Case Law Details
ITO Vs Maharashtra State Board of Technical Education (ITAT Mumbai)
ITAT Mumbai held that the Maharashtra State Board of Technical Education (MSBTE) would fall under the definition of ‘state’ as per Article 12 of the Constitution of India.
Facts- The assessee Maharashtra State Board of Technical Education (MSBTE) is constituted by Maharashtra State Government under “The Maharashtra State Board of Technical Education Act, 1997” and is an authority for regulating technical matters pertaining to diploma level education. The assessee board came into existence in 1991 and was set up as an authority to regulate matters related to diploma level technical education in the state of Maharashtra. It is observed that the assessee had not filed its return of income for the impugned year and based on the information available with the Department, the Assessing Officer (A.O. for short) also observed that the assessee was in receipt of Rs.8,16,32,238/- and time deposit of Rs.10,57,00,000/-. AO issued notice u/s. 133(6) of the Act and sought for the details relating to the assessee’s financials. AO issued notice u/s. 148 of the Act by recording reasons that the assessee board had surplus income over the expenses of Rs.39,71,85,769/- and also that the assessee has not deducted TDS u/s.194A, 194J and 194C on the impugned amount. The A.O. then passed the assessment order u/s. 143(3) r.w.s. 147 of the Act dated 12.03.2019, determining the total income at Rs.39,80,41,769/-by making various additions/disallowances.
The assessee was in appeal before the ld. CIT(A), challenging the said addition/disallowances. CIT(A) deleted the addition. Accordingly, being aggrieved, revenue preferred the present appeal.
Conclusion- The objectives of the assessee board were evident to categories it to be a ‘state’ under Article 12 of the Constitution of India and also from the criteria laid down by the Hon’ble Supreme Court, no doubt assessee would fall within the term ‘state’ as the assessee was controlled by either the Central or State Government completely and they would also become instrumentality of the Government.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal has been filed by the Revenue, challenging the order of the learned Commissioner of Income Tax (Appeals) (‘ld.CIT(A) for short), National Faceless Appeal Centre (‘NFAC’ for short) u/s.250 of the Income Tax Act, 1961 (‘the Act’), pertaining to the Assessment Year (‘A.Y.’ for short) 2012-13.
2. The Revenue has challenged this appeal on the following grounds:
1. On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in considering the assessee, MSBTE, as State and immune from taxation as provided under Article 289(1) of the Constitution.
2. On the facts and circumstances of the case and in law, the Ld.CIT(A) failed to appreciate that the assessee board is granted exemption u/s 10(46) from F.Y.2015- 2018-1g with certain conditions.
3. On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in considering the activity of the assessee board as imparting education or having interest of general public. The Ld.CIT(A) has failed to appreciate that major portion of income is received on account of MS-IT Exam Fees, Engg. CET project fees and interest accrued on FDs. None of the receipts can be said to have any connection with imparting education of having interest in general public.
4. On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in not appreciating that grant from government is negligible in respect of entire receipt of the Boards. The board is carrying out its activity in systematic manner which is yielding revenue and the said ITO vs. Maharashtra State Board of Technical Education revenue is nearly 30-40% above cost, and the surplus amount is held by the Board which is commercial activity.
5. On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in considering the assessee board as State whereas as per section 4 of the MSBTE Act, the assessee board is “Body Corporate” and the assessee board is an Artificial Juridical Person as defined in section 2(31) of the I.T. Act, 1961.
3. The brief facts of the case are that the assessee Maharashtra State Board of Technical Education (MSBTE) is constituted by Maharashtra State Government under “The Maharashtra State Board of Technical Education Act, 1997” and is an authority for regulating technical matters pertaining to diploma level education. The assessee board came into existence in 1991 and was set up as an authority to regulate matters related to diploma level technical education in the state of Maharashtra. It is observed that the assessee had not filed its return of income for the impugned year and based on the information available with the Department, the Assessing Officer (A.O. for short) also observed that the assessee was in receipt of Rs.8,16,32,238/- and time deposit of Rs.10,57,00,000/-. The A.O. issued notice u/s. 133(6) of the Act and sought for the details relating to the assessee’s financials. The A.O. issued notice u/s. 148 of the Act by recording reasons that the assessee board had surplus income over the expenses of Rs.39,71,85,769/- and also that the assessee has not deducted TDS u/s.194A, 194J and 194C on the impugned amount. The A.O. then passed the assessment order u/s. 143(3) r.w.s. 147 of the Act dated 12.03.2019, determining the total income at Rs.39,80,41,769/-by making various additions/disallowances.
