MAHARASHTRA LABOUR WELFARE BOARD, MUMBAI V. DY COMMISSIONER OF INCOME TAX (E)-2(1), MUMBAI

CO 34/MUM/2023

AI Insights

The case involves the Maharashtra Labour Welfare Board, which appealed against the orders of the Deputy Commissioner of Income Tax concerning the assessment years 2008-09 and 2010-11. The primary legal contention was whether the Board, established under the Maharashtra Labour Welfare Fund Act, 1953, is a 'State' under the Constitution and whether its income is exempt from taxation. The Income Tax Appellate Tribunal examined the nature of the Board's functions, its funding, and its relationship with the State Government to determine its status under constitutional and tax laws.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123386 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 24-09-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 16-08-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 09-04-2023
• Other Referred Cases: M/s Goetze (India) Ltd. 284 ITR 323 (S.C), APSRTC (52 ITR 524), Electricity Board v. Mohan Lal AIR 1967 Raj 1857, Narayan Rice Mill v. CIT, Smt. Sapna Sanjay Raisoni v. ITO, Novopan India Ltd. v. Collector of Central Excise and Customs, Som Prakash Rekhi v. Union of India, CIT v. Karnataka Urban Infrastructure Development & Finance Corpn., Andhra Pradesh State Road Transport Corporation v. CIT, Heavy Engg. Mazdoor Union v. State of Bihar
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Maximum Marginal Rate; Competent authority; Right to appeal; Revised return; Liquidation
• Section: 32; 6; 28; 143(3); 12A; 12AA; 250; 73; 13; 22; 10(23C)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “D”, MUMBAI BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI GAGAN GOYAL, ACCOUNTANT MEMBER ITA No. 137/Mum/2023 (A.Y.2008-09) & ITA No. 138/Mum/2023 (A.Y.2010-11) Dy. Commissioner of Income Tax (E)-2(1) Mumbai ...... Appellant Vs. Maharashtra Labour Welfare Board Girni Kamgar Kareeda Bhavan, Elphinston Senapati Bapat Marg Mumbai – 400 013 PAN: AAAAM3255A ..... Respondent CO No. 33/Mum/2023 (Arising out of ITA No. 137/Mum/2023 (A.Y.2008-09) & CO No. 34/Mum/2023 (Arising out of ITA No. 138/Mum/2023 (A.Y.2010-11) Maharashtra Labour Welfare Board Girni Kamgar Kareeda Bhavan, Elphinston Senapati Bapat Marg Mumbai – 400 013 PAN: AAAAM3255A ...... Appellant Vs. Dy. Commissioner of Income Tax (E)-2(1) Mumbai ..... Respondent 2 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar Appellant by : Shri Vipul Joshi & Shri Ashok Patil, Ld.AR Respondent by : Smt. Mahita Nair, CIT-DR Date of hearing : 17/09/2023 Date of pronouncement : 25/09/2023 ORDER PER GAGAN GOYAL, A.M: These appeals by Revenue and Cross Objections by assessee are directed against the order of National Faceless Centre (NFAC), Delhi dated 18.11.2022 u/s.143(3) r.w.s. 254 of the Income Tax Act, 1961 (in short ‘the Act’) for A.Y. 2008-09 & 2010-11 respectively. ITA No.137 & 138/Mum/2023 2. The Brief facts of the case are that assessee originally assessed as an AOP. Wherein, assessee claimed, its income exempted u/s. 10(23AAA) of the Act. In original order passed u/s. 143(3) of the Act, dated: 30.12.2010, exemption u/s. 10(23AAA) of the Act as claimed by the assessee was denied and total income chargeable to tax was assessed at Rs. 1,71,63,060/-. Assessee being aggrieved with the same filed an appeal before the Ld. CIT (A) -29, Mumbai, through his order Ld. CIT (A) upheld the order of AO passed u/s. 143(3) of the Act. Assessee being further aggrieved filed an appeal before the Coordinate Bench, where coordinate bench after considering the arguments of assessee restored the matter back to the file of AO for passing the order de- novo. 3 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar 3. Matter of the assessee was taken up afresh on the directions of coordinate bench and assessee was asked to furnish the details again and specifically about its claim of being “State”, which was being raised before the coordinate bench as additional ground.Again AO, disallowed all the claims made by assessee and assessed the income at Rs. 1,71,63,060/-. Assessee being aggrieved with this re-assessment order passed u/s. 143(3) r.w.s. 254 of the Act, preferred an appeal before the Ld. CIT (A), who in turn allowed the appeal of the assessee on the ground that assessee is eligible for exemption u/s. 11 and 12 of the Act without deciding the issue of exemption u/s. 10(23C) (iv) of the Act and additional ground raised before the coordinate bench and AO of being “State”. Now there is a cross-appeal before us, i.e., both from Revenue and assessee against the order of Ld. CIT (A) for giving relief to the assessee and not declaring assessee as “State” respectively. Assessee raised its grievance through filing of C.O. and main appeal was filed by the Revenue against the order of Ld. CIT (A). We are first taking up the appeal of the Revenue for sake of convenience in understanding the issue. 4. We have gone through the order of AO passed u/s. 143(3) r.w.s. 254 of the Act, order of Ld. CIT (A) passed u/s. 250 of the act and detailed submissions of the assessee. Assessee is a labour welfare board established by the state of Maharashtra under the Maharashtra labour welfare fund Act 1953. The assessee is being funded through a tripartite contribution from government, employers and employees. Assessee is involved for the benefit and welfare of workers and labours in the state of Maharashtra. Assessee is established u/s. 4 of the Maharashtra labour welfare fund Act 1953. The board of the assessee is being appointed by the State Government. State Government can dismiss the 4 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar entire board or its individual member and can also supersede or reconstitute the board. As per sec. 20 of the MLWFA, 1953 clearly states that the members of the board, welfare commissioner, inspector and all other officers shall be deemed to be public servant. The accounts of the assessee are being audited by the chief auditor, local fund accounts of Maharashtra State and is placed before the state legislature. The budget of the assessee is also placed before the state legislature and is approved as part of the general budget of the state. 5. It is also observed that the assessee applied for registration u/s 10(23C) (iv) on 08.12.2011 and the same has been granted w.e.f. AY 2011-12. It is also noted that assessee has applied for registration u/s. 12AA on 28.12.2018 and the same has been granted vide order dated 06.06.2019. Based on this registration it can be said that assessee can avail exemption u/s 10(23C) (iv) w.e.f. AY 2011-12 and can also avail exemption u/s 11 and 12 by virtue of the second proviso to sec 12A (2) for preceding assessment years also as the assessee is satisfying the condition of application of receipts more than 85% for the objects. The Ld. CIT (A) convinced about the claim of the assessee as far as exemption u/s 11 and 12 are concerned. Hence, partly allowed the claim of the assessee and exempted the income of the assessee u/s 11 and 12 as assessee is eligible for the same in view of second proviso to section 12A (2) 6. In his order Ld.CIT (A) chosen not to comment on assesses claim of assessment being time barred u/s. 153(3) and status of the assessee as “State”. It is found that assessee was fulfilling all the conditions as laid down for the purposes of section 11 to 13 of the act. Assessee is applying its income 5 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar derived from property held under trust for the purposes approved in the registration certificate u/s 12A. The only reason for the denial of assessee claim by the AO is that such a claim has not been made in the original return filed before him hence he relied upon the judicial