Common Order:

P. Sam Koshy, J.

1. Heard Mr. V.Sai Mallik, learned counsel representing Mr. Hari Kishan Kudikala, learned counsel for the petitioner; and Mr. Vijhay K.Punna, learned Senior Standing Counsel for Income Tax Department.

2. These two writ petitions under Article 226 of the Constitution of India are filed by the petitioner raising a common question of law. Therefore, we proceed to decide these matters by this Common Order.

3. For convenience the facts in Writ Petition No.390 of 2026 are discussed hereunder.

4. Writ Petition No.390 of 2026 has been filed seeking a writ of Mandamus declaring the action of respondent No.5, dated 05.12.2025, in issuing notice under Section 226(3) of the Income Tax Act, 1961 (for short ‘the Act’) to the petitioner’s bank accounts (PAN number ‘AAEAT0708R’) and attaching the bank accounts, as illegal, arbitrary and in violation of principles of natural justice and further recognise the petitioner’s constitutional immunity under Article 289(1) of the Constitution of India.

5. It was submitted that the petitioner (hereinafter referred to ‘BIOSOT’) is not a commercial entity, but a statutory society formed pursuant to the directives of the Hon'ble Supreme Court of India in the case of T.N. Godavarman Thirumulpad vs. Union of India ([W.P (C) 202 of 1995]) to execute critical ecological and conservation mandates. BIOSOT was initially registered under the Registrar of Societies, Hyderabad under the A.P. Societies Registration Act, 2001 and the Government of the then unified State of Andhra Pradesh constituted ‘BIOSAP’, vide G.O. Rt. No. 464, EFS&T, dated 13.10.2011, under the Chairmanship of the Chief Secretary to the Government of Andhra Pradesh. Following the bifurcation of the two States, the Government of Telangana constituted BIOSOT vide G.O.Ms. No.25, EFS&T, dated 24.11.2014, and registered it as a Society vide Registration No.550 of 2011 in C.C.No.23 of 2015, dated 16.01.2015, and that that the BIOSOT is chaired by the Chief Secretary to the State Government and comprises senior Government functionaries, thereby acting as a statutory proxy of the State in carrying out sovereign functions under State and Central environment laws. The BIOSOT has been functioning as an extended arm of the State, fulfilling constitutionally and legislatively mandated obligations concerning wildlife conservation, biodiversity protection, and environmental restoration. This ‘Governance Architecture’ proves that BIOSOT’s status as an entity under Article 12 of the Constitution of India.

6. It was further submitted that the BIOSOT’s operations are funded through statutory contributions from user agencies and judicial mandates. The BIOSOT does not undertake commercial transactions or engage in trade and the principal corpus of its funds is maintained as untouchable, and only the ‘interest accrued’ is utilized for projects of larger interest concerning wildlife conservation, bio-diversity protection and environmental restoration for public interest conservation work, in strict compliance with the Government approved action plans and that the amounts held in the petitioner’s account are earmarked for specific, non-fungible public purposes, including disbursement of statutory compensations relating to ‘human-wildlife conflict, operational costs of protected areas, and implementation of biodiversity conservation schemes’ and that any unauthorized action by respondent No. 6, under pressure from respondent Nos.4 and 5, to enforce attachment proceedings would irreparably disrupt public governance functions that fall squarely within the exclusive domain of the State under List II of the Seventh Schedule.

7. It was further submitted that the BIOSOT functions under the framework of G.O.Ms.No.25, dated 24.11.2014, and draws legitimacy from the conservation obligations imposed by the Wildlife Protection Act, 1972, Forest Conservation Act, 1980, the Biological Diversity Act, 2002 and in compliance to the directions of Hon’ble Supreme Court. The statutory nature of its public function further reinforces its constitutional character. It was further submitted that the BIOSOT has never filed income tax returns under the Act and at no point has the BIOSOT accepted the applicability of the income tax provisions to its operations. The BIOSOT has consistently maintained that it is a State controlled body, constituted pursuant to the directions of the Hon'ble Supreme Court and is entitled to constitutional immunity from Union taxation under Article 289(1) of the Constitution of India.

