Local authority exemption under section 10(20) applies where statutory body satisfies functional tests and control over local funds.

The pre-1-4-2003 definition of "local authority" in section 10(20) was not exhaustive and had to be tested under the General Clauses Act, 1897 and Supreme Court functional criteria. Applying those tests, the assessee-Board was treated as a local authority because it had separate corporate existence, control over local funds, defined statutory functions, and administrative authority over market committees under the U.P. Krishi Utpadan Mandi Adhiniyam, 1964. On that legal and factual basis, the exemption under section 10(20) was available for the relevant assessment year.

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Issues: Whether the assessee was a local authority entitled to exemption under section 10(20) of the Income-tax Act, 1961 for the assessment year under consideration.

Analysis: The statutory definition of "local authority" inserted in section 10(20) with effect from 1-4-2003 was held to be exhaustive and prospective. For the year in question, the expression "local authority" had to be understood with reference to the General Clauses Act, 1897 and the functional tests laid down by the Supreme Court, including separate legal existence, autonomy, defined area, governmental functions, and control over a local fund. On the facts, the assessee-Board was constituted under the Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, 1964 as a body corporate with powers of superintendence and control over market committees, authority over funds, and responsibilities connected with market development and related public functions. The pre-2003 legal position, together with the statutory scheme and the cited judicial precedents, supported treating the assessee as a local authority for the relevant year.

Conclusion: The assessee was entitled to be treated as a local authority for the purpose of section 10(20) for the assessment year in question, and the exemption claim succeeded.

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