Urban Improvement Authority Is ‘State’; Income Immune Under Article 289 | ITAT

Case Details: ACIT, Exemption v. Urban Improvement Trust - [2025] 180 taxmann.com 254 (Jaipur-Trib.)

Judiciary and Counsel Details

• Dr S. Seethalakshmi, Judicial Member & Gagan Goyal, Accountant Member
• Prakul Khurana, Mukesh Soni, Advs. Mrs. Alka Gautam, CIT

Facts of the Case

The assessee was a Trust, established by the State Government of Rajasthan to carry out the improvement of any urban area in the State. The Trust was created under the Rajasthan Urban Improvement Act, 1959. It was a body corporate having perpetual succession and a common seal with power to acquire, hold and dispose of property both movable and immovable and to contract.

The assessee was registered under section 12A of the Income-tax Act, 1961. During the assessment proceedings, the Assessing Officer (AO) noticed that the assessee was not filing the return of income. He issued a notice to the assessee to file the return of income.

In response, the assessee contended that it was a body corporate created by the State Government. It was exempted under Article 289 of the Constitution of India and, therefore, not required to file the return of income. The AO rejected the contention of the assessee and passed an order to file the return of income.

Feeling aggrieved, the assessee preferred an appeal to the CIT(A). The CIT(A) confirmed the order of AO. Aggrieved by the order, the assessee preferred an appeal to the Jaipur Tribunal.

ITAT Held

The Tribunal held that 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, enjoins upon the State to make laws.

The State is an abstract entity, and it can, therefore, only be set through its agencies or instrumentalities, whether such agency or instrumentality is human or juristic. The assessee, being a Trust, was performing the function of the State Government. It was established by a notification of the State Government and was controlled by the State Government.

Therefore, the assessee was an instrumentality of the State within the meaning thereof. Here, there existed a deep and pervasive State Control. The assessee enjoyed a monopoly status, which was conferred or protected by the State. The functions of the assessee were 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.

Therefore, the assessee fulfilled the requirements of Articles 12 and 289 of the Constitution of India.

List of Cases Reviewed

• Andhra Pradesh State Road Transport Corpn. v. ITO [1964] 52 ITR 524 (SC) (para 7)
• Novopan India Ltd. v. Collector of Central Excise and Customs [1994] Supp. (3) SCC 606 (para 14) followed

List of Cases Referred to

• ITO v. Urban Improvement Trust [2018] 98 taxmann.com 237/259 Taxman 61/[2018] 409 ITR 1 (SC) (para 4)
• Andhra Pradesh State Road Transport Corpn. v. ITO [1964] 52 ITR 524 (SC) (para 7)
• Electricity Board v. Mohan Lal AIR 1967 Raj. 1857 AIR 1967 Raj. 1857 (para 13)
• Smt. Sapna Sanjay Raisoni v. ITO [2016] 70 taxmann.com 7/[2016] 159 ITD 1 (Pune – Trib.) (para 14)
• Narayan Rice Mills v. CIT [ITAppeal No. 732(Kol) OF 2015, dated 07.06.2017 7-6-2017] (para 14)
• Novopan India Ltd. v. CCE and Customs [1994] Supp. (3) SCC 606 (para 14)
• Som Prakash Rekhi v. Union of India AIR 1981 SC 212 (para 16)
• Tamlin v. Hannaford [1950] 1 KB 18 (para 22).