TaxTMI 
TaxTMI 
2011 (9) TMI 174
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....come Act Act, 1961(in short Income Tax Act), in respect of the income derived by it. 5. The assessee relied upon the order passed by the Income Tax Appellate Tribunal (ITAT), dated 24.3.1999 for the assessment year 1980-1981 where its status as local authority was admitted by the Assessing Officer. However, this fact has been found to be not correct by the Revenue. According to Revenue, the status has been taken as that of Company. It is stated the law is well settled that every assessment year is independent 6. The Assessing Officer while recording the finding with regard to assessment year in question, observed that the Assessee Corporation is an statutory body performing the public duty on behalf of the State Government and ordinarily possesses three wings namely, Jal Nigam, Nalkoop Wing and Construction & Design Wing. The activities of Jal Nigam Wing includes the supply of water and to provide sewerage facilities to public and maintenance thereof whereas the activities of Construction and Design Wing is to construct the Government buildings and the designing thereof. The Nalkoop Wing is to construct, maintenance of tubewell and water supply system. The Assessing Officer t....
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....ecorded by the CIT (A), has been reiterated by the Income Tax Appellate Tribunal (in short the Tribunal) and granted exemption under Section 10 (20) of the Income Tax Act to the Assessee Corporation. 8. While assailing the impugned order passed by the Tribunal, Sri D.D. Chopra, learned counsel for the appellant has also relied upon the judgment of Hon'ble Supreme Court reported in CIT Vs. U.P. Forest Corporation, 230 ITR 945, and would submit that the Assessee Corporation is a statutory body and not an authority under Section 10 (20) of Incoem Tax Act. He invited attention to different paras of the judgment of the Forest Corporation (supra) to submit that at no stretch of imagination, the Assessee Corporation may be treated as authority under Section 10 (20) of the Income Tax Act and hence no exemption can be granted. 9. On the other hand, Sri Mudit Agarwal also relied upon the CIT Vs. U.P. Forest Corporation, 230 ITR 945 (supra), and invited attention to the provisions of the 1975 Act and submitted that the Jal Nigam is a local authority. He relied upon Section 3 of the 1975 Act which declares that the Nigam shall for all purposes be deemed to be a 'Local Authority'. The que....
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.... discussion for alternative views. STATUTORY-PROVISIONS 11. U.P. Jal Nigam is the creation of statute by the State Legislature under the 1975 Act. Sub-section (3) of Section 3 of the 1975 declares that the Nigam shall for all purposes be deemed to be a local authority. Section 4 of 1975 Act provides that the Nigam shall consist of Chairman appointed by the State Government besides the members specified in sub-section (2). According to sub-section (2) of Section 4 of the 1975 Act, the Managing Director, Finance Director, Secretary to the State Government in the Finance Department, Ex Officio; Secretary to the State Government in -charge of the Water Supply Department, Ex Officio, Secretary to the State Government in the Planning Department, Ex Officio; Director of Local Bodies, U.P., Ex Officio Director of Medical and Health Services U.P. Ex Officio and elected heads of the local bodies in the State, to be nominated by the State Government, shall be the member of the Jal Nigam Board. It shall be appropriate to reproduce Section 3 and 4 of 1975 Act as under:- "3. Establishment of the Nigam- (1) The State Government shall by notification in the Gazette and with effect from a ....
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....m has been provided under Section 14 and 15 of the Act which are reproduced as under: "14. Functions of the Jal Nigam.-The functions of the Nigam shall be the following, namely:- 1. the preparation, execution, promotion and financing the schemes for the supply of water and for sewerage and sewage disposal; 2. to render all necessary services in regard to water supply and sewerage to the State Government and local bodies, on request to private institutions or individuals; 3. to prepare State plans for water supply, sewerage and drainage on the directions of the State Government; 4. to review and advise on the tariff, taxes and charges of water supply in the areas of Jal Sansthan and local bodies which have entered into an agreement with the Nigam under Section 46; 5. to assess the requirement for materials and arrange for their procurement and utilisation; 6. to establish State standards for water supply and sewerage services; 7. to perform all functions, not stated herein which were being performed by the Local Self-Government Engineering Department before the commencement of this Act; 8. to review annually the technical, financial, economic and other asp....