4. The assessee was in appeal before the ld. CIT(A), challenging the said addition/disallowances.
5. The ld. CIT(A) deleted the said addition on the ground that the issues pertaining to the said addition/disallowances were covered by the Tribunal in assessee’s case for A.Ys. 2007-08 and 2010-11 in ITA Nos. 6248/Mum/2016 and 2203/Mum/2016 respectively and also in the subsequent decision for A.Y. 2011-12 in ITA No. 508/Mum/2019.
6. The Revenue is in appeal before us, challenging the impugned order.
7. The learned Departmental Representative (ld. DR for short) for the Revenue contended that the alleged receipts of payments are not related to imparting education and the same will not be covered under the objectives of the Board. The ld. DR further contended that the surplus amount of the Board was through commercial activity. The ld. DR also stated that the assessee board will not come under the purview of “state” and was only a “Body Corporate” which will come under the purview of artificial juridical person. The ld. DR relied on the order of the A.O.
8. The learned Authorised Representative (ld. AR for short) for the assessee, on the other hand, controverted the facts stated by the ld. DR and contended that the Tribunal in assessee’s case for A.Ys. 2007-08, 2010-11 and 2011-12 has decided these issues at length and has decided all these issues in favour of the assessee. The ld. AR further stated that the Tribunal has considered the decision of the Hon’ble Bombay High Court in the case of Maharashtra State Road Transport Co. vs. Divakar Madhukarrao Malkapure and others WP 2762//2012 on similar issue and has held the assessee board would fall under the definition of ‘state’ as per Article 12 of the Constitution of India. The ld. AR relied on the decision of the Tribunal and the order of the ld. CIT(A).
9. We have heard the rival submissions and perused the materials available on record. It is observed that the assessee board was constituted by the State Government with the object of promoting diploma level technical education and for allied purposes. It is a regulatory authority set up by the State Government to advice and co-ordinate, promote activities relating to diploma level technical education. It is observed that the assessee board has no separate registration number or certificate like in case of Trust, Society, Association of persons/company, etc. except for the identity under State Legislature MSBTE Act, 1997. As per the provision of the said Act, the property and income vested in the assessee’s Board shall be utilized only for the purpose of its objectives and not otherwise. The A.O. had show caused the assessee board to explain that as per the income and expenditure account, the assessee was collecting various professional receipts/contract receipts from affiliated institutions which form the surplus revenue of Rs.39,71,85,769/- which the A.O. treated it as profit of the assessee board. The A.O. further held that the assessee board was notified as an exempt entity u/s. 10(46) of the Act which provision according to the A.O. was prospective in nature. The A.O. further held that the assessee board has not deducted TDS and that the expenses should be disallowed u/s. 40(a)(ia) of the Act and also disallowed the interest of Rs.10,02,46,952/- on fixed deposit out of the surplus revenue as ‘income from other sources’. It is observed that all the issues raised by the Revenue in its appeal was dealt with extensively by the Tribunal vide its earlier order and has decided accordingly in favour of the assessee. The relevant extract of the said decision is cited hereunder for ease of reference:
26. We have examined the scheme of the Maharashtra State Board of Technical Education Act, 1997. The state legislature enacted the Maharashtra State Board of Technical Education Act, 1997 for the purpose for established of to regulate matter pertaining to Diploma Level Technical Education in the State of Maharashtra and for the matter connected therewith. The State Act received the assent of the Governor on 03.08.1997 and was published in State Government Gazette on 06.08.1997.