8. The BIOSOT had made repeated representations to respondent Nos.4 and 5 clearly asserting that it does not attract any income tax liability and that any correspondence or interaction with the Income Tax Department has been solely for the purpose of reiterating this constitutional position. Such communication does not and cannot constitute acquiescence to tax liability or waiver of constitutional protection.

9. Learned counsel for the BIOSOT submitted that upon a conjoint, harmonious and purposive reading of the Constitution of India and the Act it becomes unequivocally clear that the very jurisdictional foundation required for the application of the Income Tax Act is absent in the present case. The Constitution of India under Article 289(1) expressly declares that ‘the property and income of a State shall stand exempted from Union taxation’. This provision is not merely an exemption clause; it is a constitutional embargo on the Parliament's competence to tax State income. It embodies the federal compact and preserves the fiscal autonomy of the States against Union intrusion and performing functions that are constitutional, sovereign and non-commercial under Article 48A, its income becomes, in law and in substance, the “income of the State”. At that point, Entry 82 of List I (Union power to tax income other than agricultural income) stands constitutionally excluded.

10. Learned counsel for the BIOSOT further contended that the receipts handled by BIOSOT - namely statutory mitigation deposits, environmental compensation amounts, corpus-based funds, and interest incidentally accruing thereon do not constitute “income” in the commercial or taxable sense contemplated by the Act. These receipts arise not from trade, business, profession, or economic exploitation, but from constitutional and statutory mandates under the Forest Conservation Act, the Environment (Protection) Act, and biodiversity laws, read with the binding directions of the Hon'ble Supreme Court. They are earmarked, ring-fenced public funds held in trust for specific ecological purposes, over which BIOSOT has no proprietary dominion. The incidental interest earned on temporary parking of such funds does not alter the essential character of the corpus, nor does it transform sovereign public funds into taxable income. The Hon'ble Supreme Court has consistently held that what is constitutionally immune from taxation cannot be subjected to tax by indirect statutory interpretation or by re-characterising public receipts as income. Where the Constitution declares immunity under Article 289(1), the statutory definition of “income” must yield, and any attempt to tax such receipts-directly or indirectly-stands vitiated for want of constitutional authority.

11. Learned counsel for the petitioner further contended that where Article 289(1) removes an area from the legislative field, the Act cannot venture upon it. Where Article 12 characterizes a body as State, its income is constitutionally protected. Where Article 48A imposes a sovereign obligation, the Union cannot convert it into a commercial activity. The Act does not apply to the BIOSOT at all, not because it seeks exemption, but because the Constitution itself prohibits taxation on its income, making all statutory proceedings entirely without jurisdiction and void under Article 265 and further argued that the entire scheme of the Act is premised upon the existence of a taxable ‘person’ who answers the description of an ‘assessee’ under Section 2(7) of the Act. According to him, Section 2(7) of the Act defines an ‘assessee’ as a person by whom any tax or any other sum of money is payable under this Act. The liability to be an assessee thus flows only from a valid charge to tax under Section 4, which is the charging provision of the Act. Section 4 authorises the levy of income tax only on the ‘total income’ of a ‘person’ for an assessment year, subject to constitutional competence.