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....loans and advances to such persons or authorities as the Nigam may deem necessary for performing the functions under this Act." 13. A plain reading of Section 14 and 15 (supra) shows that the functions of Jal Nigam shall be preparation, execution, promotion and financing the schemes for the supply of water and for sewerage and sewage disposal and shall render all necessary services in regard to water supply and sewerage to the State Government and local bodies, on request to private institutions or individuals along with the maintenance of related infrastructure. The Jal Nigam shall lay down the schedule of fees for all services rendered by the Nigam to the State Government, local bodies, institutions or individuals and shall also approve tariffs for water supply and sewerage services applicable to respective local areas comprised within the jurisdiction of Jal Sansthan. 14. The Jal Sansthan is also established under 1975 Act. According to sub-section (4) of Section 18 of the 1975 Act, the Jal Sansthan shall be a body corporate having perpetual succession and a common seal and shall sue and be sued by the name of ") short name of the area specified in the said notification) J....
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.... section (1); (b) divide the area of a Jal Sansthan specified in the notification under sub-section (1) into area of two or more separate Jal Sansthans; (c) amalgamate the areas of two or more Jal Sansthans specified in the notification under sub-section (1) into the area of one Jal Sansthan; or (d) declare that any part in the area of a Jal Sansthan specified in the notification under sub-section (1) shall cease to be such area. 20. Constitution of Jal Sansthan-(1) Jal Sansthan constituted to have jurisdiction over the local area of a Nagar Mahapalika shall consist of a Chairman who shall be the Nagar Pramukh of the Nagar Mahapalika (ex officio), and the following other members, namely - (a) a General Manager, to be appointed by the Nigam with the approval of the State Government who shall be a qualified engineer having administrative experience and experience of water supply and sewerage works; (b) a Joint Director of Medical and Health Services to be nominated by the Director of Medical and Health Services, Uttar Pradesh; (c) three Sabhasads of the Nagar Mahapalika nominated by the State Government; (d) two representatives of the Nigam; (e) the Directo....
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....hich no Jal Sansthan has been established under Section 18, all or any of the powers, duties and functions of a Jal Sansthan under any provisions of this Act shall be exercised, discharged or performed by the Jal Nigam; and thereupon for the purposes of exercising, discharging or performing such powers, duties or functions the Jal Nigam shall be deemed to be the Jal Sansthan and the date of such notification shall be deemed to be the date of constitution of the Jal Sansthan]." 16. Thus, over all reading of statutory provisions contained in 1975 Act reveals that broadly, the functions of Jal Nigam shall be the preparation, execution, promotion of plans with regard to supply of water established and maintenance of sewerage system on a decided fee for the services rendered by it. Under the 1975 Act, the working area of Jal Nigam including Jal Sansthan is whole of the State of U.P. 17. It is obvious from the aforesaid provisions that the power of Jal Nigam is to lay down the schedule of fees for the services rendered by it to the Government, local bodies and the areas notified. The tariff of water supply and sewerage services is to be approved by the Board of Jal Nigam. Thus, at ....
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....xplanation to this provision has been inserted by the Finance Act, 2002 giving effect from 1.4.2003. 22. The word, "authority" been defined as statutory body like LIC, Oil and Natural Gas Commission or different Corporation of Central and State Government created under the Statute ordinarily being instrumentalities of State fulfilling twin test as propounded by the Hon'ble Supreme Court in the case reported in AIR 1981 SC 487: Ajay Hasia etc. Vs. Khalid Mujib Sehravardi and others etc.; AIR 1979 SC 1628: R.D. Shetty Vs. The International Airport Authority of India; to be the authority being 'State' under Article 12 of the constitution. Even the companies which are not framed under any special statute, have been held to be an authority being fully managed, controlled and financed by the Government. The Explanation added in Section 10 (20) of the Income Tax Act, removes the ambiguity or confusion if any for all time to come. 23. It may be taken into account that the word, 'authority', or, 'local', used in Article 12 of the Constitution of India, refers to instrumentalities of the State as settled by Hon'ble Supreme Court by catena of judgments. It is not necessary that an au....
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....ot local fund, impose taxes, which is under their control and management and provide civil immunities to people falling within their statutory jurisdiction. 27. Part IX A of the Constitution of India was inserted by the Constitution (Seventy-fourth Amendment) Act, 1992 giving effect from 1.6.1993. Article 243P of the Constitution defines the Committee, District, Metropolitan are, Municipal area, Municipality, and Panchayat. Part IX of the Constitution was added by the Seventy-third Amendment Act, 1992 giving effect from 24.4.1993, and deals with creation, establishment and election of Panchayats to function within their specified territorial area. Accordingly, for the purpose of explanation given in Section 10 (20) of the Income Tax Act, the area or jurisdiction of local authority shall be the area for which the Panchayat, Municipality or Municipal Committee or District Board, has been constituted. 28. The Cantonment Board constituted under the Cantonments Act, 1924, also discharges its public functions within the specified area constituted under the Act. 29. The Parliament to its wisdom has used the word, 'local' as prefix to the word 'authority'. The word 'local' confine....