27. Section 5 of the State Act prescribed constitution of Board, which consist of the Director, Technical Education, Maharashtra State as the Chairman; the Director Maharashtra State Board of Technical Education as the Member Secretary and the other members, namely Ex-officio Members consisting of
(i) The Chairman of the Maharashtra State Board of Secondary and Higher Secondary Education or his nominee not below the rank of the Chairman of the Divisional Board; (ii) The Director of Industries, Maharashtra State or his nominee not below the rank of Joint Director;
(iii) One representative of the State Nodal Centre of National Technical Manpower information System; (iv) The Regional Officer (Western Region) of All India Council of Technical Education, New Delhi; (v) The Director, Board of Apprenticeship Training (Western Region), Government of India, Ministry of Human Resources Development,(vi) The Joint Secretary to Government, Higher and Technical Education Department or his nominee not below the rank of Deputy Secretary. Nominated Members (i) one senior most Principal from Government Engineering Colleges in the State to be nominated by the Government. (ii) Two members to be nominated by the Government from amongst the Principals and Heads of institutes, one each from Government of Technical Education or aided and un-aided Polytechnics, of which at least one shall be a woman,
(iii) Two members to be nominated by the Government from amongst the teachers, one each from Government or aided and un-aided polytechnics, of whom at least one shall be from Backward Class Community,(iv) Three members to be nominated by the Government from the professional bodies, one from each revenue region by rotation. (v) Six members to be nominated by the Government from amongst the associations of industries, who are entrepreneurs of Small Scale Industries, Information Technology, Biotechnology, Gems and Jewellery, Pharmacy and Hotel Management, at least two of whom s hall be from out of the Mumbai and Pune Regions.
28. Section 7A prescribed establishment of Governing Council which shall be an Apex Body to control and monitor matter pertaining to Diploma level technical education at the State Level. The Governing Council shall consist of the following; (i) The Minister of Higher and Technical Education Maharashtra State as President; ((ii) The Minister of State for Higher and Technical Education as Vice- President; ((iii) State Secretary Technical Education – Member (iv) three Industrialist nominated by the Government – Members (v) Director of Technical Education, Maharashtra State – Member,
(i) Secretary, Maharashtra State Board of Technical Education – Member
(vii) Director, Maharashtra State Board of Technical Education. The name of Persons other than the Ex-Officio Members, who have been nominated, from time to time as a Member of Council are published in official Gazette of Technical Education of State Government. The powers and duties of Board of Directors are defined under section 22 of the Act as explained by ld. AR of the assessee which we have already referred. Section 23 defined the duties of Board of Director.
29. Further as per section 24, the State Government has controlled and power to issue various directions after considering the advice of the Board for various matters as specified in section 22, for conducting anything or intense to conduct or do into communicate to the Board its view. The Board is under obligation to report to the Government such action, if any, as it propose to take and has taken upon communication and shall furnished an explanation, if it fails to take action. If the Board does not take action within a reasonable time to the satisfaction of the Government, the Government may after considering any explanation or representation of the Board in consistence with the provision of the Act and Board shall comply such direction. Further, the Government may, by order in writing specifying the reasons thereof, suspend the execution of any Resolution or order of Board and prohibit the action order to be purporting to be ordered to be done by the Board, if the Government is of opinion that such Resolution, order or Act, is a nexus of the power conferred by or under the Act upon the Board. In our view, as per section 24 of the State Act, the State Government have full control over the Board in its day to day affair in Regulation or business of the assessee’s Board.
30. Sections 25 to 35 of the Act deals with the permission, affiliation, conference and autonomous status of the assessee. Further, sections 36 to 44 of the Act are prescribed about funds, finance, accounts and audit. The assessee’s Board is under obligation to furnish the report and return and statement relating to any matter connected with its work as the Government may call for. Sections 45 to 53 deals with supplementary and miscellaneous provisions of the State Act with regard to manner of exercise of power delegated to Committee, power of Board to make Regulation with regard to examination, condition governing admission, passing marks in any subject and examination as hold including credit and distinction in any subject, fees for admission to the examination, other fees, charges payable in respect of other matters to the examination. Arrangement of conduct of examination, appointment of examiners including qualification disqualification, award of certificate, appointment of officers and servants of the Board in its own office including condition of their services, control administration, safe custody and management of finance of the Board or any other matter which may be prescribed. As per section 46, the Regulation made by Board requires sanction of the State Government. Initially, Regulation was prepared by Government shall continue in force, until new Regulation are made by Board. Further, if any questions arise regarding the interpretation or doubt arising of the by-laws the same is liable to be decided by the State Government and such decision are final. Section 51 provides the immunity of Technical Education against any Suit, Prosecution or legal proceeding against the Government, Governing Council, Board or Members or servant of the Government for anything which is done or purported or intended to be done in pursuance of this Act in good faith. From the perusal of various statutory provisions, we may conclude that there is complete control of State Government over the affair of assessee Board. The power and duties of the Board activities as prescribed under section 22, which we have mentioned in para 9 supra and are not repeated here for the sake of brevity shows that none of the activity under taken or entrusted to the assessee board are in the nature of trade commerce or business. In our view, the assessee is engaged in advancement of object of General Public Utility Services as set up by State Government. The receipt/income/source of income of assessee consists of grant from State Government, fees collected from candidate, who appears in various examinations, receipt from printed education material, receipt from other government bodies for conducting courses and exams like Common Entrance Test (CET) or interest on deposits. In our view, none of these items can be said to be carrying of any activities in the nature of trade, commerce or business. Further, at the cost of repetition, we may conclude that the assessee is not rendering any services in the nature of trade, commerce or business for a fees or any other consideration, rather, the assessee engaged in regulation of educational activities as per the statutory obligation conferred on the assessee Board. Even otherwise as we have noted earlier every activities of the assessee Board is subject to superintendence, instruction and control of the State Government. In our view, the assessee Board is completely controlled financially as well as administratively by the Government, thus, falls under the definition of “State” as per Article 12 of the Constitution of India.
