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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: Whether the income derived by a local authority from supply of water outside its municipal limits was exempt under Section 4(3)(iii) of the Income-tax Act, 1922.
Analysis: The exemption for income of a local authority does not apply where the income is derived from a trade or business, arises from the supply of a commodity or services, and the supply is made outside the local authority's jurisdictional area. The water supply in question was made from municipal water works situated outside the City of Bombay to Government and other persons, for consideration, with continuity and method sufficient to constitute a business activity. The fact that the water works belonged to the Corporation did not enlarge the territorial limits of its jurisdiction. The supply made outside the city was not treated as an obligatory or discretionary municipal duty within the city limits, but as an activity authorized separately for supply beyond those limits.
Conclusion: The income from the outside-city water supply was not exempt and was liable to income-tax.
Final Conclusion: The reference was answered against the assessee, and the claimed exemption was denied.
Ratio Decidendi: Income derived by a local authority from the supply of a commodity outside its jurisdictional area, where the activity amounts to trade or business, does not fall within the exemption for local authority income.
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