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....the Municipalities shall be vested in the State Election Commission referred to in article 243K. (2) Subject to the provisions of this Constitution, the Legislature of a State may, by law, make provision with respect to all matters relating to, or in connection with, elections to the Municipalities." 31. Article 243 P of the Constitution defines Municipal area, Municipality, Panchayats, Metropolitan area as under, to quote:- "243P. Definitions.- In this Part, unless the context otherwise requires,- (a) "Committee" means a Committee constituted under article 243S; (b) "district" means a district in a State; (c) "Metropolitan area" means an area having a population of ten lakhs or more, comprised in one or more districts and consisting of two or more Municipalities or Panchayats or other contiguous areas, specified by the Governor by public notification to be a Metropolitan area for the purposes of this Part; (d) "Municipal area" means the territorial area of a Municipality as is notified by the Governor; (e) "Municipality" means an institution of self-government constituted under article 243Q; (f) "Panchayat" means a Panchayat constituted under article 243....
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....inder of the period for which the dissolved Municipality would have continued is less than six months, it shall not be necessary to hold any election under this clause for constituting the Municipality for such period. (4) A Municipality constituted upon the dissolution of a Municipality before the expiration of its duration shall continue only for the remainder of the period for which the dissolved Municipality would have continued under clause (1) had it not been so dissolved.". 33. Article 243 N protects the law relating to Panchayats of the State as existing before the constitutional amendment. The nature and work of Panchayats all over the country as well as in the State of U.P. is of different nature than other local bodies. In the State of U.P., the Panchayats are governed by the U.P. Panchayat Raj Act, 1947 which was later on, amended by the State Legislature making it in conformity with the Part-IX of the Constitution of India. 34. U.P. Jal Nigam in any case, cannot be treated as a local body at par with Panchayat defined under the Panchayat Raj Act, 1947. Every Panchayat is an elected body with different nature of the statutory responsibilities. The tenure of the....
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....: " 'local authority' shall mean a municipal committee, district board, body of port commissioners or other authority legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund:" The definition given in the General Clauses Act, 1897 govern all Central Acts and Regulations made after the commencement of the Act. No doubt this Act was enacted later in point of time than the Land Acquisition Act; but this Act was a consolidating and amending Act and a definition given therein of the expression "local authority" is the same as that contained in the earlier Acts of 1868 and 1887. The definition given in S. 3 (31) will therefore, hold good for construing the expression "local authority" occurring in the Land Acquisition Act. We have already quoted the definition. 1. It will be clear from the definition that unless it is shown that the State Transport Corporation is an 'authority' and is legally entitled to or entrusted by the Government with control or management of a local fund it cannot be regarded as a local authority. No material has been placed before us from which it could be deduced that the funds of the Corporat....
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....is Court further said referring to earlier decisions that the expression "other authorities" in Art. 12 will include all constitutional or statutory authorities on whom powers are conferred by law. The State itself is envisaged under Article 298 as having the right to carry on trade and business. The State as defined in Article 12 is comprehended to include bodies created for the purpose of promoting economic interest of the people. The circumstance that the statutory body is required to carry on some activities of the nature of trade or commerce does not indicate that the Board must be excluded from the scope of the word "State". The Electricity Supply Act showed that the Board had power to give directions, the disobedience of which is punishable as a criminal offence. The power to issue directions and to enforce compliance is an important aspect." It may be noted that the word, "authority", given in Article 12 has got vital expression and other word, "authority" given in Section 10 (20) of Income Tax Act, speaks for local authority with different nature. 39. In AIR 1981 SC 951: Union of India and others. v. R.C. Jain and others, Hon'ble Supreme Court while considering the s....
