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TMI Blog2010 (7) TMI 653X X X X Extracts X X X X X X X X Extracts X X X X ..... authority inasmuch as it is a deemed Municipality as it has been created under the Gujarat Industrial Development Act, 1962 (GIDA) and under that Act all the provisions of Municipalities Act, 1963 have been made applicable. However, the Assessing Officer was of the view that with the deletion of section 10(20A) the assessee is no longer a local authority and it is also not a Municipality as defined under section 10(20) of the Act. He referred to the following definition of local authority as contained in section 10(20) as under :- (i) Panchayat as referred to in clause (d) of article 243 of the Constitution; or (ii) Municipality as referred to in clause (e) of article 243P of the Constitution; or (iii) Municipal Committee and District Board, legally entitled to, or entered by the Government with, the control or management of a Municipal or local fund; or (iv) Cantonment Board as defined in section 3 of the Cantonments Act, 1924 (2 of 1924). According to the Assessing Officer assessee is not entitled to exemption under section 10(20) as it is not a Municipality or Panchayat or Municipal Commity or District Board or Cantonment Board. He, therefore, disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT Act, such expenditure being in accordance with the statutory provisions applicable to the functioning of the assessee could not be disallowed and treated as income. On the same ground, the interest earned on Fixed Deposits of the sum of Rs. 8,95,711also cannot be treated as income and taxed. The Assessing Officer is, therefore, directed to delete such additions." 5. Against this, the Revenue is aggrieved and it has raised following ground:- (1) On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in treating the income of the assessee "Sachin Notified Area" is exempt from taxation under the provisions of section 10(20) of the IT Act and thereby deleting the addition in respect of payment made to District Rural Development Agency at Rs. 1,02,80,711 and interest income on Fixed Deposit at Rs. 8,95,711. 6. The ld. DR submitted that after the amendment in Income-tax Act w.e.f. 1-4-2003 section 10(20A) which provided exemption to income to local authority has been omitted and in place of it section 10(20) has been inserted. Therefore, old concept of 'local authority' as contained in section 10(20A) cannot be borrowed to hold the assessee as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to these provisions ld. AR submitted that notified areas created under GIDA are treated at par with notified areas created under Municipalities Act, 1963 by virtue of section 264B of that Act. Thus there are two powers given to the State Government to declare an Industrial Township as notified area. One power is given under section 16 of GIDA and the other power is given under section 264B of Municipalities Act. Both the notified areas are treated at par for the applicability of Municipalities Act and, therefore, the notified area so created by the State Government under section 16 of GIDA would be a Municipality and, therefore, would be entitled to exemption under section 10(20). He then referred to the judgment of Hon'ble Apex Court in the case referred to by ld. CIT(A) and submitted that Article 243Q of the Constitution and proviso to clause (i) thereto has been elaborated in detail and, therefore, there is no ambiguity which can be perceived on its interpretation. 8. We have considered the rival submissions and perused the material on record. In our considered view the order of ld. CIT(A) deserves to be upheld. No doubt provisions of section 10(20A) of IT Act has been omitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... institution in small urban area is called Municipal Council and self-governing institution in larger urban area is called Municipal Corporation. The proviso to clause (1) in the above Article enables the Governor not to constitute Municipality under this clause if Municipal services are provided or proposed to be provided by an Industrial Establishment in that area. In other words Municipality of the nature of Nagar Panchayat, Municipal Council or Municipal Corporation may not be constituted in that urban area where municipal services are already being provided or proposed to be provided by an industrial establishment. For deciding as to whether municipality under this clause is required to be constituted in an urban area or not the Governor may take into consideration the size of area or Municipal services already provided or proposed to be provided and other factors as he may deem fit. From bare reading of above Article, we infer that where municipal services are provided by industrial establishment then further other types of municipality need not be constituted in such urban area. In other words there cannot be duplication of municipalities one like Nagar Panchayat, Municipal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a notified area under the Gujarat Municipalities Act loses all force." Regarding interpretation of Article 243Q and treatment to be given to an industrial establishment as deemed municipality Hon'ble Apex Court in that case held as under :- "Article 243Q deals with constitution of municipalities. Municipality is defined under Article 243P(e) to mean "an institution of self-government constituted under Article 243Q. Article 243Q constitutes three types of munipalities (a) a Nagar Panchayat (b) a Municipal Council and (c) a Municipal Corporation. The proviso to Article 243Q deals with all three types of municipalities constituted under clause (1). It provides that a municipality under clause (1) may not be constituted in certain circumstances. This would refer to any of the three types of municipalities. Although the proviso refers to such urban area or part thereof, this "urban" area also covers a transitional area, in transition from rural to urban. It is because this area is also in the process of turning into an urban area that it is put under Part IXA which deals with municipalities in urban areas. Therefore, in respect of any of these three types of areas set out in claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection shall be expended only in such manner in which, if the notified area were a municipal borough, the municipal fund thereof might be expended. 246C For the purposes of any section of this Act, which may be applied to a notified area, the person or committee appointed for such area under section 264B shall be deemed to be a municipality under this Act, and the area shall be deemed to be a municipal borough." Further section 16 of the GIDA, 1962 reads as under :- "Section 16 of GID Act, 1962- Notwithstanding anything contained in the provisions for the time being in force relating to notified areas in the Gujarat Municipalities Act, 1963, the State Government, by notification in the Official Gazette- (a) declare that the provisions relating to notified areas and any other provisions of that Act shall extend to and be brought into force in any industrial area, and thereupon such area shall be deemed to be a notified area under that Act. (b) appoints the Corporation or any officer or committee thereof for the purposes of the assessment and recovery of any taxes, when imposed under the provisions so extended and for enforcing such provisions; (c) provide th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unicipal Corporation. It is also applicable with equal force upon the assessee functioning under demarcated and separate areas called Notified areas which are independent of any Nagar Panchayat, Municipal Council or Municipal Corporation. The power to constitute such notified areas or Municipal Council or Nagar Panchayat or Municipal Corporation are derived from Article 243Q of the Constitution and, therefore, we cannot see any distinction as to how notified areas would not be a self-governing institution like other three bodies. We may further add the word 'Municipality' as used in Article 243P of the Constitution and also in section 10(20)(ii)) of IT Act is a generic term and has no existence as such except in the form provided in Article 243Q. No separate institution like municipality can be conceived as such. What is created is a Nagar Panchayat or Municipal Council, Municipal Corporation which are Municipality and so is the notified areas of industrial establishment which is also a municipality because of the powers and provisions contained in Gujarat Municipalities Act equally applicable to all of them. Thus we uphold the order of ld. CIT(A) that assessee is a municipality un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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