Local authority exemption under income tax law upheld where statutory urban-development functions matched section 10(20)

The assessee was treated as a local authority for income-tax exemption purposes because its constitution, statutory urban-development functions, and control over funds satisfied the statutory description in section 10(20) of the Income-tax Act. The analysis distinguished statutory urban-development activity from profit-oriented commercial activity and treated those functions as akin to State functions. On that basis, the amended definition did not disqualify the assessee, and the claimed exemption remained available despite the Revenue's reliance on Article 289(1) of the Constitution.

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Issues: Whether the assessee was a "local authority" within the meaning of section 10(20) of the Income-tax Act, 1961 and, consequently, entitled to exemption from income tax, notwithstanding the Revenue's reliance on Article 289(1) of the Constitution of India and the amended statutory definition.

Analysis: The decisive inquiry was whether the assessee answered the statutory description of a local authority under section 10(20). The Court examined the nature of the assessee's constitution, its statutory duties relating to urban development, the control and management of its funds, and the character of its functions. It held that the activities performed were statutory functions undertaken for urban development and were akin to functions of the State rather than a profit-oriented commercial body. On that basis, the assessee fell within the relevant clause of the definition and the omission of the earlier exemption provision did not alter the result in the present case.

Conclusion: The assessee was held to be a local authority entitled to the benefit of section 10(20), and the Revenue's challenge failed.

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