Municipality under section 10(20) includes notified industrial townships with municipal powers and tax-levying authority.

Section 10(20) confines "local authority" to the categories specifically named, including a Municipality under Article 243P(e) read with Article 243Q. That constitutional scheme covers Nagar Panchayats, Municipal Councils and Municipal Corporations, and also permits an industrial township where municipal services are provided or proposed by an industrial establishment. On the statutory scheme of the Gujarat Municipalities Act, 1963 and the Gujarat Industrial Development Act, 1962, notified areas function as self-governing units with municipal powers and tax-levying authority, so they are not excluded from the concept of Municipality. Accordingly, the notified area / industrial township qualifies for exemption under section 10(20).

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Issues: Whether the assessee, a notified area / industrial township created under the Gujarat Industrial Development Act, 1962 and governed by the Gujarat Municipalities Act, 1963, is a Municipality within the meaning of section 10(20) of the Income-tax Act, 1961 and consequently entitled to exemption.

Analysis: Section 10(20) confines the expression "local authority" to the categories specifically mentioned in the provision, including a Municipality as referred to in Article 243P(e) of the Constitution of India. Article 243P(e) defines Municipality as an institution of self-government constituted under Article 243Q. Article 243Q contemplates Nagar Panchayat, Municipal Council and Municipal Corporation, and its proviso permits an industrial township to be specified where municipal services are provided or proposed to be provided by an industrial establishment. The statutory scheme under the Gujarat Municipalities Act, 1963 and section 16 of the Gujarat Industrial Development Act, 1962 treats notified areas as areas to which municipal provisions apply, with power to levy and collect taxes and to function as self-governing units. The Court held that such notified areas are not excluded from the concept of Municipality; rather, the proviso to Article 243Q creates an additional class of self-governing institution in the form of an industrial township or notified area.

Conclusion: The assessee is a Municipality within section 10(20) of the Income-tax Act, 1961 and its income is exempt under that provision.

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