31. The co-ordinate bench of Tribunal in Smt. Sapna Sanjay Roisoni (supra) while considering the scope of Article 12 of the Constitution of India gave the following finding;
11. The definition of the State under Article 12 has come for the consideration on number of occasions before the Hon’ble Supreme Court. The State consists of three departments, the Legislature, the Executive and the Judiciary. We need not go into all the limbs of the State as only the limited issue before us is whether the term Government used in clause (b) to Rule 6DD includes even the autonomous bodies which partakes the character of instrumentalities of the Government. The core test to be applied whether a particular Corporation which is autonomous body is a part of Government, to be seen in the context of degree of control over management and policy decisions. We find that in the case of MSRTC as per the certificate of the share capital filed before us, the entire share capital is contributed by the State Government and the Central Government and there is no private participation. We further find that MSRTC is incorporated under special legislation i.e., Road Transport Corporation Act, 1950. We have examined the provisions of the said enactment. As per section 5 of the said Act, the State Government is only having power to appoint the Chairman and other Members in the Managing body. There is a full control of the State Government on the policy decisions as well as management. In our opinion, if we apply the test of the control and management as well as the equity participation, MSRTC is a State within Article 12 of the Constitution. Applying the above test, the Hon’ble Supreme Court has held, as discussed hereinabove, that the autonomous bodies like State Road Transport Corporation or Warehousing Corporation where there is a full control by the Government, either Central or State, these are the instrumentalities of the Government only.
12. The term Government is very much wide under the constitutional set up. Government may be Central or State, or it may be Local Government which is envisaged by our Constitution, like Zilla Parishad, Municipal Corporations, Municipal Councils, Panchayat Samithis, etc. The Public Works Department is part of the Government. In our opinion, this aspect has not been considered by the authorities below and they have closed door to the assessees to make out the case for examination under Rule 6DD. We are, therefore, of the opinion that in the light of our above discussion, the plea of the assessees need reconsideration by the ITA No. 2203 Mum 2016-Maharashtra State Board of Technical Education Ld. CIT(Appeals). We, therefore, set aside the issue in respect of the disallowance made u/s.40A(3) to the file of the Ld. CIT(A) to decide the same de novo in the light of our above observations and discussion. Accordingly, the relevant Grounds taken by the assessees in all these appeals are allowed for statistical purposes. Needless to say the CIT(A) is directed to give opportunity of being heard to the assessees as per the principles of natural justice.’
10. A bare perusal of Article 12 shows that the definition of “the State” given in Article is inclusive and not exhaustive. “The State” includes :
(a) the Government and Parliament of India;
(b) the Government and the Legislature of each of the States;
(c) all local and other authorities within the territory of India; and
(d) all local and other authorities under the control of the Government of India.
11. The expression “other authorities” used in Article 12 is neither defined in the Constitution of India nor in any other statute. Therefore, the Hon’ble Supreme Court of India and the Hon’ble High Court have interpreted this expression in various judgements. The Hon’ble Supreme Court of India while interpreting the expression “other authorities” in the case of Som Prakash Rekhi v. Union of India reported as AIR 1981 SC 212 have culled out certain tests to determine as to when a Corporation should be said to be an instrumentality or Agency of the Government. The tests laid down by the Hon’ble Apex Court are summarized as under :
“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.