pronouncement on honorable supreme court in the case of M/s Goetze (India) Ltd. 284 ITR 323 (S.C) wherein it is provided that assessee cannot make any fresh claim before the assessing officer except by revising its return of income. As in this case no revised return has been filed by the assessee but the same case law doesn’t stop the Ld.CIT(A) and ITAT to entertain the fresh claim of the assessee whether a revised return has been filed or not. 7. We have thoroughly gone through the order of AO and found that assessee is applying more than 85% of the gross income towards objects of the institution. The surplus of the institution has been invested in the modes prescribed u/s 11(5) of the act. Assessee filed an audit report to form no. 10B. In view of these facts and the reason given by AO for not applying provisions of section 11 and 12 in the case of assessee, we found that the order of Ld.CIT (A) is correct and we find no perversity in the order of Ld.CIT (A). we do not find any sustainable reason assigned by AO which can justify the denial of assessee’s claim for exemption under the provisions of sec 11 and 12 hence, ground nos. 1,2 and 3 raised by revenue are dismissed 8. In the result appeals of the revenue are dismissed. 6 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar CO Nos. 33 & 34/Mum/2023 9. Now we are taking up the grounds raised by the assessee through the cross objections (CO) filed. The first ground of CO was raised first time before the co- ordinate bench in the first round of proceedings before the co-ordinate bench. Before the co-ordinate bench assessee raised an issue that appellant is a “State” within the meaning of article 289(1) of the constitution of India i.e., an agent/an instrumental institution of state within the meaning thereof, so as to be not taxable under the Income Tax Act 1961. On this ground, as was never raised before the authorities below, co-ordinate bench restored the matter back to file of AO to examine this ground of the assessee and frame a de-novo assessment. To understand this issue raised by the assessee we have gone through the order of AO passed u/s. 143(3) r.w. s 254 of the I.T.Act, order of the Ld.CIT (A), the Maharashtra labour welfare fund Act 1953 vide page no.8 to 70 of the paper-book dated 18.04.2023, various communications between assessee and Government of Maharashtra vide page no. 73 to 175 of the paper-book dated 18.04.2023 10. For sake of clarity over the issue and to examine the claim of the assessee we are re-producing relevant provisions of Maharashtra labour welfare fund Act 1953 as under:- BOMBAY ACT No. XL OF 1953 1[THE MAHARASHTRA LABOUR WELFARE FUND ACT.] [17’Th June 1953] Amended by Bom. 16 of 1956. Adapted and modified by the Bombay Labour Welfare Board (Reconstitution) 7 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar Order, 1959‡ Adapted and modified by the Bombay Labour Welfare Board (Reorganisation) Order, 1960. Amended by Mah. 36 of 1961 ” ” ” 22 of 1966. ” ” ” 16 of 1971. ” ” ” 2 of 1978 (1-7-1977) ” ” ” 4 of 1984. (20-2-1984) ” ” ” 10 of 1987 (1-5-1987) ” ” ” 24 of 2003 (7-1-2002) ” ” ” 24 of 2012 (22-8-2012) An Act to provide for the constitution of a Fund for the financing of activities to promote welfare of labour in the State of [Maharashtra] [for conducting such activities and for certain other purposes]. WHEREAS it is expedient to constitute a Fund for the financing of activities to promote 'welfare ‘of labour in the State of 2[Maharashtra] 3[for conducting such activities and for certain other purposes]; It is hereby enacted as follows:— 1. (1) This Act may be called [the Maharashtra Labour Welfare Fund Act] [(2) It extends to the whole of the State of Maharashtra.] (3) It shall come into force in such area and on such date as the State Government may, by notification in the Official Gazette, appoint in this behalf. 2. in this Act, unless the context otherwise requires— (1) “Board” means [the Maharashtra Labour Welfare Board] constituted under section 4; 7[(1A) “contribution” means the sum of money payable to the Board in accordance with the provisions of section 6BB;] *(2) “ Employee ” means any person who is employed for hire or reward to do any work, skilled or unskilled, manual, clerical, supervisory or technical in an establishment directly by the employer or through contractor or any Other agency, but does not include any person— 8 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar (i) Who is employed mainly in a managerial capacity? (ii) who, being employed in a supervisory capacity, draws wages exceeding three thousand and five hundred rupees per mensem, or exercises powers or carries out, either by the nature of the duties attached to the office, or by reason of the powers vested in him, functions mainly of a managerial nature, or (iii) Who is employed as an apprentice under the Apprentice Act, l961;] (3) " Employer” means any person who employs either directly or through another person either on behalf of himself or any other person, one or more employees in an establishment and includes— (i) In a factory, any person named under section 7(i) (f) of the Factories Act, 1948 as the manager; (ii) In any establishment, any person responsible to the owner for the supervision and control of the employees or for the payment of wages; (4) " Establishment” means — (i) A factory; (ii) A tramway or [motor omnibus service or a motor transport undertaking to which the Motor Transport Workers Act, 1961, applies; and 3[(iii) any establishment within the meaning of the Bombay Shops and Establishments Act, 1948, which employs, or on any working day during the preceding twelve months, employed [five] or more persons [including the establishments which have been granted exemption partly or wholly under the proviso to section 4 of that Act] : Provided that, any such establishment shall continue to be an establishment for the purposes of this Act, notwithstanding a reduction in the number of persons to less than [five] at any subsequent time : Provided further that, where for a continuous period of not less than three months, the number of persons employed therein has been less than [five] such establishments shall cease to be an establishment for the purposes of this Act with effect from the beginning of the month following the expiry of the said period of three months, but the employer shall 9 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar within one month from the date of such cessation, intimate by registered post the fact thereof to such authority as the State Government may specify in this behalf ] ; [Explanation.—For the removal of doubt, it is hereby declared that where an establishment has different branches or departments, all such branches or departments, whether situated in the same premises or different premises, shall be treated as parts of the same establishment ; ] [(5) “Factory” means a factory as defined in section 2 (m) of the Factories Act, 1948, and includes any place wherein five or more persons are employed or working, and— (i) Where in any manufacturing process is being carried on with the aid of power or is ordinarily so carried on ; (ii) Which is deemed to be a factory under section 85 of the said Act;] (6) “Fund” means the 2*Labour Welfare Fund] constituted under section 3; (7) “Independent member” means a member of the Board who is not connected with the management of any establishment or who is not an employee, and includes an officer of Government nominated as a member; (8) “Inspector” means an Inspector appointed under section 12; (9) “Prescribed” means prescribed by rules made under this Act; (10) “Unpaid accumulation” means all payments due to the employees but not made to them within a period of three years from the date on which they became due whether before or after the commencement of this Act including the wages, and gratuity legally payable [but not including the amount of contribution if any, paid by an employer to a provident fund Established under the Employees’ Provident Funds Act, 1952]; [(11) “wages” means wages as defined in section 2 (vi) of the Payment of Wages Act, 1936, and includes bonus payable under the Payment of Bonus Act, 1965] ; 10 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar (12) " Welfare Commissioner” means the Welfare Commissioner appointed under section 11. 