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2010 (7) TMI 653 - AT - Income TaxExemption u/s 10(20) - It is to be independently seen whether the assessee is covered under section 10(20) of the Act as a Municipality - there cannot be duplication of municipalities one like Nagar Panchayat, Municipal Council or Municipal Corporation and other like industrial establishment (like notified areas as the assessee is), if one type is already providing municipal services - State Government can create, by notification in Official Gazette, a notified area and provisions of Gujarat Municipalities Act would be applicable to such notified areas under section 16 of GIDA - Once provisions of Municipalities Act are applicable to notified area and they are treated as a separate class of self-governing institution then they have all the ingredients of a municipality and, therefore, they are covered by clause (ii) of section 10(20) - Accordingly decided in the favour of the assessee
Issues Involved:
1. Entitlement of the assessee to exemption under section 10(20) of the I.T. Act, 1961. Issue-Wise Detailed Analysis: 1. Entitlement to Exemption under Section 10(20) of the I.T. Act, 1961 Facts of the Case: The assessee, a notified area in Surat for industrial development, filed a return of income at NIL, claiming exemption under section 10(20) of the I.T. Act, 1961. The assessee argued that it is a local authority notified by the State Government under the Gujarat Industrial Development Act, 1962 (GIDA). The Assessing Officer (AO) disagreed, stating that the assessee is not a local authority as defined under section 10(20) of the Act. Assessing Officer's View: The AO contended that the deletion of section 10(20A) meant the assessee could no longer be considered a local authority. According to the AO, the assessee does not qualify as a Municipality, Panchayat, Municipal Committee, District Board, or Cantonment Board as defined in section 10(20). Consequently, the AO disallowed payments made to the District Rural Development Agency (DRDA) and added the interest earned on Fixed Deposits (FDRs) to the taxable income. CIT(A)'s Decision: The CIT(A) allowed the assessee's claim, stating that the State Government had empowered the notified areas to levy and collect taxes under both the Gujarat Municipalities Act, 1963, and GIDA. The CIT(A) referred to a Supreme Court decision, which held that notified areas under GIDA are deemed municipalities under the Gujarat Municipalities Act, 1963. Thus, the CIT(A) concluded that the assessee is a local authority within the meaning of section 10(20) and exempted the income from taxation. Revenue's Argument: The Revenue argued that after the amendment effective from 1-4-2003, section 10(20A) was omitted, and section 10(20) was inserted. The scope of 'local authority' was restricted to specific entities like Panchayats, Municipalities, Municipal Committees, District Boards, and Cantonment Boards. The Revenue asserted that the assessee does not fit into any of these categories. Assessee's Argument: The assessee's representative argued that the proviso under Article 243Q of the Constitution does not exclude industrial establishments from being considered municipalities. Instead, it creates a separate class of municipalities for industrial townships. The representative cited sections 264A, 264B, and 264C of the Gujarat Municipalities Act, 1963, and section 16 of GIDA, which provide that notified areas are treated at par with municipalities for the applicability of the Municipalities Act. Tribunal's Analysis: The Tribunal upheld the CIT(A)'s decision, stating that the provisions of section 10(20A) could not be borrowed to determine the status of a local authority under section 10(20). The Tribunal referred to Article 243P(e) of the Constitution, which defines a Municipality as an institution of self-government. The Tribunal concluded that notified areas providing municipal services are deemed municipalities under Article 243Q and the Gujarat Municipalities Act, 1963. The Tribunal also referenced the Supreme Court's interpretation that notified areas under GIDA are industrial townships for local self-government purposes. Conclusion: The Tribunal concluded that the assessee, being a notified area under GIDA, qualifies as a municipality under section 10(20) of the I.T. Act, 1961. Therefore, the income of the assessee is exempt from taxation under section 10(20). The appeal filed by the Revenue was dismissed. Final Order: The appeal filed by the Revenue is dismissed, affirming the CIT(A)'s decision that the assessee's income is exempt under section 10(20) of the I.T. Act, 1961.
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