Local authority test under income tax law failed where Government control and lack of autonomous fund powers were decisive.

A body qualifies as a local authority under section 10(20) only if it resembles a municipal committee or district board, with separate legal existence, defined territory, real autonomy, statutory civic functions, and power to raise and control funds. Applying that test, the entity here was held not to satisfy the requirement because its board was largely Government-nominated, its activities were focused on integrated rural and agricultural development rather than civic administration, it lacked compulsory levy powers, and its finances remained subject to Government control. It was therefore not a local authority and could not obtain the lower-rate deduction certificate under section 197.

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Issues: Whether the petitioner was a local authority within the meaning of section 10(20) of the Income-tax Act, 1961, so as to qualify for a certificate for deduction of tax at a lower rate under section 197 of that Act.

Analysis: The governing test for a local authority was taken from the settled interpretation of section 3(31) of the General Clauses Act, namely that the body must be of the same general nature as a municipal committee or district board, with separate legal existence, a defined area, a degree of autonomy, and statutory functions of the kind ordinarily entrusted to local bodies, together with power to raise and control funds. Applying that test, the petitioner was found to have only a technical separate corporate existence. Its board was predominantly Government-nominated, not elected by local inhabitants, and remained substantially controlled by the State Government. Its functions were directed to integrated rural and agricultural development rather than civic amenities. It had no power of compulsory levy and its funds and budget were subject to Government control, so the management of its funds did not vest in it in the manner required of a local authority.

Conclusion: The petitioner was not a local authority under section 10(20) of the Income-tax Act, 1961, and was not entitled to the benefit claimed under section 197. The writ petition failed.

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