2A. [Construction of certain references in the Act] Deleted by Mah. 36 of 1961 s.6. 3. 6[(1) The State Government shall constitute a fund called the Labour Welfare Fund, and notwithstanding anything contained in any other law for the time being in force or in any contract or instrument, all unpaid accumulations shall be paid 7[at such intervals as may be prescribed] to the Board, which shall keep a separate account therefore until claims thereto have been decided in the manner provided in section 6A, and the other sums specified in sub- section (2) shall be paid into the Fund. (2) The Fund shall consist of— (a) All fines realised from the employees; (b) [Unpaid accumulations transferred to the Fund under section 6A] ; [(bb) any penal interest paid under section 6B; ] 10[(bbb) any contribution paid under section 6BB;] (c) Any voluntary donations; (d) Any fund transferred under-section (5) of section 7; 1 (e) Any sum borrowed under section 8; 2[(f) any loan, grant-in-aid or subsidy paid by the State Government.] (3) The sums specified in sub-section (2) 3[shall be paid, or collected by such agencies, at such intervals] and in such manner and the accounts of the Fund shall be maintained and audited in such manner as may be prescribed. 4. (1) [The State Government shall, by notification in the Official Gazette constitute the Board for the whole of the State of Maharashtra for the purpose of administering the Fund, and to carry on such other functions assigned to the Board by or under this Act.] The Board shall consist of the [following members, not exceeding twenty-six in number], namely:— 11 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar (a) Such number as may be prescribed of representatives of employers and employees to be nominated by the State Government: Provided that both employers and employees shall have equal representation on the Board; (b) Such number of independent members as may be prescribed, nominated by the State Government; (c) Such number of independent members as may be prescribed, Nominated by the State Government to represent women; 7[(d) the Principal Secretary or Secretary (Finance) or his nominee shall be the ex-officio member; and (e) The Principal Secretary or Secretary (Labour) or his nominee shall be the ex-officio member.] (2) The members of the Board shall elect one of its independent members as the Chairman of the Board. (3) Save as otherwise expressly provided by this Act, the term of office of the members of the Board shall be three years commencing on the date on which the names are notified in the Official Gazette. (4)The allowances if any, payable to the members of the Board shall be such as may be prescribed. (5) [The Board shall be a body corporate by the name of the Maharashtra Labour Welfare Board having perpetual succession and a common seal, with power to acquire property both moveable and immovable, and shall by the said name sue and be sued. [(6) Notwithstanding anything contained in this section, until the Board for the State of Maharashtra is duly constituted in accordance with the provisions of sub-section (1), the existing Board functioning and operating immediately before the commencement of the Bombay Labour Welfare Fund (Extension and Amendment) Act, 1961, in any area of the State shall continue to function and operate in that area and shall be the Board for the purpose of this Act for that area ; and on the constitution of the Board for the whole of the State of Maharashtra under sub-section (1)— 12 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar (a) Such existing Board shall stand dissolved, and the members, thereof shall vacate office; (b) all properties, funds and dues which are vested in or realisable by the existing Board shall vest in, and be realisable by the Board so constituted ; (c) all rights and liabilities which were enforceable by or against the existing Board, shall be enforceable by or against the Board so constituted and wherein any proceedings in any court or tribunal the existing Board is a party thereto, the Board so constituted shall be deemed to be substituted as a party to those proceedings ; and (d) the Welfare Commissioner and the other officers and servants of the existing Board shall continue to be the Welfare Commissioner and officers and servants of the Board so constituted; but the terms and conditions of service of the Welfare Commissioner and other officers and servants shall not, until duly altered by a competent authority, be less favourable under the Board so constituted than those admissible to them while in the service of the existing Board.] 4A. [Powers of the Board in respect of the Karnataka area to be exercised by the Government of Mysore for certain period.] Deleted by Mah. 36 of 1961, s.9. 5. (1) No person shall be chosen as, or continue to be a member of the Board who— (a) is a salaried official of the Board ; or (b) is or at any time has been adjudged insolvent or has suspended payment of his debts or has compounded with this creditors ; or (c) is found to be a lunatic or becomes of unsound mind ; or (d) is or has been convicted of any offence involving moral turpitude. (2) The State Government may remove from office any member who— (a) is or has become subject to any of the disqualifications mentioned in sub-section (1) ; or (b) is absent without leave of the Board for more than three consecutive meetings of the Board. 6. (1) A member may resign his office by giving notice thereof in writing to the State Government, and on such resignation being accepted, shall be deemed to have vacated his office. 13 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar (2) A causal vacancy in the office of a member shall be filled up, as soon as conveniently may be, by the authority concerned and a member so nominated shall hold office for the unexpired portion of the term of the office of his predecessor. (3) No act or proceedings of the Board shall be questioned on the ground merely of the existence of any vacancy in, or any defect in constitution of the Board. [6BB. (1) The contribution payable under this Act in respect of an employee in an establishment shall comprise contribution payable by the employer (hereinafter referred to as ‘the employer’s contribution’), contribution payable by such employee (hereinafter referred to as ‘the employee’s contribution’) and the contribution payable by the State Government, and shall be paid to the Board and form part of the Fund. 2[(2) The amount of contribution payable every six months in respect of every employee and an employee for each such employee shall be at the following rates, namely :— (a) (i) in respect of an employee drawing wages up to and inclusive of [three thousand rupees per mensem, six rupees]; and (ii) in respect of an employee drawing wages exceeding 4[three thousand rupees per mensem, twelve rupees], only if the name of such employee stands on the register of an establishment on the 30th June and 31st December, respectively : [Provided that, the State Government may, on receipt of a proposal from the Board, by notification in the Official Gazette, increase once in every three years, the rate of employees’ contribution so, however that, such increase shall not exceed 30 per cent. of the rates of contribution.] 