2003 (5) TMI 51 - HC - Income Tax

Obviously, the Explanation to section 10(20) of the Income-tax Act was introduced by the Finance Act, 2002, clarifying which are local authorities and excluding from them, corporations or authorities like the petitioner herein and the deletion of section 10(20A) of the Income-tax Act clearly indicates that the mischief sought to be remedied was to keep out corporations or authorities like the petitioner created under various enactments from claiming exclusion of their income under the Income-tax Act and to bring them within the purview of the Income-tax Act. If we apply the Heydons s case 1584 3 Co Rep 7a rule it is clear that the intention in bringing in these amendments by the Finance Act of 2002 is to bring within taxation, the income of an authority constituted under any law enacted for the purpose of satisfying the need of housing accommodation or for the purpose of planning, development or improvement of the cities, towns and villages, like the petitioner-authority. Since we are not in a position to accept the contention of learned counsel for the petitioner that the income of the petitioner is exempt under article 289(1) of the Constitution of India, we are constrained to hold that the notification annexure P-1, is perfectly valid and cannot be successfully challenged on the ground urged by the petitioner-authority Petition dismissed.

Summary

Issues:
Challenge to tax deduction notice based on constitutional exemption of income under article 289(1) of the Constitution of India.

Detailed Analysis:
The petitioner, an industrial development authority, challenged a tax deduction notice issued by the Deputy Commissioner of Income-tax, T.D.S. Circle, Jamshedpur, to the petitioner's banker, Central Bank of India. The notice required the bank to deduct tax at source from the interest accrued on the petitioner's fixed deposits due to an amendment in the Income-tax Act. The petitioner contended that its income was not liable to be assessed under the Income-tax Act due to the exemption provided under article 289(1) of the Constitution of India. The petitioner did not question the deletion of section 10(20A) of the Income-tax Act or the Department's stance on the exclusion of its income under the Act.

The petitioner's argument relied solely on the exemption under article 289(1) of the Constitution, claiming that its income, as a state-created authority, was exempt from Union taxation. The respondents countered this by asserting that the income of such authorities was not the income of the State, thus article 289(1) did not apply. The Court noted the absence of direct authority on the issue but referred to a similar case involving a Development Corporation where the Supreme Court held that the Corporation's income was not exempt under article 289(1) of the Constitution.

The Court analyzed various decisions regarding the taxation of properties and incomes of different entities under articles 285 and 289 of the Constitution. It was established that statutory corporations or government-owned entities are distinct legal entities separate from the Government for tax exemption purposes. The petitioner's reliance on specific cases and legal provisions was deemed insufficient to support its claim for exemption under article 289(1) of the Constitution.

The Court also considered the legislative intent behind the amendments in the Income-tax Act, which aimed to bring entities like the petitioner within the purview of taxation. Applying the rule from Heydon's case, the Court concluded that the amendments were intended to subject entities created under specific laws to taxation, including the petitioner-authority. Consequently, the Court found no merit in the petitioner's claim for exemption under article 289(1) and upheld the validity of the tax deduction notice.

In conclusion, the Court dismissed the writ petition challenging the tax deduction notice, affirming the validity of the notice based on the amendments in the Income-tax Act and the inapplicability of the constitutional exemption claimed by the petitioner-authority.

Judgment:
The writ petition challenging the tax deduction notice was dismissed by the High Court of Jharkhand, upholding the validity of the notice based on the legislative amendments and rejecting the petitioner's claim for exemption under article 289(1) of the Constitution of India.