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....s essential is that control or management of the fund must vest in the authority." 40. In the case of R.C. Jain (supra), Hon'ble Supreme Court has reiterated the ratio of its of earlier judgments, of the case of Valjibhai Muljibhai Soneji. Vs. State of Bombay (Now Gujarat)(1964) 3 SCR 686 and in the case reported in (1968) 3 SCR 251: Municipal Corporation of Delhi. Vs. Birla Cotton Spinning & Weaving Mills Delhi. 41. The question with regard to exemption under Section 10 (20) of the Income Tax Act, was considered by the Calcutta High Court and repelled the contention of the assessee and declined to grant exemption to treat the Calcutta Transport Corporation as "local authority" vide, Vol.108 (1977) Page 922: Calcutta State Transport Corporation. Vs. Commissioner of Income Tax Act West Bengal-IV. Feeling aggrieved with the judgment, the Calcutta State Transport Corporation preferred appeal. While upholding the judgment, relying upon the case of R.C. Jain (Supra), it has been held by Hon'ble Supreme Court that Calcutta Transport Corporation is not an authority within the meaning of Section 10 (20) of the Income Tax Act hence it shall not be entitled for exemption under the Inco....
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....dy. Merely because a corporation has local fund, does not mean that it shall be the "local authority" as contemplated under Section 3 (31) of the General Clauses Act. That apart, for the purpose of exemption of tax, it shall be necessary to hold that the authority is for the charitable purpose. By virtue of exemption under Section 11 of the Act to avail the benefit or advantage of Section 11 of the Act, a trust or institution has to get itself registered which seems to be not a case with regard to case of the U.P. Jal Nigam. 44. In the case reported in (2006) 5 SCC 100: Adityapur Industrial Area Development Authority. Vs. Union of India and others, Hon'ble Supreme Court held that Bihar Industrial Area Development Authority a statutory body though is a body corporate having legal personality different from the State and has its own income and generate its own fund which is not that of State though not carrying trade or business but shall not be an authority in view of the subsequent amendment done to Section 10 (20-A) and Section 10 (20) of Income Tax Act. Their lordships have considered the explanation added to amendment with effect from 1.4.2003 in para-5 of the judgment, wh....
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....ity", was not defined in the Income Tax Act, 1961. It was for the first time defined in Finance Act, 2002. It has been held that to remove ambiguity under the Finance Act, 2002, the word, "local authority", has been defined by the Legislature themselves hence Court cannot travel beyond definition given therein. Hon'ble Supreme Court held that Agricultural Produce Market Committee shall not be a local authority and shall not be entitled for exemption, to reproduced relevant para 35, 36, 37, 38, 39, 40 and 41 as under:- "35. One more aspect needs to be mentioned. In the case of R.C. Jain the test of "like nature" was adopted as the words "other authority" came after the words "Municipal Committee, District Board, Body of Port Commissioners". Therefore, the words "other authority" in Section 3(31) took colour from the earlier words, namely, "Municipal Committee, District Board or Body of Port commissioners". This is how the functional test is evolved in the case of R.C. Jain. However, as stated, earlier Parliament in its legislative wisdom has omitted the words "other authority" from the said Explanation to Section 10(20) of the 1961 Act. The said Explanation to Section 10(20) prov....
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....43N provides for continuance of existing laws and Panchayats. It states, inter alia, that notwithstanding anything in Part IX, any law relating to Panchayats in a State immediately before commencement of the Constitution (Seventy-third Amendment) Act, 1992, which is inconsistent with the provisions of Part IX, shall continue to be in force until repealed by a competent Legislature. iv. Similarly, under Part IXA there is Article 243ZF which refers to the "Municipalities". This Article, inter alia, states that notwithstanding anything in Part IXA, any provision of any law relating to Municipalities in force in a State immediately before the commencement of the Constitution (Seventy-fourth Amendment) Act, 1992, which is inconsistent with the provisions of Part IXA, shall continue to be in force until amended or repealed by a competent Legislature. In our view, Article 243N and Article 243ZF indicates that there could be enactments which still retain the entities like Municipal Committees and District Boards and if they exist, Parliament intends to give exemption to their income under Section 10 (20) of the 1961 Act. v. Before concluding we quote hereinbelow an important principl....
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....render technical advice to State Government on matters relating to forestry, to manage, maintain and develop such forest as are transferred or entrusted to it by the State Government and to perform such functions as the State Government may, from time to time, require. Corporation is also engaged in auction and sale of forest produce through its depots. 49. Section 17 of the U.P. Forest Corporation Act, 1974 provides that the Corporation shall have its own fund and Section 27 provides that local bodies to assist the Corporation. For convenience, Section 17 and 27 of the Act are reproduced as under: "17. Fund of the Corporation-(1) The Corporation shall have its own fund which shall be a local fund and to which shall be credited all moneys received by or on behalf of the Corporation. i. The fund shall be applied towards meeting expenses incurred by the Corporation in the discharge of its functions under this Act and for no other purpose. ii. The money of the Fund shall be kept in the State Bank of India or in the Utrtar Pradesh Co-operative Bank or in any Scheduled Bank: Provided that nothing in this sub-section shall be deemed to preclude the Corporation from retaini....
