Statutory authority not treated as the State for Article 289 immunity, so its income remained taxable.

A statutory authority constituted as a body corporate with perpetual succession, separate funds, power to contract and sue, and a distinct regime for vesting of assets and liabilities on dissolution was treated as a separate legal entity, not a department or agent of the State. On that basis, its income was not regarded as the income of the State, and Article 289(1) of the Constitution could not be invoked to claim immunity from Union taxation. The claim for constitutional tax exemption therefore failed, and the authority was held taxable.

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Issues: Whether the development authority was the State or an extension of the State so as to claim exemption from Union taxation under Article 289 of the Constitution of India.

Analysis: The authority was constituted under the Himachal Pradesh Town and Country Planning Act, 1977 as a body corporate with perpetual succession, separate funds, power to contract and sue, and a distinct scheme for vesting of assets and liabilities only on dissolution. These features showed that it was a separate statutory entity and not a department or agent of the State. Applying the same principle that a statutory corporation with its own funds, assets and liabilities is not the State, the claim that its income was the income of the State failed. Since the authority was distinct from the State, Article 289(1) could not be invoked.

Conclusion: The claim for immunity from tax under Article 289 of the Constitution of India was rejected and the issue was decided against the assessee.

Final Conclusion: The authority was held to be a separate taxable entity and not entitled to constitutional immunity from Union taxation.

Ratio Decidendi: A statutory authority with its own legal personality, funds, assets and liabilities is not the State for the purpose of Article 289 of the Constitution of India, and its income is not immune from Union taxation merely because it performs governmental functions.

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