1[(b) in respect of an employer for each employee referred to in sub-clause (i) and (ii) of clause (a), thrice the amount of contribution payable by an employee.] (3) Every employer shall pay to the Board both the employer’s contribution and the employee’s contribution in accordance with the provisions of sub-section (2) before the 15th day of July and 15th day of January, as the case may be.] 14 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar (4) Notwithstanding anything contained in any other enactment but subject to the provisions of this Act and any rules, the employer shall in the case of any such employee be entitled to recover from the employee that employee's contribution by deduction from his wages, and not otherwise; and such deduction shall be deemed to be a deduction authorised by or under the Payment of Wages Act, 1936 : Provided that, no such deduction shall be made in excess of the amount of the contribution payable by such employee, nor shall it be made from any wages other than the wages for the months of June and December : Provided further that, if through inadvertence or otherwise, no deduction has been made from the wages of an employee for the months aforesaid, such deduction may be made from the wages of such employee for any subsequent month or months with the permission in writing of the Inspector appointed under this Act. (5) Notwithstanding any contract to the contrary, no employer shall deduct the employer’s contribution from any wages payable to an employee or otherwise recover it from the employee. (6) Any sum duly deducted by an employer from the wages of an employee under this section shall be deemed to have been entrusted to him by the employee for the purpose of paying the contribution in respect of which it was deducted. (7) An employer shall pay the employer’s and the employee’s contribution to the Board by cheque, money-order or in cash, and he shall bear the expenses of remitting to the Board such contributions. (8) The Welfare Commissioner shall submit to the State Government as soon as possible after the end of July and January every year in the prescribed form a statement showing the total amount of *the employer’s contribution and the employees’ contribution in respect of employees in each establishment]. On receipt of the statement from the Welfare 15 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar Commissioner, the State-Government shall pay to the Board a contribution of [an amount equal to half the employee’s contribution for the period from the 31st December 2000 to the 31st March 2003; and an amount equal to twice the employee’s contribution with effect from the1st April 2003, in respect of every employee referred to in sub-clause (i) and (ii) of clause (a) of sub-section (2).] 7. (1) The Fund shall vest in and be held and applied by the Board as Trustees subject to the provisions and for the purposes of this Act. The moneys therein shall be utilized by the Board to defray the cost of carrying out measures which may be specified by the State Government from time to time to promote the welfare of labour and of their dependents. (2) Without prejudice to the generality of sub-section (1) the moneys in the Fund may be the utilized by the Board to defray expenditure on the following:— (a) Community and social education centres including reading rooms and libraries ; (b) Community necessities (c) Games and sports; (d) Excursions, tours and holiday homes; (e) Entertainment and other forms of recreations; (f) Home industries and subsidiary occupations of women and unemployed persons; (g) Corporate activities of a social nature; (h) Cost of admeasuring the Act [including the salaries, allowances, pension, provident fund and gratuity and any other fringe benefits of the staff] appointed for the purposes of the Act ; and (i) such other object as would in the opinion of the State Government improve the standard of living and ameliorate the social conditions of labour : Provided that the Fund shall not be utilized in financing any measure which the employer is required under any law for the time being in force to carry out: Provided further that unpaid accumulations and fines shall be paid to the Board and be expended by it under this Act notwithstanding anything contained in the Payment of Wages Act, 1936, or any other law for the time being in force. 16 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar (3) The Board may, with the approval of the State Government, make a grant of the Fund to any employer, any local authority or any other body in aid of any activity for the welfare of labour approved by the State Government. (4) If any question arises whether any particular expenditure is or is not debit able to the Fund, the matter shall be referred to the State Government and the decision given by the State Government shall be final. (5) It shall be lawful for the Board to continue any activity financed from the labour welfare fund of any establishment, if the said fund is duly transferred to the Board. 8. The Board may from time to time with the previous sanction of the State Government and subject to the provisions of this Act and to such conditions as may be specified in this behalf borrow any sum required for the purpose of this Act. 9. Where the Fund or any portion thereof cannot be applied at any early date for fulfilling the objects of the Act, the Board shall invest the same in any of the securities specified in clauses (a) to (d) and (f) of section 20 of the Indian Trusts Act, 1882. 10. The State Government may give the Board such directions as in its opinion are necessary or expedient in connection with expenditure from the Fund or for carrying out the other purposes of the Act. It shall be the duty of the Board to comply with such directions. 11. (1) (i) The Welfare Commissioner shall be appointed by the Board with the previous approval of the State Government; (ii) The Welfare Commissioner shall be the principal executive officer of The Board; (iii) It shall be the duty of the Welfare Commissioner to ensure that the provisions of this Act and the rules made thereunder are duly carried out and for this purpose he shall have the power to issue such orders not inconsistent with the provisions of the Act and rules made 17 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar thereunder as he deems fit including any order implementing the decisions taken by the Board under Act or rules made thereunder. 12. (1) The State Government may appoint Inspectors to inspect records in connection with the sums payable into Fund. 2[Inspectors appointed, whether by a local authority or the State Government under the Bombay Shops and Establishments Act, 1948, in relation to any area, shall be deemed to be also Inspectors for the purposes of this Act, in respect of establishments to which this Act applies, and the local limits within which such Inspector shall exercise his functions under this Act shall be the area for which he is appointed under the said Act.] (2) Any Inspector may— (a) with such assistance, if any, as he thinks fit, enter at any reasonable time any premises for carrying out the purposes of this Act ; (b) Exercise such other powers as may be prescribed. 