Income Derived by ‘Bangalore Metro’ can’t be Income of State Govt. : ITAT

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Case Details: Bangalore Metro Rail Corporation Ltd. v. DCIT – [2023] 149 207 (Bangalore-Trib.)

Judiciary and Counsel Details

N.V. Vasudevan, Vice-President & Chandra Poojari, Accountant Member
Srihari Kutsa, A.R. for the Appellant.
Sankar Ganesh K., D.R. for the Respondent.

Facts of the Case

The assessee was a Company wherein the Government of India held 50% of the shares and 50% held by the Government of Karnataka. The main object of the assessee was to establish, operate and maintain a Rapid Rail Transport system by constructing circular or other types of railway lines in and around Bangalore City.

Assessee contended it was acting as an extended arm of the State Government in establishing a rail-based rapid transport system. It should be treated as ‘State’ as it is an instrumentality and agency of the State Government. Therefore, its income cannot be brought to tax in view of Article 289 of the Constitution of India.

The matter reached the Bangalore Tribunal.


The Tribunal held that the exemption from taxation is available to the income of a State and not the income of the instrumentality or agency of a State. The assessee was not performing a sovereign function of the Government as the private parties could also carry on the activity of Rail transport.

Assessee was carrying on the activity of railway transport of passengers, i.e., an independent corporation managed by a Board of Directors. The ticket price has been fixed by the Corporation, not at a cost-to-cost price, and it has been fixed with an element of profit. It was not functioning under the policy of no profit and no loss.

Transporting passengers by rail is to be considered a business activity. The activity carried on by the assessee is nowhere different from that one carried on by private entrepreneurs. It is always the business activity of the assessee company with a profit motive.

Further, the control or directions issued by the State Government would not change the character of “business activity”. The “ownership of the Corporation” and “activities of the Corporation” are two different aspects, and the ownership cannot be considered or taken into account to determine the character or nature of the activities carried on by the Corporation.

The assessee is a separate personality of its own, incorporated under the Companies Act for carrying on the business activity, and the profit or loss arising from there are the profit and loss of the Corporation itself. Thus, the income derived from the Corporation from the business activities cannot be said to be an income of the Karnataka State Government.

Therefore, the assessee cannot be considered a part of the Government department immune from Union Taxation.

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