may, if it thinks fit in public interest so to do, terminate the appointment of Chairman or any Trustee of a Trust or re-constitute the same at any time.

24. Power to fix strength, salaries etc. of staff Subject to any general or special direction issued by the State Government every Trust shall, from time to time propose for the sanction of the State Government the strength of officers and servants to be appointed, setting forth the conditions of service and emoluments of each officer or servant. The State Government may sanction such proposal with or without amendment and no appointment shall be made otherwise than in accordance with such sanction: Provided that the Trust may, subject as aforesaid, direct that one person shall be appointed to discharge the duties of any two or more officers. 24A. Power of transfer. - The officers and employees of a Trust may be transferred by the State Government from one Trust to another or to the Jaipur Development Authority in accordance with the rules made under section 74.

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 article 289(1) In our opinion, the answer to this question must being the negative. Far from making any provision which would make the income of the corporation the income of the State, all the relevant provisions emphatically bring out the separate personality of the corporation and proceed on the basis that the trading activity is run by the corporation and the profit and loss that would be made as a result of the trading activity would be the profit and loss of the corporation. There is no provision in the Act which has attempted to lift the veil from the face of the corporation and thereby enable the shareholders to claim that despite the from which the organization has taken, it is the shareholders who run the trade and who can claim the income coming from it as their own. Section 28 which provides for the payment of interest clearly brings out the duality between the corporation on the one hand and the state and Central Government on the other Take, for instance, the case of suppression of the corporation authorized by section 38. Section 38(2)(c) emphatically brings out the fact that the property really vests in the corporation, because it provides that during the period of suppression, it shall vest in the State Government Similarly section 39(2) which deals with the distribution of assets in case of liquidation, brings out the same feature: It has been urged before by the Advocate-General that section 30 contemplates that after provisions is made as required by section 28 and 29 and funds are utilized as prescribed by section 30, the balance has to be given to the State Government for the purpose of road development, and that, it is suggested, indicates that income belongs to the State Govern This argument is clearly not well-founded When we dare deciding the question as to whether the income derived by the corporation is the income of the State, the provision made by section 30 for making over to the State Government the balance that may remain as indicated therein, is of no assistance. The income is undoubtedly the income of the corporation. All that section 30 requires is that a part of that income may be entrusted to the State Government for a specific purpose of road development. It is not suggested or shown that when such income is made over to the State, it becomes a part of the general revenue of the State It is income which is impressed with an 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.

10. On perusal of the Article 289 (2), which is the exception to 289(1), it is important to note that parliament by law provide to tax the property or income in relation to only trade or business of any kind carried on by, 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. The nature of activity of the appellant is neither trading nor of business of any goods or services. Appellant is a body entrusted with the responsibility of administration of technical education department of the state of Maharashtra. The assessee only collects the fees and penalties on behalf of the Government have decided by the Governing Council of the assessee, which is chaired by Minister of Education Govt. of Maharashtra. Therefore, at no point of time administration activity can be treated as Trade or Business. There is no trade or business carried on by the appellant. Mere temporary surplus arose as the said 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.

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.

"1. If the entire share capital of the corporation is held by the Government, it would go a long way towards indicating that the corporation is an instrumentality or agency of the Government.

3. Whether the 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."

The Assessing Officer treated the interest earned and received by the assessee out of the amount which it had received from the Central and State Governments and deposited in various banks, as income of the assessee and brought the aforesaid amounts to tax. The aforesaid view of the Assessing Officer was upheld by the Commissioner of Income-tax (Appeals). The assessee preferred an appeal before the Tribunal. The Tribunal looked into the guidelines which provided the background of the scheme. The Tribunal while setting aside the Orders of the Assessing Officer and Commissioner of Income-tax (Appeals) held that the assessee in fact acted as an agent of the Governments of both the Central and the State for implementing the scheme of the Government. This being the factual position, the lower authorities’, committed serious error in treating the interest as income of the assessee and bringing the same to tax. Aggrieved by the Order of the Tribunal, the Department/Revenue preferred an appeal before the High Court. The High Court held that the interest accrued on bank deposits cannot be treated as an income of the assessee as the interest is earned out of the money given by the Government of India for the purpose of implementation of Mega-city scheme. The pertinent observation of the High Court read as follows:

Quote; 4. The material on record shows that the very purpose of constitution of the assessee was to 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 there from 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 development for Mega-city of Bangalore. Funds of one wing of the Government are distributed to the other wing of the Government for public purpose as per the guidelines issued. The monies so received, till it is utilised, is parked in a bank. The finding recorded by the Tribunal clearly shows that the entire money in question is received for implementation of the scheme which is for a public purpose and the said scheme is implemented as per the guidelines of the Central Government and, therefore, the assessee is only acting as a nodal agency of Central Government for implementation of these projects. It is not the case of the revenue that the assessee was carrying on any business or activities of its own while implementing the scheme in question. The unutilised money, during which the project could not be fully implemented, is deposited in a bank to earn interest. That interest earned is also again utilised for the implementation of the Mega-city scheme which is also permitted under the scheme. Therefore, in computing the total income of the assessee for any previous year the interest accrued on bank deposits cannot be treated as an income of the assessee as the interest is earned out of the money given by the Government of India for the purpose of implementation of Mega-city scheme."