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....33 of the aforesaid judgment is reproduced as under: "33. The question is: did Parliament intend differently while using the terminology in Section 45 as it did? When words in an earlier statute have received an authoritative exposition by the superior court (interpretation of Section 3 in Renusagar case), use of the same words in a similar context in a later Act will give rise to a strong presumption that Parliament intends that the same interpretation should also be followed for construction of these words in the later statute: "D' Emden v. Pedder, CLR at p. 100 per Griffiths, CJ.: 'When a particular form of legislative enactment which has received authoritative interpretation, whether by judicial decision or by a long course of practice, is adopted in the framing of a later statute, it is a sound rule of construction to hold that the words so adopted were intended by the legislature to bear the meaning which had been so put upon them.' " "According to Lord Macmillian, 'if an Act of Parliament referring to the same subject, and passed with the same purpose, and for the same object, the safe and well-known rule of construction is to assume that the legislature when using ....
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....utes itself. 58. In the case reported in (2004) 11 SCC 625: Delhi Finance Corpn. Vs. Rajiv Anand, Hon'ble Supreme court held that legislature is presumed to have made no mistake and that it intended to say what it said assuming that there is a defect or an omission in the words used by the legislature, the court cannot correct or make up the deficiency especially when a literal reading thereof, produces an intelligible result- the court is not authorised to alter words or provide a casus omisus. 59. In the case reported in 2006 (2) SCC 670, Vemareddy Kumaraswamy Reddy and another VS. State of A.P, Hon'ble Supreme Court held that by the language, a statute is clear and unambiguous, the court cannot make any addition or substitution of words unless otherwise, the provisions appears meaningless or are of doubtful meaning. 60. In the case reported in (2004) 6 SCC 672: Maulvavi Hussain Haji Abraham Umar Ji. Vs. State of Gujrat and another, Hon'ble Supreme Court held that a casus omisus ought not to be created by interpretation, save in some case of strong necessity. 61. In the case reported in (2006) 2 SCC 670: Vemareddy Kumarswamy Reddy and another. Vs. State of A.P., Hon'b....
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....y catena of judgments Hon'ble Supreme Court from time to time ruled that when language is clear or unambiguous, it should be construed literally without any addition or substraction. 65. In a case reported in 2004 (1) SCC 201, State of West Bengal VS. Kesoram Industries Ltd., Hon'ble Supreme Court held that taxing statute should be strictly construed. If the person sought to be taxed comes within the letter of the law he must be taxed, however, in case he does not fall in the taxing category not tax can be imposed. There is no room for any intendment. There is no equity about the tax. There is no presumption as to tax. Nothing is to be read and nothing is to be implied. 66. In a case reported in 2009 (27) LCD 161, Lipton India Ltd. Gaziabad Vs. State of U.P. and others, a Division Bench of this Court while pronouncing the judgment by one of use (Hon'ble Mr. Justice Devi Prasad Singh), held that while interpreting taxing provisions, a provision should not be read in isolation but it should be read in reference to context. In the present case, provisions contained under Section 10 (20) of the Income Tax Act, 1961, should not be read in isolation but it must be read keeping in v....
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....ON 71. One other aspect of the matter requires consideration. The Income Tax Act, 1961, has been legislated by the Union of India in pursuance of powers conferred by Article 246 of the Constitution read with Entry 82 List 1 of Schedule VII of the Constitution. Under Entry 82, the Union of India has right to legislate the law for taxes in income other than agricultural income, whereas, the State has got power to impose tax on agriculture income under Entry 46 List II of Schedule VII of the Constitution. 72. Applying the aforesaid principle, the State Government cannot exercise power to an 'item' meant for the Central Government. The local authority should be defined keeping in view the provisions contained in Part IX and IXA of the Constitution and Section 10 (20) of the Income Tax Act read with Chapter-III of the Income Tax Act, 1961. Merely because the State legislature has used the word, 'local authority' in sub-section (3) of Section 3 of the 1975 Act, it shall not entitled the U.P. Jal Nigam to claim exemption unless Income Tax Act itself provide. REPUGNANCY 73. In view of the Article 254 of the Constitution to the extent of repugnancy, the Central Act sha....