12. Learned counsel for the BIOSOT argued that the aforesaid statutory scheme is wholly inapplicable to the BIOSOT for the fundamental reason that Article 289(1) of the Constitution of India imposes an absolute constitutional bar on the Union from levying tax on the income or property of a State. Once the petitioner is established to be an instrumentality of the State under Article 12, discharging sovereign and constitutional functions under Article 48A, its income-whether in the form of statutory receipts or incidental interest thereon constitutes income of the State in constitutional contemplation. In such circumstances, no tax can be said to be “payable” by the BIOSOT under the Income-tax Act, and consequently the BIOSOT cannot, in law, be treated as an ‘assessee’ within the meaning of Section 2(7) of the Act. In the absence of any valid charge under Section 4 of the Act, the BIOSOT is outside the taxing field altogether. As a necessary corollary, the BIOSOT cannot be subjected to issuance of notices, reassessment proceedings, attachment or coercive recovery under Sections 220-226, or garnishee proceedings under Section 226(3), or even the obligation to file returns under Section 139. To proceed against the BIOSOT as an assessee, despite a constitutional prohibition would amount to conferring jurisdiction upon the taxing authorities where the Constitution has expressly withdrawn it in direct violation of Articles 289(1) and 265.

13. It is therefore submitted that the Income-tax Act does not merely grant the BIOSOT an exemption; rather, the Act itself is constitutionally inapplicable to the BIOSOT ab initio, and all proceedings initiated thereunder are void for want of jurisdiction.

14. On the contrary, the sole argument of the learned Senior Standing Counsel for Income Tax Department was that the aforesaid contention advanced by the BIOSOT as regards to the applicability of Section 194C of the Act, for the assessment year 2019-20, proceeds on a fundamental mischaracterisation of the true nature of the transaction, and deserves to be rejected. The deduction of tax at source effected by respondent No.7 was neither unilateral nor erroneous, but was made strictly upon a bona fide and reasoned appreciation of the underlying transaction as one falling squarely within the contemplation of Section 194C of the Act. The contention that the BIOSOT being a State instrumentality constituted pursuant to the directions of the Hon'ble Supreme Court and discharging functions referable to Article 48A of the Constitution is incapable of entering into any contractual arrangement attracting Section 194C, is misconceived, inasmuch as the constitutional character or sovereign functions of an entity do not, by themselves, exempt a transaction from the rigors of the taxing statute wherein the substance of the transaction otherwise satisfies the ingredients of a ‘work’ within the meaning of Section 194C of the Act. The mere nomenclature ascribed to the payment as a ‘statutory environmental mitigation deposit’ purportedly made pursuant to conditions under the Forest (Conservation) Act, 1980 and the Environment (Protection) Act, 1986 cannot be determinative. What is required to be examined is the substance and character of the underlying arrangement and it is submitted that the same discloses the essential elements of a contractual payment liable to deduction of tax at source under Section 194C of the Act.

15. Having heard the contentions put forth on either side and on perusal of records, the question of law which arises for consideration in this case is ‘whether the BIOSOT being a body constituted and functioning as an instrumentality of the State of Telangana in discharge of sovereign and constitutional obligations under Article 48A of the Constitution, can be subjected to the provisions of the Act in the teeth of the constitutional immunity engrafted under Article 289(1) of the Constitution of India?’

16. It would be trite at this juncture to refer to Article 289(1) of the Constitution, which for ready reference is reproduced hereunder:

               “289. Exemption of property and income of a State from Union taxation

               (1) The property and income of a State shall be exempt from Union taxation.”

Article 289(1) of the Constitution declares, in unambiguous and unqualified terms, that ‘the property and income of a State shall be exempted from Union taxation’. This is not a statutory concession liable to withdrawal, dilution or reinterpretation at the hands of the taxing authorities, but it is a constitutional embargo operating directly upon the legislative competence of the Union under Entry 82 of List I of the Seventh Schedule. Where a receipt is, in law, the income of the State, Parliament itself lacks the competence to bring it within the charge of tax under Section 4 of the Act, and it follows afoot in that the taxing authorities, being creatures of that very statute, cannot assume jurisdiction over what the Constitution has placed beyond the reach of the Union.

17. Next Article which is worth taking note is Article 48A in Constitution of India, which again for ready reference is reproduced hereunder:

               “48A. Protection and improvement of environment and safeguarding of forests and wild life.