Exemption of property and income of a State from Union taxation.

(2) Nothing in clause (1) shall prevent the Union from imposing, or authorising the imposition of, any tax to such extent, if any, as Parliament may by law provide in respect of a trade or business of any kind carried on by, 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.

The question whether a corporation is an agent of the State must depend on the facts of each case. Where a statute setting up a corporation so provides, such a corporation can easily be identified as the agent of the State as in Graham v. Public Works Commissioners, [1901] 2 KB 781 where Phillimore, J. said that the Crown does in certain cases establish with the consent of Parliament certain officials or bodies who are to be treated as agents of the Crown even though they have the power of contracting as principals. In the absence of a statutory provision, however, a commercial corporation acting on its own behalf, even though it is controlled wholly or partially by a Government department, will be ordinarily presumed not to be a servant or agent of the State. The fact that a minister appoints the members or directors of a corporation and he is entitled to call for information, to give directions which are binding on the directors and to supervise over the conduct of the business of the corporation does not render the corporation an agent of the Government. (See: The State Trading Corporation of India Ltd v. The Commercial Tax Officer, Visakhapatnam, [1964] 4 SCR 99 at 188, and Tamlin v. Hannaford [1950] 1 KB 18 at 25, 26. Such interference that the corporation is the agent of the Government may be drawn where it is performing in substance governmental and non commercial functions. (of London County Territorial and Auxiliary forces Association v. Nichlos) [1948] 2 All E.R. 432.

The corporation is its own master and is answerable as fully as any other person or corporation. It is not the Crown and has none of the immunities or privileges of the Crown. Its servants are not civil servants, and its property is not Crown property. It is as much bound by Acts of Parliament as any other subject of the King. It is, of course, a public authority and its purposes, no doubt, are public purposes, but it is not a government department nor do its powers fall within the province of government.

Thus, on the basis of the aforesaid observations, that a trading activity carried on by the corporation is not a trading activity carried on by the State departmentally, nor is it a trading activity carried on by a State through its agents appointed in that behalf, the Hon'ble Supreme Court held that the income derived by the Corporation from its trading activities cannot be said to be the income of the Andhra Pradesh State under Article 289(1) of the Constitution of India.

(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 between 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 instrumentality and/or Department of the State is immaterial for determining the taxability of income.

25. We have gone through the provisions of section 10(46) and 10(46A) of the Act, reproduced as under:

(46) any specified income arising to a body or authority or Board or Trust or Commission (by whatever name called) other than those covered under clause (46A)] , or a class thereof which- (a) has been established or constituted by or under a Central, State or Provincial Act, or constituted by the Central Government or a State Government, with the object of regulating or administering any activity for the benefit of the general public;

(b) is not engaged in any commercial activity ; and (c) Is notified by the Central Government in the Official Gazette for the purposes of this clause.

Explanation.-For the purposes of this clause, “specified income” means the income, of the nature and to the extent arising to a body or authority or Board or Trust or Commission (by whatever name called) other than those covered under clause (46A), or a class thereof referred to in this clause, which the Central Government may, by notification in the Official Gazette, specify in this behalf; (46A) any income arising to a body or authority or Board or Trust or Commission, not being a company, which- (a) has been established or constituted by or under a Central Act or State Act with one or more of the following purposes, namely:-

(i) dealing with and satisfying the need for housing accommodation; (ii) planning, development or improvement of cities, towns and villages; (iii) regulating, or regulating and developing, any activity for the benefit of the general public; or (iv) regulating any matter, for the benefit of the general public, arising out of the object for which it has been created; and (b) is notified by the Central Government in the Official Gazette for the purposes of this clause;

The Order is pronounced in the open court on the 11th day of August 2025. Sd/- Sd/- (Dr. S. SEETHALAKSHMI) (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Jaipur, िदनांक/Dated: 11/8/2025 Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. आयकर आयु� CIT 3. 4. िवभागीय �ितिनिध, आय.अपी.अिध., Sr.DR., ITAT, 5. गाड� फाइल/Guard file.