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....the U.P. Water Supply and Sewerage Act, 1975. 76. After a close scrutiny of 1975 Act, the law settled by Hon'ble Supreme Court in the cases of Valjibhai Muljibhai Soneji (supra), R.C. Jain (supra), Commissioner of Income Tax. Vs. U.P. Forest Corporation (supra), Agricultural Produce Market Committee, Narela, Delhi (supra), read with Part IX and IXA of the Constitution and Section 3 (31) of General Clauses Act, the U.P. Jal Nigam does not seem to be the 'local authority' under Section 10 (20) of the Income Tax Act, 1961 even prior to Finance Act, 2002. The word, "local authority" has been defined in the Section 3 (31) of the General Clauses Act, 1897, an old Central Act, which has been interpreted by the Hon'ble Supreme court by catena of judgments (supra). 77. Right from the Assessing Authority to the Tribunal, all the three forums have failed to discharge their statutory obligation. None of them have considered various pronouncements of Hon'ble Supreme Court (supra) read with Section 3 (31) of General Clauses Act, 1897 and the constitutional provisions contained in Part-IX and IXA of the Constitution, read with explanation added to in Section 10 (20) of the Income Tax Act, 1....
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....status of a full fledged department. This new department was named as Public headed Health Engineering by offices an of Department the rank (PHED) of and was Superintending Engineering. It was entrusted with the responsibility of performing all the works related to Public Health Engineering including works related to sewerage and water supply. In the year 1946, State of United Province created a department known as Local Self Government Engineering Department [hereinafter referred to as 'LSGED'], which was the converted form of PHED and in this department, all the engineering works of Local Self Government were entrusted. In the year 1975, U.P. Jal Nigam was constituted vide Notification dated 18.6.1975 issued by the State Government under Section 3 of the Uttar Pradesh Water Supply and Sewerage Act, 1975 [hereinafter referred to as the 'Act' for the sake of brevity] and the status of the Nigam is a "local authority" under sub-Section (3) of Section 3 of the Act. For the assessment year under consideration, the A.O. has mentioned in his order that the assessee is consisting of three wings namely; (i) Jal Nigam Wing; (ii) Nalkoop Wing; and (iii) Construction & Design Wing. The A.....
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.... Central or State Governmental". Since modern governments perform a large number of functions through autonomous bodies serving as instrumentalities of the State having considerable authority under the statutes, which creates them, the word 'authority' has been understood in a wider sense, so that the law applicable under the Constitution would apply for income tax purposes as well. In Sukhdev v. Bhagatram; AIR 1975 SC 1331, it was observed that the reason for adopting a proper view of Article 12 is that the Constitution should wherever possible be so construed so as to avoid arbitrary application of power against individuals by centers of power. The emerging principle appears to be that a public corporation being a creation of the State is a subject matter to the Constitutional limitation as the State itself. Further, the governing power wherever located must be subject to the fundamental constitutional limitations. It is in such a view, it was found that statutory bodies like Life Insurance Corporation of India; and Oil and Natural Gas Commission were the "authorities" since these corporations do have independent personality in the eye of law and they serve as instrumentalitie....
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....er: Section 10 (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 : For the purposes of this clause, the expression "local authority" means - vii. Panchayat as referred to in clause (d) of article 243 of the Constitution; or viii. Municipality as referred to in clause (e) of article 243P of the Constitution; or ix. Municipal Committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; or x. Cantonment Board as defined in section 3 of the Cantonments Act, 1924 (2 of 1924);] From the above, it is clear that the income of the "local authority" arising from its supply of a commodity or service, such as, supply of electricity or water, for domestic or industrial purposes, within its own jurisdictional area, is exempt. The....
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....g the status of Delhi Development authority held that it shall be the "local authority". There lordship held that Delhi Development Authority is an independent entity and elected by inhabitants of the area, possesses autonomy to decide for itself the question of policy affecting the area administered by it. It has been entrusted by the statute that governmental functions and duties as are usually entrusted to municipal bodies of inhabitants of locality like health and education services, water and sewerage, town planning and development, roads, markets, transportation, social welfare services etc. It has been entrusted for the purpose of civic duties and functions and also power to raise funds for the furtherance of its activities and the fulfilment of their project by levying taxes, reduce charges or fees which is in addition to moneys provided by the Government or obtained by borrowing or otherwise. The relevant portion of para 2 of the aforesaid judgment is reproduced as under: "... First, the authorities must have separate legal existence as Corporate bodies. They must not be mere Governmental agencies but must be legally independent entities. Next, they must function in a d....
