1998 (3) TMI 700 - SC - Income Tax

Summary

Issues Involved:
1. Whether the respondent is a local authority and thus exempt from tax u/s 10(20) of the Income Tax Act, 1961.
2. Whether the respondent's income is held for charitable purposes and thus exempt from tax u/s 11(1) of the Income Tax Act, 1961.
3. Whether the High Court should have entertained the writ petitions when an alternative remedy was available.

Summary:

1. Local Authority Status and Tax Exemption u/s 10(20):
The primary issue was whether the respondent, U.P. Forest Corporation, qualifies as a "local authority" and is thereby exempt from tax u/s 10(20) of the Income Tax Act, 1961. The Corporation was constituted under the U.P. Forest Corporation Act, 1974, for the preservation and exploitation of forest produce. The assessing officer rejected the claim, and the Tribunal upheld this decision, referencing the Supreme Court's ruling in Union of India v. R.C. Jain. The High Court, however, ruled in favor of the respondent, considering it a local authority. The Supreme Court, applying the criteria from R.C. Jain's case, concluded that the Corporation does not meet the essential attributes of a local authority, such as having elected members, providing civic amenities, and having the power to levy taxes. Therefore, the respondent is not a local authority and is not entitled to tax exemption u/s 10(20).

2. Charitable Purposes and Tax Exemption u/s 11(1):
The respondent also contended that its income should be exempt from tax as it is held for charitable purposes u/s 11(1) of the Act. This issue was not raised before the Income Tax Authorities. The Supreme Court noted that for an institution to claim exemption u/s 11, it must be registered and its income must be held for charitable purposes, which requires factual investigation. The High Court should not have decided this issue without remanding it to the appropriate forum. The Supreme Court directed the assessing authority to examine this claim within six months.

3. High Court's Jurisdiction under Article 226:
The Supreme Court observed that the High Court should not have entertained the writ petitions when an adequate alternative remedy was available under the Income Tax Act. However, given the prolonged litigation, the Supreme Court chose not to dismiss the appeals on this ground but emphasized that petitioners should not bypass the statutory procedures.

Conclusion:
The appeals were allowed, and the High Court's decision was set aside. The respondent was not considered a local authority for tax exemption u/s 10(20). The assessing authority was directed to consider the respondent's claim for exemption u/s 11(1) within six months. No order as to costs was made.