Local authority status under income tax law upheld for U.P. Jal Nigam; its income qualified for exemption.

The U.P. Jal Nigam was treated as a local authority for section 10(20) of the Income-tax Act, 1961, applying the unamended provision for assessment year 1980-81. The Court applied the R. C. Jain criteria and found that the Nigam's separate corporate status, independent rights and liabilities, statutory transfer of municipal water-supply and sewerage functions, deemed local fund, fee-levying powers, and control over water-supply and sewerage arrangements gave it the attributes of a local authority. On that basis, the income was exempt for the relevant year, and the contrary authority concerning the U.P. Forest Corporation was distinguished on facts.

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Issues: Whether the U.P. Jal Nigam is a "local authority" for the purposes of section 10(20) of the Income-tax Act, 1961, so that its income is exempt from tax.

Analysis: The relevant assessment year was 1980-81 and the question had to be decided under the unamended section 10(20). The expression "local authority" was taken from section 3(31) of the General Clauses Act, 1897. Applying the criteria stated in R. C. Jain, the Court examined the statutory scheme of the U.P. Water Supply and Sewerage Act, 1975. The Nigam was held to be a body corporate with separate legal existence, vested with independent rights and liabilities, entrusted with water-supply and sewerage functions earlier performed by municipal bodies, given a fund deemed to be a local fund, and provided with powers to levy fees and exercise statutory control over water-supply and sewerage arrangements. The Court held that these features satisfied the attributes of a local authority and distinguished the decision concerning the U.P. Forest Corporation on facts.

Conclusion: The U.P. Jal Nigam is a local authority within section 10(20) of the Income-tax Act, 1961, and its income is exempt for the relevant assessment year.

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