Statutory local authority status requires application of the amended definition, justifying revision for lack of proper assessment inquiry.

The amended definition of "local authority" in section 10(20) of the Income-tax Act, 1961 is exhaustive and governs eligibility after 1 April 2003, so status cannot be assumed from general law or a State notification. Where the assessment records show acceptance of that status without proper examination of the amended provision and the factual basis for the claim, the order is erroneous and prejudicial to the interests of the Revenue. Separate denial of exemption under section 10(20) does not remove prejudice if the statutory status itself was wrongly conferred. A revision under section 263 is therefore valid where the Commissioner directs fresh inquiry and reassessment without deciding entitlement on merits.

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Issues: Whether the Commissioner was justified in exercising revisionary jurisdiction under section 263 on the ground that the assessments were erroneous and prejudicial to the interests of the Revenue because the assessee had been treated as a local authority and the Assessing Officer had failed to examine the amended scope of section 10(20).

Analysis: The expression "local authority" is defined exhaustively in section 10(20) of the Income-tax Act, 1961, and that definition alone governs eligibility under the Act after the amendment effective from 1 April 2003. The grant of the status of a local authority is not a matter of general law or of a State notification if the statute itself supplies a specific definition. The Assessing Officer's order showed no proper examination of the amended provision or of the factual and legal basis on which the assessee claimed that status, even though the assessment records reflected acceptance of that status without reasoned analysis. The fact that exemption under section 10(20) was separately denied did not remove prejudice, because erroneous conferment of the tax-exempt status itself could affect the Revenue and was capable of producing tax loss. The Commissioner's direction was only to make proper inquiry and redo the assessment in accordance with law, without expressing any final view on the assessee's entitlement on merits.

Conclusion: The revision under section 263 was validly exercised; the assessments were rightly held to be erroneous and prejudicial to the interests of the Revenue.

Ratio Decidendi: Where an assessment grants a statutory tax status without proper application of the amended definition governing that status, the order is erroneous and prejudicial to the interests of the Revenue and is open to revision under section 263.

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