TaxTMI 
TaxTMI 
2011 (1) TMI 1038
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.... The assessment year involved is 1980-81. The facts are not much in dispute. The principal question which falls for determination is whether the U. P. Jal Nigam, Lucknow, is a "local authority" within the meaning of section 10(20) of the Act. 3. Chapter III of the Act provides for the incomes which do not form part of total income. 4. Prior to the amendment by the Finance Act, 2002, section 10(20) of the Income-tax Act, 1961, provided as under : "CHAPTER III Incomes which do not form part of total income 10. Incomes not included in total income.-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- . . . (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 ;" 5. Before....
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....ts name. It has power to acquire, hold and dispose of the property. The U. P. Jal Nigam was brought into existence to provide for the establishment of a corporation, authorities and organization for the development and regulation of water supply and sewerage services and for matters connected therewith. It took into consideration sections 3(3), 6(1), 6(2), 7(1), 8(1), 40(1), 89(1) and (2), 97 and 98 of the Act, 1975, and concluded the matter in the following words ; vide paras. 10 and 11 of the order and reproduced below : "10. The arguments advanced on behalf of the assessee have to be looked into in the back ground of the aforesaid position of law. The assessee-corporation was created by the Government of Uttar Pradesh by enacting the U. P. Water Supply and Sewerage Act, 1975 (U. P. Act No. 43 of 1975). It is a body corporate having perpetual succession and a common seal and capable of suing and being sued in its name. It has power to acquire, hold and dispose of the property. The preamble of the Act indicates that the assessee-corporation was brought into existence to provide for the establishment of a corporation, authorities and organization for the development and r....
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....Act. Sections 97 and 98 relate to the framing of the regulations and bye-laws which can be framed by the corporation with the previous approval of the State Government. 11. A reading of the various provisions of the Act goes to suggest that the assessee-corporation does not posses the attributes and characteristics, necessary for being a local authority. The chairman and all members of the corporation are appointed or nominated by the State Government. The corporation does not enjoy any degree of autonomy. In the discharge of its functions under the Act, the corporation is to be guided by the directions of the State Government, and on matters of policy the decision of the State Government is final. No Governmental functions as are usually entrusted to municipal bodies are entrusted to the assessee. Above all it has no power to raise funds for furtherance of its activities and fulfilment of its project by levying taxes, rates or charges. Thus, we are of the view that the assessee cannot be said to be a local authority within the ambit of section 3(31) of the General Clauses Act, 1897." 11. Shri W. H. Khan, learned senior counsel for the applicant, submits that the apex ....
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....he apex court in its subsequent decision namely, Housing Board of Haryana v. Haryana Housing Board Employees' Union [1996] 1 SCC 95, but without any adverse comment. Certain other decisions were also referred which will be considered in later part of the judgment. 13. In contra, Shri R. K. Upadhyay, learned standing counsel, supports the impugned order of the Tribunal and submits that the U. P. Jal Nigam does not qualify the definition of "local authority" as given in the Central General Clauses Act. The U. P. Jal Nigam is not an autonomous body. It has no power to levy and realize tax, fees, etc. The body of the Jal Nigam does not consist of elected representatives of local area. The submission is that in view of the judgment of the apex court in the case of CIT v. U. P. Forest Corporation [1998] 230 ITR 945 (SC) ; AIR 1998 SC 1125 ; [1998] 3 SCC 530 (the decision was also referred by the assessee), the assessee cannot be treated as "local authority". 14. So far as the second question is concerned, he submits that it does not arise out of the order of the Tribunal as there was no controversy before the Tribunal as to whether the assessee is a company or not ? 15. C....
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....l Nigam), by notification in the Gazette by the State Government. It shall be a body corporate having perpetual succession and a common seal, vide its sub-section (2). Its sub sections (3) and (4) provide that the Nigam shall for all purposes be deemed to be a "local authority" and have its head office at Lucknow and may have offices at such other places as may be considered. 22. The Constitution of the Nigam has been given in section 4 of the Act. It says that the Nigam shall consist of a chairman appointed by the State Government. The other members shall be secretaries of various State Government Departments as mentioned in various clauses of sub-section (2) of section 4, as ex officio and five elected heads of local bodies in the State, to be nominated by the State Government. 23. The various functions of the Jal Nigam have been mentioned in section 14 thereof. Section 14(iv), (v), (vi) and (vii) of the Water Supply and Sewerage Act, 1975, are as follows : "(iv) to review and advise on the tariff, taxes and charges of water supply in the areas of Jal Sansthans and local bodies which have entered into an agreement with the Nigam under section 46 ; &n....
