TaxTMI 
TaxTMI 
2011 (6) TMI 101
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....is question it will be appropriate to refer to Section 10(20) of the Income Tax Act as it stood at the relevant time which reads as follows: "10.In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- (1) to (19) xxxxxxxxxxxxx (20) the income of a local authority which is chargeable under the head "income from house property", "Capital gains" or "Income from other sources" or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service (not being water or electricity) within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area." 3. It is thus obvious that the income of a local authority if it falls within the ambit of Section 10(20) would not form part of the total income in terms of Section 10. The expression 'local authority' had not been defined in the Income Tax Act at that time and therefore reference has to be made to Section 3(31) of the General Clauses Act, 1897 in which the term 'local authority' has been defined as follows: "(31) "Local au....
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....arkets, transportation, social welfare services etc. etc. Broadly we may say that they may be entrusted with the performance of civic duties and functions which would otherwise be Governmental duties and functions. Finally, they must have the power to raise funds for the furtherance of their activities and the fulfillment of their projects by levying taxes, rates, charges, or fees. This may be in addition to moneys provided by Government or obtained by borrowing or otherwise. What is essential is that control or management of the fund must vest in the authority." 5. In Calcutta State Transport Corporation vs. Commissioner of Income-tax, (1996) 219 I.T.R. 515, the Apex Court looked into the definition of local authority specifically in reference to Section 10(20) of the Income Tax Act. After considering the judgment in R.C. Jain's case (supra), the Apex Court held that to fall within the ambit of Section 10(20) the authority must have carried out some general duties and powers being carried out by the municipal authorities such as Municipal Committee, District Board or body of Port Commissioners. Merely because a body or authority is constituted to provide public service and....
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.... inhabitants of the area. According to Section 4 of the U. P. Forest Corporation Act, the Corporation is consisted of a Chairman and eight members. The Chairman as well as the members are nominated by the State Government. Five members, so appointed, must be officers serving under the State Government and three non-officials members appointed by the State Government must be belonging to the category, who in the Government's opinion, possess experience in matter relating to preservation and development of forests. It is too tenuous to contend as was sought to be done by Shri Gupta, that because the State Government is a democratically elected body, therefore, persons nominated by the Government to be members of the Corporation must be regarded as being indirectly elected by the inhabitants. This contention is clearly unacceptable. The second essential attribute, which is lacking in the present case, is that the respondent do not have the functions and duties which are usually entrusted to the municipal bodies such as providing civic amenities to the inhabitants of the locality like health, education, town planning, markets, transportation etc. Finally and which is most important, th....
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.... 20% of the funds generated by the Marketing Committee have to be given to the Board. The Board can utilize these funds for a number of purposes including better marketing of agricultural produce etc. 11. Sh.Vaidya, learned counsel appearing on behalf of the assessee submits that this is a local fund and therefore the Board is a local authority within themeaning of the Act. This argument cannot be accepted. In U.P. Forest Corporation's case (Supra) the Apex Court laid down a number of tests. The first test is whether the assessee is directly or indirectly elected by the inhabitants of the area. One of the essential attributes of local Government is democracy and election by the public. The Market Board consists of persons nominated by the Government and there no elections are held. Therefore, the first test is not satisfied. 12. The second test laid down by the Apex Court is that the Body should have functions and duties which are usually entrusted to the municipal bodies such as providing civic amenities to the inhabitants of the locality like health, education, town planning, markets, transportation etc. The Marketing Board is not vested with any such duties. It i....