13. (1) The Board shall take over and employ such of the existing staff under the control of the Commissioner of Labour, Bombay, as the State Government may direct and every person so taken over and employed shall be subject to the provisions of this Act and the rules made thereunder : Provided that— (a)during the period of such employment all matters relating to pay, leave, retirement, allowances, pensions, provident fund and other conditions of service of the said staff shall be regulated by the Bombay Civil Services Rules or such other rules as may be from time to time be made by the State Government. (b) every such member have a right of appeal to the State Government, against any order of reduction, dismissal or removal from service, fine or any other punishment : Provided further that person so taken over may elect within the prescribed period that he desires to be governed by the rules made under this Act in respect of conditions of service of the staff appointed by the Board under this Act and on his electing to do so the provisions of the first proviso shall cease to apply to him. 18 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar [(2) On the commencement of this Act in any area to which it is extended by the Bombay Labour Welfare Fund (Extension and Amendment) Act,1961, the Board shall take over and employ such of the existing staff under the control of the Commissioner of Labour, Bombay, as the State Government may direct and every such person so taken over and employed shall be subject to the like terms and conditions and to the same provisions as in sub-section (1), and to the other provisions of this Act and the rules made thereunder.] [Committed.] 18. (1) If the State Government is satisfied that the Board has made default in performing any duties imposed on it by or under this Act or has abused its power, the State Government may by notification in the Official Gazette supersede and reconstitute the Board 2[in the manner prescribed for constitution of the Board] : Provided that, before issuing the notification under this sub-section, the State Government will give a reasonable opportunity to the Board to show cause why it should not be superseded and shall consider the explanations and objections, if any, of the Board. (2) After the supersession of the Board and until it is reconstituted the powers, duties and functions of the Board under this Act shall be exercised or performed by the Board or by such officer or officers, as the State Government may appoint for this purpose. 19. (1) The State Government may, by notification in the Official Gazette and subject to the condition of previous publication, make rules to carry out the purposes of this Act. (2) In particular and without prejudice to the generality of the foregoing power, such rules may be made for all or any of the following matters, namely:— 3[(a) the intervals at which or the period within which any of the sums referred to in section 3 shall be paid to the Board or into the Fund, the manner of making such payment and the agency for, and manner of, collection of any such sum;] (b) the manner in which the accounts of the Fund shall be maintained and audited under sub- section (3) of section 3 ; (c) The procedure for making grants from the Fund under section 7; (d) the procedure for defraying the expenditure incurred in administering the Fund ; 19 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar (e) the number of representatives of employers and employees, independent members and representatives of women on the Board, and the allowances, if any, payable to them, under section 4 ; (f) The manner in which the Board shall conduct their business; (g) The duties and powers of the Inspectors and the conditions of service of the Welfare Commissioner and Inspectors appointed under this Act; Commissioner and the conditions and limitations subject to which the powers may be exercised or functions discharged ;] (h) The percentage of the annual income of the Fund beyond which the Board may not spend on the staff and on other administrative members; 2[(i) the registers and records to be maintained and returns to be sent to the Board under this Act;] (j) The publication of the report of the activities financed from the Fund together with a statement of receipts and expenditures of the fund and statement of accounts; (k) Any other matter which under this Act is or may be prescribed. 3[(3) Every rule made under this Act shall be laid, as soon as may be after it is made, before each House of the State Legislature while it is in session for a total period of thirty days which may be comprised in one session or in two successive sessions, and if, before the expiry of the session in which it is so laid or the session immediately following, both Houses agree in making any modification in the rule or both Houses agree that the rule should not be made, the rule shall, from the date of publication of a notification in the Official Gazette of such decision, have effect only in such modified form, or be of no effect, as the case may be; so however that any such modification or annulment shall be without prejudice to the validity of anything previously done or omitted to be done under that rule.] 20. the members of the Board, the Welfare Commissioner, Inspectors and all officers and servants of the Board shall be deemed to be public servants within the meaning of section 21 of the Indian Penal Code. 21. No suit, prosecution or other legal proceedings shall lie against any person for anything which is in good faith done or intended to be done under this Act. 20 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar *** Regarding Disbursement of Government contribution as per the Maharashtra Labour Welfare Act 1953. Government of Maharashtra Industries, Energy and Labour Department Government Resolution Makak- 02/2017/pra.kra.64/kamgar:10 Mantralay, Mumbai-400032. As per Maharashtra Labour Welfare Fund 1953, as per section 6 88(8) of act, Maharashtra Labour welfare Board bound to get government contribution In the ratio of receipt of Fund as received from employer and employee. Maharashtra labour welfare board has submitted its proposal of government contribution for the period from 01.04.2016 of Rs.10, 48, 09,964/- for approval. Approval is provided to the Maharashtra Labour Welfare board for Government Contribution of Rs.10.80 Crore (Rupees Ten Crore Eighty Lakh only) Now out of this contribution 90 % amount is disbursed i.e. Rs.9.72/- as per Government Resolution dated 06.03.2017. Remaining 10% Le Rs. 1.08 will be disbursed as per the terms and conditions as mentioned below. a) As per the Government resolution of Industries, Energy and Labour Dept. No. MIW- 1171/119016/kamgar-3b, 15 Jan 1972, Labour Commissioner, Mumbai is declared drawing and disbursing officer for payment of Government Contribution, Commissioner of Labour will prepare the bill of payment and funds shall be disbursed to MLWB. b) Maharashtra Labour Welfare Board will be required to submit its books of Accounts along with the necessary documents, as per the Bombay Financial Rules, 1969 para No.2, Schedule No 32. Board shall invest and spend its funds as per regular directions and as per the norms as prevailed. 21 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar c) This expenditure shall be made “Magani Kamgar -164, mahalekha shirshak 2230, kamgar va seva yojana 103, General Labour Welfare (00) (01) Mumbai kamgar Kalyan Nidhi Abhiyan 1953. These Government Resolution Industries, Energy and Labour Department No.BUD-2016 / 2016-17 prakra. 