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....the Nigam fund, which shall be deemed to be a "local fund" wherein all moneys received otherwise than by way of loans by or on behalf of the Nigam be credited. The State Government may give loans to the Nigam, vide section 45. The Nigam shall prepare a statement of its accounts and will submit it to the State Government. The accounts of the Nigam shall be audited by auditor appointed by the State Government, vide section 50. 27. Chapter VI of the Act, 1975, deals with taxes, fees and charges. It contains sections 55 to 64 and provides for levy of water tax, water charges and sewerage tax by the Jal Sansthan. It contains no provision for levy of any such tax by the Jal Nigam. The bone of the contention of the Income-tax Department that there being no such express provision empowering the Jal Nigam to levy tax, fees and charges shall be considered at the later part of the judgment. 28. We have given a bird's eye of view of the scheme of the Act, 1975. In this backdrop the question posed whether the Jal Nigam fulfils all the five ingredients to qualify as the local authority is to be considered. The U. P. Jal Nigam has separate legal existence as body corporate. It....
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....ubstance. Out of various elected heads of local bodies, the choice has been given to the State Government to nominate five of them as members of the Nigam. It does not mean that these five persons later on, on nomination ceases to be elected representatives. The Jal Nigam fulfils ingredient No. 2. 32. The third requirement to be a "local authority" is that such authority must be an autonomous body. A feeble attempt was made by Shri R. K. Upadhyay, advocate for the Department, who submits that since the State Government has overall control over the Jal Nigam, the Jal Nigam is not an autonomous body. In the case of Union of India v. R. C. Jain, AIR 1981 SC 951 it has been laid down that one of the criteria to be local authority is that such authority must enjoy a certain degree of autonomy, with freedom to decide for themselves questions of policy affecting the area administered by them. 33. In paragraph 9 of the judgment, what "autonomy" means, has been explained by holding that even if the Central Government has usual supervisory powers which every State Government exercises over municipalities, district boards, etc. Such powers of supervision do not make the mu....
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....ney and not with the further question whether money so exacted is to be utilized for specific or general purposes. It was held that there is no consolidated fund and no separate development fund. There is only one fund, the fund of the Delhi Development Authority. 37. By applying the above ratio to the facts of the present case, we find no difficulty to hold that its various functions as mentioned in section 14 and powers as mentioned in section 15, the U. P. Jal Nigam is a "local authority" and its fund is "local fund". Section 17 provides that the Nigam may include in the cost of any scheme or work, supervision and centage charge at such rate not exceeding such limit as may be prescribed, as it may determine under clause (v) of sub-section (2) of section 15. The Jal Nigam has been empowered to lay down the schedule of fees for all services rendered to the State Government, local bodies, institutions or individuals. This empowers the Jal Nigam to realize fees for the services rendered by it from the State Government, local bodies, institutions or individuals. 38. Section 40(1) declares that the fund of the Jal Nigam shall be deemed to be local fund. In the said fund, ....
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....ntrust the work of water supply and sewerage services to a specialized body (the U. P. Jal Nigam), instead of leaving it in the hands of unspecialized persons, discharging the municipal functions. It has not been found as a fact even by the Income-tax Appellate Tribunal that the U. P. Jal Nigam has been formed to trade in water supply or it is a trading organization. The constitution of the Jal Nigam shows that it has popular representatives as its five members are amongst the elected representatives. It has got power of superintendence over the Jal Sansthans and the Jal Sansthans have been held to be "local authority". 42. The overall picture shows that it is discharging the functions of municipal bodies, so far as it relates to supply of water is concerned, having control over the Jal Sansthans, who are authorized to levy and realize the water tax and water charges on the basis of annual letting value of building. 43. In Calcutta State Transport Corporation v. CIT [1996] 219 ITR 515 (SC); [1996] 8 SCC 758, it has been held that the Road Transport Corporation is not a "local authority" within the meaning of section 10(20) of the Income-tax Act as its powers and....