2. Existence of deep and pervasive State control may afford an indication that the corporation is a State agency or instrumentality.
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.”
After applying the cumulative effect of all the relevant factors mentioned above, if the body is found to be an instrumentality of the agency of the Government, it would be an authority included in term “State” under Article 12 of the Constitution of India. However, the tests indicated by the Hon’ble Apex Court in the case of Som Prakash Rekhi are merely indicative and not absolute and thus, have to be applied discretely. If any body or organisation falls within the criteria as laid down by the Hon’ble Apex Court it can be considered that it falls within the term “State”.
12. If these tests are applied on the MSRTC, we observe that the Corporation satisfies majority of the conditions. The entire share capital of MSRTC is owned by State and Central Government. The State has full control over the working, policies and the framework of the Corporation. The Corporation is providing public transport facility to the subjects of the State, even in for remote areas, where sometimes it is not economically viable to provide transport service. Thus, it is providing vital function of public importance.
13. The Hon’ble Bombay High Court in the case of Maharashtra State Road Transport Corpn. v. Diwakar Madhukarrao Malkapure and Others in Writ Petition No.2762/2012 decided on 12-11-2013 while dealing with an issue relating to payment of compensation to one of the employee of MSRTC has observed as under :
“The Petitioner employer is a body Corporate and is State within the meaning of Article 12 of the Constitution of India and therefore it has to act as a Model Employer.”
14. Thus, in view of the facts of the case and in the light of observations of the Hon’ble Bombay High Court, we are of the considered opinion that the CIT(A) has erred in holding that MSRTC is not a “State” and cash payments made to MSRTC are hit by the provisions of section 40A(3) of the Act.
32. Similar view was taken by Kolkata Tribunal in Narayan Rice Mill (supra).
33. We have further noted that the assessee Board made an application under clause (46) of section 10 for exemption of specified income to the assessee and CBDT vide its notification dated 29.03.2016 exempted the income of assessee Board arising from:
(a) fees, fines and penalties;
(b) receipts from Printed Educational Material;
(c) receipts from Scrap or Waste paper;
(d) receipts from other Government Bodies;
(e) interest income from surplus funds kept in bank accounts and fixed deposits;
(f) rent received from let out of properties’;
(g) royalty or License fees for providing technical knowledge and infrastructure;
(h) dividend earned from Maharashtra Knowledge Corporation Ltd;
(i) capital gains, if any, from disposal of assets as per Government financial guideline and rules of Government of Maharashtra.
34. The exemption in the CBDT notification dated 29.03.2016 is valid for Financial Year 2015-16 to 2018-19. Admittedly no return of income was filed by the assessee for the assessment year under consideration. The ld. AR initially argued that under bonafide mistaken belief that the assessee is being instrument of state is exempted from filing return of income, the assessee has not file return of income for the assessment year under consideration. Considering the facts that the assessee Board is under complete superintendence, and control of the State Government financially as well as administratively falls under the definition of “State” as per Article 12 of the Constitution of India. And in our view is entitled for immunity from the taxation of its income under the provisions of Income -tax Act. our view is further got the support that CBDT vide its notification date 29.03.2016 has granted exemption of taxation to the assessee board. Thus, the grounds No. 5 to 10 of appeal raised by the assessee are allowed.
10. From the above decision and also on considering the subsequent decisions of the Tribunal, we are of the view that the objectives of the assessee board are evident to categories it to be a ‘state’ under Article 12 of the Constitution of India and also from the criteria laid down by the Hon’ble Supreme Court, no doubt assessee would fall within the term ‘state’ when the assessee is controlled by either the Central or State Government completely then they become instrumentality of the Government. As there has been a consistent view on this, we find no justification to hold it otherwise when there are no changes in facts.
11. By respectfully following the above said decision, we are inclined to hold the assessee within the meaning of “state” under Article 12 of the Constitution of India and, hence, will have the benefit of immunity from taxation of its income under the provision of Income Tax Act. We find no infirmity in the order of the ld. CIT(A) and, hence, the appeal filed by the Revenue is dismissed.
12. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open court on 28.04.2023
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