2016-17 (prakra 50) dated 06.05.2016 is issued by using its Financial Power. By order and in the name of Governor of Maharashtra Pravin Gaikwad (Section Officer) *** “Regarding Payment of Unpaid Salaries of the staff of Maharashtra Labour Welfare and, for the period from 1/1/2006 to 31/10/2013 Government of Maharashtra Industry, Energy & Labour Department Mantralay, Mumbai-400032 Date: 19/07/2017 Read: Please read GR dated 22/11/2012 Introduction: Maharashtra Labour Welfare Board is established under the provision of Mumbai Labour Welfare Fund Act, 1953. As per the provision of this act is getting Employer, Employee & Government contribution in order to achieve boards objectives, board has its own staff. In this connection board had submitted its resolution dated 14/08/2012 to the government for payment of sixth pay arrears to the fulltime & retired staff of the board. Government has already given its approval to the revised pay structure as prevailed in the 22 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar sixth pay salary structure. But while providing this approval government in circular not permitted to pay arrears for the period from 1/1/2006 to 31/10/2012 Government Resolution: Maharashtra Labour Welfare Board is established under the provision of Mumbai Labour Welfare Fund Act, 1953 with regards to the pay revision as per the sixth pay for the period from 1/1/2006 to 31/10/2012. As per the terms & conditions as mentioned below: 1) Maharashtra Labour Welfare Board shall pay 82 month Unpaid salaries to the permanent & retired staff in installments. 2) While doing this, the salaries of each staff shall be within the limit of 60% 3) Out of the Rs.25 crore outstanding amounts board has Rs.19 crore with them, board shall pay from it. 4) Remaining Rs.6 crore outstanding amounts shall be paid as board receives its fund. 5) Government will not bear any financial burden by making this payment. While making payment to the permanent & retired staff, Government will not disburse any grant. Board shall take necessary care to meet its administrative expending within the limit of 60% as mentioned in the resolution dated 14/08/2016. Board shall submit this Government resolution before the board meeting, after that make the payments. This government resolution is issued with reference to the approved government resolution: Anoupchart & sandarbha 131/ seva 9 dated 29/04/2017 This government resolution is available on www.maharashtra gov on this website. Its code is 201707191142509210. This is digitally signed, this does not required signature. As per the order of Maharashtra Governor and in their name. Sd/- (Pravin B. Gaikwad) Desk Officer, Maharashtra Government 23 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar Copy 1- 1. Hon'ble Minister (finance) Maharashtra State, Mantralaya, Mumbai their personal secretary. 2. Hon'ble Minister (labour) Maharashtra State, Mantralaya, Mumbal their personal secretary 3. Hon'ble state Minister (labour) Maharashtra State, Mantralaya, Mumbai their personal secretary 4. Hon'ble State Minister (finance) Maharashtra State, Mantralaya, Mumbai their personal secretary 5. Secretary (labour), Industry, energy and labour department, Mantralaya Mumbai 32 personal secretary 6. Accountant General ( audit and License ) 1, Maharashtra State, Mumbai 7. Accountant General ( audit and ------------) 2, Maharashtra State, Mumbai 24 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar 25 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar 26 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar 27 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar 6.12 I have considered the submissions made by the assessee in this regards. The contentions of the assessee are not acceptable in view of the following further reasons 28 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar Maharashtra Labour Welfare Board is an association of persons created by the Govt. of Maharashtra Being the Board in terms of MLWF Act, as well as within the meaning of the existing Section 10(20) and 10(20A) of the Income-tax Act, 1961, it had the blanket exemption under the Income Tax Act up to the assessment year 2002-03 as per the Provisions of Section 10(20) & 10(20A) The Finance Act, 2002 deleted the provisions of section 10(20A) and introduced a new definition of Local Authorities u/s.10(20) wherein Panchayat,./ Municipality, Municipal Committee and District Boards and Cantonment Boards only are included u/s 10(20) of the IT. Act. In view of the deletion of Section 10(20A) and insertion of new definition of local authority u/s. 10(20) the so-called authorities, bodies like MHADA, MMRDA, SRA, etc. came into the tax net. It may be noted that the amendment to the above provisions rappers-to be a deliberate intention of the legislature to tax such Board / authorities /corporations. The assessee has also contended that it is the arm of Government of Maharashtra and its income is not taxable, in this regards following legal positions may be noted and relied upon. a) The contention of the assessee is not acceptable in view of decision of Hon'ble Supreme Court in the case of APSRTC (52 ITR 524) wherein it has been clearly bifurcated that the income of the state is different and income of the corporation is different. The relevant portion is reproduced as under "Reading the three clauses together, one consideration emerges beyond all doubt and that is that the property as well as the income in respect of which exemption is claimed clause (1) must be the property and income of the State, and so, the same question faces us again is the income derived by the appellant from its transport activities the income of the State? If a trade or business is carried on by the State departmentally and income is derived from there would no difficulty in holding that the said income is the income of the State if a trade or business is carried on by a State through its agents appointed exclusively for that purpose, and the agents carry it on entirely on behalf of the State and not on their own account there would be no difficulty in holding that the income made from such trade or business is the income of the State. But difficulties arise when we are dealing with trade or business carried on by a corporation established by a State by using a notification under the relevant 29 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar provisions of the Act. The corporation, though statutory, has a personality of its own and this personality is distinct from that of the State or other shareholders. It cannot be said that a shareholder owns the property of the corporation or carries on the business with which the corporation is concerned The doctrine that a corporation has a separate legal entity of its own is so firmly rooted in our notions derived from common law that it is hardly necessary to deal with it elaborately, and so, prima facie, the income derived by the appellant from its trading activity cannot be claimed by the State which is one of the shareholders of the corporation." 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 30 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar 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. 11. The exemption in the CBDT notification dated 29-3-2016 is valid for financial years 2015-16 to 2018-19. Admittedly no return of income was filed by the assessee for the assessment year under consideration. The assessee initially argued that under bona fide 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. 31 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar 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 it is entitled for immunity from the taxation of its income under the provisions of Income-tax Act. This view is further got the support that CBDT vide its notification date 29-3-2016 which has granted exemption of taxation to the assessee board. [Para 34] 12. The ld. Counsel for the assessee submits that Article 289 exempts state income or property from taxation. On plain reading of above Article, it is clear that Union can (i) itself impose or authorize to impose (ii) any tax to such extent, as parliament may by law provide (iii) in respect of a trade or business of any kind carried on or on behalf of Government of a state. In the case of the appellant no such taxation is prescribed by the Union or authorized by the Union. 