Challenge on provision u/s 10(46) of the Income Tax Act: SC to Hear CBDT's appeal Against TPCB [Read Order]

The Supreme Court set a hear on the challenge to Section 10(46) of the Income Tax Act, in relation to the appeal filed by the Central Board of Direct Taxes (CBDT) against the Telangana Pollution Control Board.

The case involves the Board’s plea to be notified under Section 10(46), which would grant them automatic exemption on certain income, as opposed to the approval process under Section 10(23C)(iv). The petitions challenged an impugned final judgment and order dated July 26, 2021, passed by the High Court for the State of Telangana at Hyderabad.

A bench comprising Justice B.V. Nagarathna and Justice R. Mahadevan granted the request and adjourned the proceedings. The matters have been rescheduled and are now listed for further hearing on February 4, 2026.

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The petitioners, Telangana State Pollution Control Board and Andhra Pradesh Pollution Control Board,before the High Court challenged the respondents' failure to notify them under Section 10(46) of the Income Tax Act, 1961, which would grant them exemption on their income. Both Boards are constituted under relevant pollution control laws to manage pollution-related activities and are established by the State Governments.

The Boards received approval under Section 10(23C)(iv) of the Act, granting exemption from income tax from certain assessment years. However, the exemption was not extended to them, and appeals are pending. They contended that after the Finance Act, 2011, inserted Section 10(46), they applied to be notified under this section, which they believe is more appropriate for their activities, given that they are instrumentalities of the State and engaged in public-beneficial activities.

The Court examined the provisions of the Income Tax Act, noting that approval under Section 10(23C)(iv) merely makes an entity eligible for exemption, subject to scrutiny, and does not guarantee exemption. In contrast, notification under Section 10(46) provides automatic exemption on specified income once issued by the Central Government, with no discretion left to assessing authorities.

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The Court ruled that the Telangana and Andhra Pradesh Pollution Control Boards are eligible to be notified under Section 10(46) of the Income Tax Act, which provides automatic exemption on certain income. Although they had approval under Section 10(23C)(iv), that approval only made them eligible for exemption and was not an automatic entitlement.

The High Court found the respondents' delay and inaction unjustified and directed them to withdraw the existing approval and process the Boards’ applications under Section 10(46) from the relevant assessment years. Consequently, the petitions were allowed, affirming the Boards’ right to notification under Section 10(46).

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