Wp/9267/2012 Of Hyderabad Metropolitan Water Supply And v. The Asst. Commissioner Of Income-Tax

THE HON'BLE MR JUSTICE V ESWARAIAHAnd THE HON’BLE SRI JUSTICE K.G.SHANKAR W.P.No.9627 of 2012DT.10-04-2012 Between:Hyderabad Metropolitan Water SupplyAnd Sewerage Board, Khairatabad, HyderabadRepresented by its Managing DirectorSri Adhar Sinha s/o Badrinarain aged about 49 years. … PetitionerAndAssistant Commissioner of Income-tax,Circle 6 (I), 7[th] Floor, I.T. Towers,A.C.Guards, Hyderabad and others.… Respondents Counsel for the Appellant: Sri K.Vasantkumar Counsel for respondent: SriThe Court made the following ORDER: THE HON'BLE MR JUSTICE V ESWARAIAH AndTHE HON’BLE SRI JUSTICE K.G.SHANKAR W.P.No.9627 of 2012 O R D E R:(Per the Hon’ble Sri Justice V.Eswaraiah) Heard the learned Advocate General appearing for the petitioneras well as Sri B.Narsimha Sarma, learned counsel appearing forrespondents 1 and 2. The Hyderabad Metropolitan Water Supply and Sewerage Board(for short ‘the petitioner Board’) represented by its Managing Directorfiled this Writ in the nature of Mandamus to declare the action of the 1[st] respondent/Assistant Commissioner of Income Tax, Circle 6 (1),Hyderabad in issuing the garnishee notice dated 30-3-2012 underSection 226 (3) of the Income Tax Act, 1961 inF.No.AABCH36591/226(3)/AC-6(1)/11-12) to the 3[rd] respondent hereinattaching the P.D Account GA 09 (2/287) of the petitioner Boardmaintained with the State Bank of Hyderabad, Treasury Branch,Gunfoundry, Hyderabad/4[th] respondent herein for recovery of disputedtax of Rs.29,42,47,025/- allegedly due from the petitioner Board asillegal, arbitrary, unreasonable and against the provisions of the IncomeTax Act, 1961 and todirect the 1[st] respondent herein/AssistantCommissioner of Income Tax, Circle 6 (1), Hyderabad not to insist uponfor payment of the said disputed tax till the disposal of the appeal filedby the petitioner Board before the Commissioner of Income Tax (Appeals)-IV, Hyderabad against the assessment order dated 17-08-2011 for the assessment year 2003-2004. The petitioner Board earlier filed W.P.No.27783 of 2011questioning the assessment order dated 17-08-2011 under Section 143(3) read with Section 147 of the Income Tax Act, 1961 for theAssessment year 2003-2004 as illegal and arbitrary and the said writ petition wasdismissed. It is stated that similar assessment orders were made forsubsequent years, against which appeals were filed before theCommissioner of Income Tax (Appeals)-IV, Hyderabad. After dismissalof the said writ petition on 27-3-2012, the petitioner Board filed appeal against the saidassessment year Before the Commissioner of Income Tax (Appeals)-IV,Hyderabad on 26-3-2012 raising various questions contending that thepetitioner Board is a local authority established by an Act of Governmentof A.P entrusted with the work of maintenance of Sewerage lines andsupply of drinking water to the twin cities and surroundingmunicipalities. It has filed return of income admitting loss ofRs.148,81,31,695/- and assessment was made after determining theloss of Rs.102,01,84,502/-. The Assessing Officer issued notice underSection 148 and the petitioner Board filed its return of income admittingthe same loss as determined by the original assessment and obtainedthe reasons recorded for initiating proceedings under Section 147. TheAssessing Officer referred the matter for special audit under Section 142(2A), and after receiving the audit report, the assessment order was passed determining the income at Rs.43,16,07,010/-. Various issueshave been raised contending that the case of the petitioner Board fallsunder proviso to Section 147, but the Assessing Officer had erroneouslyrelied on the internal audit, and therefore, there is a factual error on thepart of the Assessing Officer in assessing the same. We are not concerned with various grounds raised in the appealfiled before the Commissioner of Income Tax (Appeals)-IV, Hyderabadas it is for the appellate authority to appreciate the said contentions andpass appropriate orders. passed determining the income at Rs.43,16,07,010/-. Various issueshave been raised contending that the case of the petitioner Board fallsunder proviso to Section 147, but the Assessing Officer had erroneouslyrelied on the internal audit, and therefore, there is a factual error on thepart of the Assessing Officer in assessing the same. We are not concerned with various grounds raised in the appealfiled before the Commissioner of Income Tax (Appeals)-IV, Hyderabadas it is for the appellate authority to appreciate the said contentions andpass appropriate orders. It is not in dispute that when the petitioner Board has approachedthe Commissioner of Income Tax - III, Hyderabad seeking grant of stayof recovery of demanded tax during the pendency of the contemplatedappeal to be filed before the Commissioner of Income Tax (Appeals)-IV,Hyderabad, the Commissioner of Income