               [After article 48 of the Constitution, the following article shall be inserted Constitution (Forty-Second Amendment) Act, 1976]

               The State shall endeavour to protect and improve the environment and to safeguard the forests and wild life of the country.”

The above Article clearly reinforces the contention that the functions / activities undertaken by BIOSOT are sovereign.

18. The pivotal question therefore is not merely one of statutory exemption, but of constitutional characterisation namely, whether the BIOSOT is an organ or instrumentality of the State of Telangana such that its income can be said to be the ‘income of a State’ within the meaning of Article 289(1). On a consideration of the constitutive history of the BIOSOT, its origin in G.O.Rt. No.464, EFS&T, dated 13.10.2011, as BIOSAP, its reconstitution as BIOSOT vide G.O.Ms. No.25, EFS&T, dated 24.11.2014, following bifurcation, its registration as a society under the administrative control of the State Government, its Chairmanship vesting in the Chief Secretary to the Government of Telangana, and its composition consisting of only senior functionaries of the State, we find considerable force in the submission that the BIOSOT bears all the classical indicators of a State instrumentality within the meaning of Article 12 of the Constitution, and within the ambit of ‘deep and pervasive State control’, functional and financial dependence, and the discharge of functions of public importance closely related to governmental functions and that the BIOSOT performs functions and to the obligations cast under the Wildlife Protection Act, 1972, the Forest (Conservation) Act, 1980 and the Biological Diversity Act, 2002 read with the constitutional mandate under Article 48A, reinforces this conclusion.

19. These are not activities undertaken in the pursuit of trade, commerce or profit; they are sovereign and welfare functions of the State delegated to and executed through the petitioner as its administrative vehicle. The circumstance that the BIOSOT does not undertake any commercial activity, does not deal in trade, and holds its corpus as a ring-fenced, non-fungible public fund earmarked for statutory conservation purposes, with only the incidental interest thereon being deployed towards such purposes and further fortifies the conclusion that the receipts in question do not bear the character of ‘income’ in the sense contemplated by ordinary assessees under the Act, but partakes the character of public funds held in trust by an organ of the State.

20. It is by now well settled that taxing statutes, however widely worded, must yield to an express constitutional prohibition, and cannot be construed so as to bring within their net what the Constitution itself has placed outside the taxing field. To permit the Income Tax Department to proceed against the BIOSOT as an ‘assessee’ under Section 2(7) of the Act, in the absence of a valid charge under Section 4 of the Act, and thereafter to resort to coercive recovery under Section 226(3) of the Act by way of attachment of its bank accounts, would be to confer upon the taxing authorities a jurisdiction that the Constitution has expressly withheld from the Union. Such an exercise cannot be sustained, more so when it strikes at the functioning of a body discharging ecological and conservation obligations of undoubted public importance, mandated by no less an authority than the Hon'ble Supreme Court.

21. We are, therefore, of the considered view that the BIOSOT being an instrumentality of the State of Telangana within the meaning of Article 12 of the Constitution, discharging sovereign functions under Article 48A thereof, is entitled to the constitutional immunity engrafted under Article 289(1) of the Constitution, and its income / receipts being in the nature of statutory and ring-fenced public funds, cannot be subjected to the charge of tax under the Act. Consequently, the impugned notice dated 05.12.2025 issued by respondent No.5 under Section 226(3) of the Act attaching the BIOSOT’s bank accounts is without jurisdiction and unsustainable in law and the impugned notice of attachment issued under Section 226(3) of the Act against the BIOSOT’s bank accounts is hereby quashed. The question of law framed is therefore answered in favour of the BIOSOT and against the Revenue. Accordingly, the instant Writ Petition No.390 of 2026 stands allowed.

22. Writ Petition No.11801 of 2025 also stands allowed on similar lines.

23. As a sequel, miscellaneous petitions pending if any, shall stand closed. However, there shall be no order as to costs.