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2010 (9) TMI 833 - HC - Income TaxLocal authority - whether the petitioner is not a local authority within the meaning of sub-section (20) of section 10 of the Income-tax Act 1961 and is therefore not entitled to the benefit of certificate for deduction at lower rate of tax within the meaning of section 197 of the Central Act - Held that - The main sources of the funds of the authority are the Bihar Government and the Central Government. Its power to spend is subject to the budget provisions of the State Government and/or any other directions issued by it. The authority s budget is subject to approval of the State Government. It is thus evident that the control and management of the funds available to it is not vested in it and it is on a tight leash. It is entirely controlled by the State Government. Thus on a survey of the provisions of the Bihar Act it is of the view that the petitioner does not appear to be a local authority within the meaning of sub-section (20) of section 10 of the Act. Appeal dismissed.
Issues Involved:
1. Whether the petitioner qualifies as a "local authority" under Section 10(20) of the Income-tax Act, 1961. 2. Entitlement of the petitioner to a certificate for deduction at a lower rate of tax under Section 197 of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Qualification as a "Local Authority" Under Section 10(20) of the Income-tax Act, 1961: The petitioner, Sone Command Area Development Agency, challenged the order which denied it the status of a "local authority" under Section 10(20) of the Income-tax Act, 1961. The petitioner argued that it should be considered a local authority based on its constitution and functions as per the Bihar Agricultural and Rural Area Development Agency Act, 1978. The court examined the definition of "local authority" as per Section 3(31) of the General Clauses Act, which includes bodies like Municipal Committees, District Boards, or any authority entrusted with the control or management of a municipal or local fund. The Supreme Court's criteria in Union of India v. R. C. Jain were applied, which require an entity to have a separate legal existence, function in a defined area, have a degree of autonomy, be entrusted with governmental functions, and have the power to raise funds. The court found that while the petitioner had a separate legal existence and functioned in a defined area, it did not meet other essential criteria. The petitioner's governing body was not elected by inhabitants but was mainly composed of state government functionaries. It lacked autonomy as its actions were subject to state government directions. The petitioner also did not perform typical civic functions like health, education, or town planning, which are usually associated with local authorities. Furthermore, the petitioner did not have the power to levy taxes or charges independently and was primarily funded by the state government. 2. Entitlement to Certificate for Deduction at Lower Rate of Tax Under Section 197 of the Income-tax Act, 1961: The petitioner's claim for a lower rate of tax deduction under Section 197 was based on its assertion of being a local authority. However, since the petitioner did not qualify as a local authority under Section 10(20), it was not entitled to the benefits of reduced taxation under Section 197. The court upheld the Assistant Commissioner's decision, agreeing that the petitioner did not meet the criteria to be considered a local authority. Consequently, the petitioner was not eligible for the tax benefits it sought. Conclusion: The court concluded that the petitioner did not qualify as a "local authority" under Section 10(20) of the Income-tax Act, 1961. The petitioner failed to meet the essential characteristics of a local authority as outlined by the Supreme Court, such as having an elected governing body, autonomy, and the power to levy taxes. Therefore, the petitioner was not entitled to a certificate for deduction at a lower rate of tax under Section 197 of the Income-tax Act, 1961. The writ petition was dismissed, with no order as to costs.
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