Tax-III, Hyderabad by hisproceedings No.CIT-III/Hyd/Stay/2011-12 dated 10-10-2011 kept 50% ofthe demanded tax in abeyance subject to the condition that remaining50% shall be paid by the petitioner Board in equal monthly installmentof Rs.2 crores per month, the first installment to be paid in the month ofApril 2011 and the remaining installments from November 2011onwards shall be paid before 10[th] of each month and for remaining 50%bank guarantee shall be furnished for six months. As the petitionerBoard was not in a position to pay the said amount, it has filed the writpetition questioning the assessment order as stated above. Afterdismissal of the writ petition, an appeal has been filed on 26-3-2012 before the Commissioner of Income Tax (Appeals) - IV. The learned Advocate General appearing for the petitioner Boardsubmits that the issue whether the petitioner Board is a local authority ornot is yet to be decided and the petitioner Board was constitutedpursuant to Act 15 of 1989, and hitherto it was part and parcel ofHyderabad Municipal Corporation. Earlier the supply of water andmaintenance of the sewerage used to be taken care of by the MunicipalCorporation of Hyderabad and as the activities of the MunicipalCorporation have become unmanageable, part of its functions relating tothe supply of Water and maintenance of sewerage has been separatedby enacting the Hyderabad Metropolitan Water Supply and SewerageBoard Act, 1989. It is stated that the petitioner Board is not a profit makingorganization and is meant for the public utility. It is stated that hithertothe local authorities are exempted from the provisions of the Income TaxAct, 1961, but only pursuant to the amendment of Section 10 (20) ofFinance Act, 2002 with effect from 1-4-2003, the Panchayats as definedin Clause (d) of Article 243, municipalities as defined in Clause (e) ofArticle 243 (p), Municipal Committee and the District Board, CantonmentBoard etc., have been exempted from the provisions of the Income TaxAct, 1961 as they come within the definition of local authorities. The learned Advocate General also submits that in view ofamendment of Income Tax Act, 1961 by Finance Act, 2002, as thepetitioner Board is a service oriented organization, an application has been filed on 26-5-2010 under Section 12AA of the Income Tax Act,1961 to register it as a charitable institution and the said application ispending consideration before the Central Board of Direct Taxes. It isstated that the petitioner Board is not a profit making organization andthe service rendered by it is not commercial and is running under heavyloss on the funds allocated by the Government. We are not inclined to express any opinion on variouscontentions advanced by the learned Advocate General on behalf of thepetitioner Board, as it is stated that the Commissioner of Income Tax(Appeals)-IV may be directed to dispose of the appeal and pendingdisposal of the appeal the same relief that was granted by theCommissioner of Income Tax-III before filing the appeal may beextended. been filed on 26-5-2010 under Section 12AA of the Income Tax Act,1961 to register it as a charitable institution and the said application ispending consideration before the Central Board of Direct Taxes. It isstated that the petitioner Board is not a profit making organization andthe service rendered by it is not commercial and is running under heavyloss on the funds allocated by the Government. We are not inclined to express any opinion on variouscontentions advanced by the learned Advocate General on behalf of thepetitioner Board, as it is stated that the Commissioner of Income Tax(Appeals)-IV may be directed to dispose of the appeal and pendingdisposal of the appeal the same relief that was granted by theCommissioner of Income Tax-III before filing the appeal may beextended. Having regard to the facts and circumstances of the case, we areof the opinion that it is just and proper to grant stay of the impugnedgarnishee order dated 30-3-2012 under Section 226 (3) of the IncomeTax Act, 1961 in F.No.AABCH36591/226(3)/AC-6(1)/11-12) dated 30-3-3012 of the 1[st] respondent herein/Assistant Commissioner of IncomeTax, Circle 6 (1), Hyderabad and the subsequent attachment orderspending disposal of the appeal before the Commissioner of Income Tax(Appeals)-IV subject to condition the petitioner pays 50% of thedemanded tax at the rate of Rs.2 crores per month commencing from May 2012 payable by 5[th] ofevery month. The Commissioner of Income Tax (Appeals)-IV is directedto dispose of the appeal as expeditiously as possible preferably within a period of 3 (three) months from today. The writ petition is accordingly disposed of. No costs. ______________V. ESWARAIAH,J Dt:10-04-2012grk _______________K.G.SHANKAR,J THE HON'BLE MR JUSTICE V ESWARAIAH AndTHE HON’BLE SRI JUSTICE K.G.SHANKAR (The Judgment of the Bench delivered by Hon’ble Sri Justice V.Eswaraiah) W.P.No.9267 of 2012DT.10-04-2012