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....t enjoy a certain degree of autonomy, with freedom to decide for themselves questions of policy affecting the area administered by them. The autonomy may not be complete and the degree of dependence may vary considerably but there must be an appreciable measure of the autonomy. Next, they must be entrusted by statute with such Governmental functions and duties as are usually entrusted to municipal bodies, such as those connected with providing amenities to the inhabitants of the locality, like health and education services, water and sewerage, town planning development, roads, markets, transportation, and social welfare services etc. Broadly 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 money provided by Government or obtained by borrowing or otherwise. What is essential is that control or management of the fund must vest in the "local authority". In the context of applicability of the Bonus Act, 1965,....
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....uses Act clearly can be regarded as local bodies, which are intended to carry on self- government. It is for this reason that this definition states that such an authority must have control or management of a municipal or local fund. Municipal committee, district board, body of port commissioners are entitles which carry on Government affairs in local areas and they would give colour to the words "local authorities" occurring in Section 3(31) of the General Clauses Act, 1897. To put it differently, "local authority" referred to in Section 3(31) must be similar or akin to municipal committee, district board or body of port commissioners. In R.C. Jain's case, AIR 1981 SC 951, at least five attributes or characteristics of an authority falling under Section 3(31) of the General Clauses Act have been mentioned. At least three of the five attributes mentioned in the passage quoted above from R.C. Jain's case (supra), are absent here. Firstly, the members of the assessee are not wholly or partly, directly or indirectly, elected by the inhabitants of the area. According to Section 4 of the U.P. Jal Nigam, the Nigam consisted of a chairman and seven members. The Chairman is nominated by....
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....it appears that in the U.P. Forest Corporation Act, 1974, Section 3(3) provides that for all purposes, it shall be the "local Authority". Similar words are used in the U.P. Act No. 1975. In the case of CIT v. U.P. Forest Corporation; 230 ITR 945, the Hon'ble Supreme Court has discussed the provisions pertaining to Section 10 (20) of the Income Tax Act. The Division Bench Judgment of Allahabad High Court had allowed the exemption holding Corporation as a "local authority". But the U.P. Forest Hon'ble Supreme Court set aside the judgment and held that U.P. Forest Corporation is not a "local authority" though under Section 3 (3) of the U.P. Forest Corporation Act, 1974, it is provided that for all purposes it shall be the local authority. Their lordship has relied upon the ratio of R.C. Jain's case (supra) while reversing the judgment of Allahabad High Court, to quote relevant portion is as under:- "..In the case of the respondent-corporation, the Act does not enable it to levy any tax, cess or fee. It is the income from the sale of the forest produce which goes to augment its funds. It has no power under the Act of compulsory exaction such as taxes, fees, rates or charges. Like an....
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....lanning and development, roads, markets, transportation, social welfare services etc. Broadly, it may say that they may be entrusted with the performance of civic duties and functions which would otherwise be governmental duties and function. 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 money 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. Another reason is that Article 254 of the Constitution provides the inconsistency between the laws made by the Parliament and laws made by the legislatures of State. Article 254 is reproduced as under: Article 254: (1) if any provision of a law made by the Legislature of a State is repugnant to any provision of a law made by Parliament which Parliament is competent to enact, or to any provision of an existing law with respect to one of the matters enumerated in the Concurrent List, then, subject to the provisions of clause (2), the law made by Parliament, whether passed before or after th....
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....1069, and reversibility in this context would include re- probability in the enforcement of the taxing statute. By applying the above mentioned test, it is crystal clear that Income Tax Act is self contained code, which is passed by the Parliament and it will prevail over the State Act namely U.P. Water Supply and Sewerage Act, 1975. However, there is an exception provided in Article 254 (2) of the Constitution that if the President assents to a State law, it will prevail over the central law, if both laws dealing with a concurrent list. But this is not the case with "local authority" viz-a-viz exemption under Income Tax. Thus, the provision made in Section 3 (3) of the Act is of no use to the assessee. The question still remains as to why Parliament has used the words "Municipal Committee" and "District Board" in Item (iii) of the said Explanation to Section 10(20) of the Income Tax Act. It appears that Parliament has defined "local authority" to mean - a Panchayat as referred to in clause (d) of Article 243 of the Constitution of India, Municipality as referred to in clause (e) of Article 243P of the Constitution of India. However, there is no reference regarding "local aut....