13. The ld Counsel submits that 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 32 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar 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. 14. It was argued that meaning of State as per Constitution of India Article 12 of Constitution the word "State" has different meanings depending upon the context in which it is used. The expression "The State" when used in Parts III & IV of the Constitution is not confined to only the federating States or the Union of India or even to both. By the express terms of Article 12, the expression "the State" includes: 1. The Government and the parliament of India; 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. 15. The term 'State' thus includes executive as well as the legislative organs or the "Authorities" of the Union & States. Further, it may be noted that 33 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar according Webster's Dictionary "Authority" means a person or body exercising power to command. In the context of Article 12 the word "authority" means the power to make laws, orders, regulations, bye-laws, notification etc which have the force of la and power to enforce those laws. Further 'Local authorities' as defined in Sec ion 3 (31) of the General Clauses, Act refers to authorities like Municipalities, District Boards, Panchayats, Improvement Trust and Mining Settlement Boards. 16. In Article 12 the expression 'other authorities' is used after mentioning a few of them such as, the Government, Parliament of India, the Government and Legislature of each of the States and all local authorities. In Article 12 the bodies specifically named are the Government of the Union and the States, the Legislature of the Union and the states and local authorities. There is no common genus running through these named bodies nor can these bodies so have placed in one single category on any rational basis. 17. The ld Counsel for assessee submits the decision of Hon'ble Apex Court in Electricity Board v. Mohan Lal AIR 1967 Raj 1857, wherein the Hon'ble Supreme Court held that the expression 'other authorities' is wide enough to include all authorities created by the constitution or Statue on whom powers are conferred by law. It is not necessary that the statutory authority should be engaged in performing Governmental or Sovereign function. In effect the Rajasthan Electricity Board's decision has overruled the decision of the Madras High court in Santa Bai's case, holding a university not to be the 'state'. And finally, the Patna High Court, following the decision of the Supreme Court, has 34 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar held that the Patna University is "a state". Mathew, J. in a separate but concurring judgment preferred a broader test that if the functions of the Corporation are of public importance and closely related to governmental functions It should be treated an agency or instrumentality of government and hence a 'State' within the ambit of Article 12 of the Constitution. 18. The definition of the expression "the State" in Article 12 is used in the concept of the State in relation to the Fundamental Rights guaranteed by Part III of the Constitution and the Directive Principles of State as above. Policy contained in Part IV of the Constitution which principles are declared by Article 37 to be fundamental to the governance of the country and enjoins upon the State to apply making laws. The State is an abstract entity and it can, therefore only set through its agencies or instrumentalities, whether such agency or instrumentality is human or juristic. 19. The ld. AR further submits that so far as exemption under section 10 of the Act is concerned, it was submitted that with the omission of clause (20) of section 10, income of such local authorities was subject to tax which are engaged in the business activities or running with profit motive. However, on insertion of clause (46) to section 10 of the Act, by Finance Act 2011 w.e.f. 01.06.2011. On application made to the Board, the CBDT vide its notification published in the Gazette of India dated 29.03.2016 notified the streams of income disclosed by the Board in its return of income as exempt for the purpose of clause (46) of the section 10 of the Act. The notification made by CBDT covers Assessment Years 2015-16 to 2018-19 but that would not take 35 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar away the status of assessee "State" within the meaning of Article-12 r.w.s. Article 289 of the Constitution of India. The CBDT has specifically exempted certain income by way of this notification. There is no change in the activities of the assessee since inception which establishes the fact that the assessee was never into the business of commercial activities. Once the CBDT found and exempted various stream of income as exempted in case of assessee, all such activities are covered by notification must be treated as exempted. The source of income of assessee consists of grant from State Government, fees collected from candidate to appear 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. None of these items can be said to be carrying of any activities in the nature of trade, commerce or business. The assessee is not rendering any services in the nature of trade, commerce or business for a fee or any other consideration. The assessee engaged in regulation of educational activities. In support of his submission the ld AR for the assessee relied on the decision of Hon'ble Supreme Court in Novopan India Ltd. v. Collector of Central Excise and Customs [1994] Supp. (3) SCC 606, for the preposition that once the provision is found applicable to a subject, full effect i.e., liberal interpretation must be given to it and strict construction of any exemption provision should be applied only at the threshold stage. The decision of Kolkata Tribunal in Narayan Rice Mill v. CIT (ITA No. 732/Kol/2015 dated 07.06.2017, decision of Pune Tribunal in Smt. Sapna Sanjay Raisoni v. ITO [2016] 70 taxmann.com 7. 20. 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 36 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar 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. 21. 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, 37 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar Municipal Councils, and Panchayat Samithi’s, 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 assessee 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 assessee need reconsideration by the 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 assessee in all these appeals are allowed for statistical purposes. Needless to say, the Ld. CIT (A) is directed to give opportunity of being heard to the assessee as per the principles of natural justice.' 22. 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. 23. 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 38 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar 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." 24. 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 39 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar 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". 25. In CIT v. Karnataka Urban Infrastructure Development & Finance Corpn., decided by the Hon'ble High Court of Karnataka, the assessee - corporation, a fully owned State Government company was appointed as a nodal agency for the implementation of the Mega-city scheme worked out by the Planning Commission of Ministry of Urban and Employment for Development of Urban Infrastructure to Bangalore city, for which purpose the Central Government provided the money to the assessee for implementing the said scheme. The money so received from the Government of India was parked by the assessee in various bank deposits during the unutilised period. The interests earned during the year on these deposits were transferred to the Mega-city scheme account directly with an appropriate disclosure in the notes to the accounts. The assessee also performed the other projects of development of infrastructure apart from the activity as a nodal agency for the implementation of the Mega-city scheme undertaken by the Government of India from time to time. 