‘Water Corporation of Odisha Ltd.’ eligible for Income Tax immunity as ‘State’: ITAT

Case Details: WATCO v. CIT (Exemption) - [2023] 146 taxmann.com 4 (Cuttack-Trib.)

Judiciary and Counsel Details

• • George Mathan, Judicial Member & Arun Khodpia, Accountant Member
  • B.R. Pattnaik, AR for the Appellant.
  • Suresh Shivnandan, CIT-DR for the Respondent.

Facts of the Case

Assessee-Water Corporation of Odisha Ltd. (WATCO) was a non-profit company owned entirely by the Government of Odisha. It was created to manage the ring-fenced operation of water supply production and distribution systems, operation and maintenance of sewage collection, treatment and disposal, and the operation and maintenance of the sewerage network.

The assessee filed an application for registration under section 12A, which was rejected by Commissioner (Exemption), observing that object of the assessee were in the nature of business/commerce. Thus, it did not fall within the ambit of charitable activity as prescribed by section 2(15). Aggrieved-assessee filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal held that as per the definition of ‘State’ under article 12 of the Constitution, the assessee would fall under the head of ‘Local or other authorities’. However, the definition of ‘Local or other authority’ is not defined in the Constitution or any other Statute.

The Supreme Court provided a key ruling in the case of Som Prakash Rekhi v. Union of India AIR 1981 SC 212, outlining certain tests to determine whether an institution qualifies as a “State” under article 12 of the Constitution of India.

The assessee has fulfilled the requirements outlined in said tests and therefore qualifies as a “State” under the provisions of article 12 of the Constitution of India. As a result, it is entitled to immunity from taxation as outlined in article 289 of the Constitution of India, 1949 and the Income-tax Act, 1961.

Thus, the assessee is to be considered a “State” under the Constitution of India and is entitled to immunity from taxation under the Income-tax Act, 1961, based on the mandates from articles 12 and 289 of the Constitution and the principles of law set by the Apex Court and co-ordinate Benches of the Tribunal.

List of Cases Reviewed

• • Som Prakash Rekhi v. Union of India AIR 1981 SC 212/[1981] 2 SCR 111 (para 16) followed.

List of Cases Referred to

• • Som Prakash Rekhi v. Union of India AIR 1981 SC 212/[1981] 2 SCR 111 (para 14).