Maharashtra Airport Development Company Vs National Faceless Assessment Centre (ITAT Mumbai)
Mumbai ITAT Holds MADC as “State” u/Art. 12: Interest on FDs & State Grants Immune from Tax u/Art. 289
Assessee, Maharashtra Airport Development Company Ltd (MADC), a special purpose company incorporated by Government of Maharashtra for development of airports, MIHAN & allied infrastructure, challenged taxation of interest income of ₹3.65 crore on fixed deposits & grant-in-aid of ₹174.03 crore received from State Government. Tribunal admitted an additional legal ground relying on NTPC vs CIT holding that pure question of law can be raised at any stage.
Following earlier co-ordinate bench decisions in Assessee’s own case for AYs 2007-08 & 2016-17, Tribunal held that MADC is an instrumentality/agent of the State within meaning of Article 12 of the Constitution. Applying Article 289(1), Tribunal ruled that income of a State is exempt from Union taxation except where derived from trade or business. Since interest on fixed deposits was assessed by AO itself as “income from other sources” & not from trade or business, Article 289(2) exception was held inapplicable. Accordingly, interest income on FDs was held not taxable & addition deleted; consequential grounds on nexus, s.57 deduction & CWIP adjustment were rendered academic.
On grant-in-aid, Tribunal followed binding precedents in Assessee’s own case holding that grants received from Government of Maharashtra for land acquisition, rehabilitation & infrastructure development are not income u/s 2(24)(xviii) but funds received by Assessee as an arm of the State for discharging statutory functions, with complete governmental control & utilisation restrictions. Grant-in-aid was therefore held not taxable. Appeal partly allowed.
Key Takeaway:
Entities functioning as an arm or agent of the State enjoy constitutional tax immunity; interest on FDs & State grants cannot be taxed merely by invoking s.2(24)(xviii) when Article 289 applies.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