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 40 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar 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 therefrom 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 41 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar 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." 26. The Income-tax Authorities under the Act cannot assess all receipts; they can assess only those receipts that amount to 'income' and, therefore, before they assess a receipt, they must find that to be the income of an assessee so as to invite chargeability provisions of Section 4 of the Act. The classification of income would result and follow only thereafter, as per the provisions of Section 14 of the Act only if a particular receipt is income as per Section 4 of the Act. To safeguard the interest of the State Government from payment of taxes at the hand of the Union of India, the provisions of Article 289 of the Constitution of India assume significance and importance, which read as under: Exemption of property and income of a State from Union taxation. 289. (1) the property and income of a State shall be exempt from Union taxation. 42 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar (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. 27. Article 289 of the Constitution of India supplants the charging section i.e., Section 4 of the Act in as much as the income of the State Government is exempt from Union Taxation. Neither Section 4 and/or Section 2(24) of the Act i.e., chargeability provision and provision defining income lays down any exception with regard to any income earned by the State Government and/or its instrumentality overriding the provisions of Article 289 of the Constitution. Strictly, the income earned by the State through its instrumentalities carrying on a trade and/or a business is not exempt by virtue of Article 289 of the Constitution of India. 28. To perform the functions, the Government has its various departments and to facilitate its working, the Government itself may be divided into various Sections. To carry out the commercial activities by the State, the Corporations have been established by enactment of Statutes and the "power to charter Corporations is incidental to or in aid of Governmental functions." Such Corporations would ex-hypothesis be agencies of the Government. Thus, until and unless the statute, under which the instrumentality has been brought into 43 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar existence, provides that such an instrumentality shall be the agent of the State, the instrumentality shall not be a State. The pertinent observation in regard thereto, made by the Supreme Court in the case of Heavy Engg. Mazdoor Union v. State of Bihar reads as under: "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 an interference that the corporation is the agent of the Government may be drawn where it is performing in substance governmental and non commercial functions. (cf London County Territorial and Auxiliary forces Association v. Nichlos) [1948] 2 All E.R. 432." (Emphasis supplied) 29. However, there is a thin line of demarcation between bodies of the State to whom for implementation of Government projects, work in relation thereto is assigned and as a result thereof, during the performance of such activity on behalf of the State, income is earned though utilised for the same purpose and instrumentalities carrying on trade and/or business activity of the State 44 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar Government earning income. In both the cases aforesaid there is existence of deep and pervasive State Control. In the former case, the body to whom work has been entrusted and income is earned acts as a nodal agency of the State whereas in the latter case it is not so as the instrumentality having independent identity has income arising from its trading and/or business activity and conduct of such activity not being attributable to State in any manner. The aforesaid distinction is discernible from various cases decided by the Hon'ble Supreme Court as well as the High Courts. In the case of Andhra Pradesh State Road Transport Corporation v. CIT, the Andhra Pradesh State Road Transport Corporation constituted under the Road Transport Corporations Act, 1950, by a notification issued by the Andhra Pradesh Government, was held not be immune from liability to income-tax on income derived from its trading activities, under article 289 of the Constitution of India for the reason that though the majority of its shares are owned by the Andhra Pradesh Government and its activities are controlled by the State, the Corporation has a separate personality of its own, the trading activities are the trading activities of the Corporation and the profit and loss arising therefrom are the profit and loss of the Corporation and therefore, 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. The Supreme Court for reaching the aforesaid conclusion referred to the following observations which had been made by Lord Denning in the case of Tamlin v. Hannaford [1950] 1 KB 18: "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 45 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar its purposes, no doubt, are public purposes, but it is not a government department nor do its powers fall within the province of government." 30. 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. 31. The following principles deserve to be kept in focus while considering the question of taxability of interest earned on FDRs by an Instrumentality of the State and/or Department/Organization of the State: (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 betwixt 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. 46 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar (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. 32. In view of above facts and settled legal position, we hold that assessee is a “State” within the meaning of Article 289(1) of the Constitution of India being an instrumentality of State within the meaning thereof. Here there is an existence of deep and pervasive State control may afford an indication that the assessee is a state agency or instrumentality. Here the assessee enjoys monopoly status which is State conferred or State protected. Here the functions of the assessee are of public importance and closely related to governmental functions. It would be a relevant factor in classifying the assessee as an instrumentality or agency of the Government. If a department of a government is transferred to an entity like assessee, it would be a strong factor supporting this inference of the assessee being an instrumentality or agency of the Government. 33. In the result, appeals of the Revenue are dismissed and Cross objections of the assessee are allowed. Order pronounced in the open court on 25 th day of September, 2023. Sd/- (KULDIP SINGH) Sd/- (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, दिन ांक/Dated: 25/09/2023 Karuna Sr. PS 47 ITA No.137/Mum/2023 and other appeals Maharashtra Labour Welfare Board Girni Kamgar Copy of the Order forwarded to: 1. अपील र्थी/The Appellant , 2. प्रदिव िी/ The Respondent. 3. आयकर आयुक्त CIT 4. दवभ गीय प्रदिदनदि, आय.अपी.अदि., मुबांई/DR, ITAT, Mumbai 5. ग र्ड फ इल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar) ITAT, Mumbai