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....n or area of functions of the authority within specified limit under a statutory provision or Act possessing different features and functional activities provided under Part IXA of the Constitution. Article 243W contains power of authority and responsibility municipalities and 243X empowers the municipalities to impose taxes and funds, Article 243ZA provides the provisions with regard to election of municipalities. Articles 243W, 243X and 243ZA reproduced as under: "243W. Powers, authority and responsibilities of Municipalities, etc.-Subject to the provisions of this Constitution, the Legislature of a State may, by law, endow- (a) the Municipalities with such powers and authority as may be necessary to enable them to function as institutions of self- government and such law may contain provisions for the devolution of powers and responsibilities upon Municipalities, subject to such conditions as may be specified therein,with respect to- (a) the preparation of plans for economic development and social justice; (b) the performance of functions and the implementation of schemes as may be entrusted to them including those in relation to the matters listed in the Twelfth ....
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....e 289(1) are as follows: (1) The property and Income of a State shall be exempt from Union taxation. (5) Nothing in clause (1) shall prevent the Union from imposing or authorizing the imposition of any tax to such extent, if any, as Parliament may by law provide in respect of a trade or business of any kind carried on by, or on behalf of, the Government of a State, or any operations connected therewith, or any property used or occupied for the purposes of such trade or business, or any income accruing or arising in connection therewith. (6) Nothing in clause (2) shall apply to any trade or business, or to any class of trade or business, which Parliament by law declares to be incidental to the ordinary functions of Government. As per Section 3(58) of General Clauses Act, 1897, definition of the "State" has been defined. On a combined reading, it appears that Articles 285 and 289 provide for the immunity of the property of the Union and the State from mutual taxation, according to the federal principle. Article 289(1) provides exemption from Union taxation any income of a State, whether it is derived from governmental or non- governmental activities. But no exemptio....
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....it was held that : "It was clear, therefore, that the income and property of the board could not be regarded as the income and property of the State Government with the result that the immunity claimed by petitioner board under Article 289(1) of the Constitution was clearly not available to the petitioner board." "Having considered assessee-Gujrat as to whether Industrial the Development Corporation, Ahmedabad is entitled or is not entitled to exclude its income from liability under the Indian I.T. Act, we are clearly of the opinion that from their total income, no exclusion could be made on the ground that it is a State as contemplated by the Article 289(1) of the Constitution of India. The State is entirely different from the Corporations which are created by laws which are enacted either by Parliament or by State Legislatures for different and distinct purposes. They are separate entities in law. They sue and are sued in their own capacities and for any contractual liability of the corporation; no person can sue the State because every corporation in itself is not the State but a separate legal entity. Under these circumstances, our opinion on the first question would be i....
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....uld not be applied for such purposes is not accumulated or set apart in excess of ascertain limit as provided in the section, which is 15% of the income from such property. v. From 10B is submitted before filling the return if any income could not be applied as it was not received or for any other reason, vi. The Registration u/s 12A is granted by the Commissioner and vii. The conditions provided u/s 13 are satisfied. Coming to the question whether the income of the U.P. Jal Nigam is held for charitable purposes and, therefore, exempt from tax by virtue of Section 11(1) of the Act, no such contention was ever raised by the assessee before the income-tax authorities. But it has academic value. Though U.P. Jal Nigam has never moved any application for the purpose of getting registration u/s 12AA of the Income Tax Act, 1961 or has never claimed its income to be exempt u/s 11 of the Income Tax Act, 1961, even after the amendment of the section 10(20) of the Income Tax Act, 1961 w.e.f. 01.04.2003. In the backdrops of the facts, let us also examine that if U.P. Jal Nigam would have applied for the registration u/s 12AA of the Income Tax Act, 1961 and had they hav....
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....re on the Government for restoration of the exemption specially Port Trust and various other Government agencies who claimed that they were victims of these changes. Therefore, instead of restoring the exemption, at least, for state undertaking, the Parliament did the next best thing by practically restoring the exemption indirectly by inserting Clause (xii) under Section 36(1) by allowing any expenditure not being a capital expenditure incurred by a corporation or body corporate by whatever name called, constituted or established by a Central, State or provincial Act for the objects and the purpose authorized by the Act under which the corporation or body corporate was constituted or established. The deduction was authorized from the date on which the exemption was withdraw retrospectively by the Finance Act, 2003 w.e.f. 01.04.2002. Needless to mention that in the instant case, the annual accounts of the Nigam were kept in three parts- Jal Nigam; Construction & Design Services; and Nalkoop Wing. Consolidation of Financial Statements of all the three wings have been done from the financial year 2002-03 and henceforth have been maintained on the same pattern. For the assessment y....