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TMI Blog1998 (3) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... us to be that of "local authority" and, therefore, its income was liable to be exempted from levy of tax by virtue of section 10(20) of the Act. The Assessing Officer rejected the claim and, in respect of the assessment years 1977-78 and 1980-81, he taxed it in the status of "artificial juridical person" and in respect of the year 1984-85, as a "company". The respondent then filed appeals in respect of the years 1977-78 and 1980-81 and the Commissioner of Income-tax (Appeals), following an earlier decision of the Allahabad High Court in Writ Petition No. 1568 of 1977 for the assessment year 1976-77, came to the conclusion that the respondent was a local authority and as such its income was exempted from tax. This order was challenged in appeal before the Tribunal which set aside the order of the Commissioner of Income-tax (Appeals) on the ground that the respondent was not a local authority in view of the decision of this court in the case of Union of India v. R. C. Jain, AIR 1981 SC 951; [1981] 2 SCR 854. Instead of following the procedure prescribed by the Act by way of a reference under section 256 of the Income-tax Act, the respondent chose to file three writ petitions in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome is exempt under section 11(1)(a) of the Act reliance was placed on the decision of this court in CIT v. Andhra Pradesh State Road Transport Corporation [1986] 159 ITR 1. We will first consider the question as to whether the respondent is entitled to exemption under section 10(20) of the Act. The said clause reads as under : "the income of a local authority which is chargeable under the head 'Income from house property', 'Capital gains' or 'Income from other sources' or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service (not being water or electricity) within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area." The expression "local authority" is not defined in the Income-tax Act. Section 3(31) of the General Clauses Act, however, defines "local authority" as under : "'Local authority' shall mean a municipal committee, district board, body of port commissioners or other authority legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund." This expression came up for consideration in the aforesaid ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een laid down by this court in R. C. Jain's case, AIR 1981 SC 951; [1981] 2 SCR 854. In the context of applicability of the Bonus Act, 1965, the question which arose there was whether the Delhi Development Authority was a local authority. In construing the meaning of the expression "local authority" as defined in section 3(31) of the General Clauses Act, it was observed by this court at pages 857-858 of [1981] 2 SCR as follows (page 952 of AIR 1981 SC; page 286 of 58 FJR) : "Let us, therefore, concentrate and confine our attention and enquiry to the definition of 'local authority' in section 3(31) of the General Clauses Act. A proper and careful scrutiny of the language of section 3(31) suggests that an authority in order to be a local authority, must be of like nature and character as a municipal committee, district board or body of port commissioners, possessing, therefore, many, if not all, of the distinctive attributes and characteristics of a municipal committee, district board, or body of port commissioners, but possessing one essential feature, namely, that it is legally entitled to or entrusted by the Government with, the control and management of a municipal or local fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ituted to render road transport services in the State. Sections 18 and 19 of the Road Transport Corporations Act which set out the general duty and powers of the corporation establish clearly that the corporation is meant mainly and only for the purpose of providing an efficient, adequate, economical and properly co-ordinated system of road transport services in the State or part of it, as the case may be. It has no element of popular representation in its constitution. Its powers and functions bear no relation to the powers and functions of a municipal committee, district board or body of port commissioners. It is more in the nature of a trading organisation. Merely because it has a fund or for that matter merely because it is constituted to provide a public service and to employ persons in that connection, it cannot be said that its functions are similar to those of a municipal council, district board or body of port commissioners. The assessee-Corporation stands no comparison with the Delhi Development Authority which has, inter alia, power to prepare a Master Plan for Delhi specifying the zones (zonalisation), specifying the use to which each zone can be put, power to order dem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... committee, district board, body of port commissioners are entities which carry on Government affairs in local areas and they would give colour to the words "other authorities" occurring in section 3(31). To put it differently, "other authority" referred to in section 3(31) must be similar or akin to municipal committee, district board or body of port commissioners. In R. C. Jain's case, AIR 1981 SC 951, at least five attributes or characteristics of an authority falling under section 3(31) of the General Clauses Act have been mentioned. At least three of the five attributes mentioned in the passage quoted above from R. C. Jain's case, AIR 1981 SC 951, are absent here. Firstly, the members of the respondent-Corporation are not wholly or partly, directly or indirectly, elected by the inhabitants of the area. According to section 4 of the U. P. Forest Corporation Act, the corporation consisted of a chairman and eight members. The chairman as well as the members are nominated by the State Government. Five members, so appointed, must be officers serving under the State Government and three non-official members appointed by the State Government must be belonging to the category, who in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... general purposes. The statutory situation is such that the distinction between tax and fee has withered away. In the third place we see no reason to hold that the charge contemplated by section 37 is a fee and not a tax". (emphasis added) In the case of the respondent-corporation, the Act does not enable it to levy any tax, cess or fee. It is the income from the sale of the forest produce which goes to augment its funds. It has no power under the Act of compulsory exaction such as taxes, fees, rates or charges. Like any commercial organisation it makes profit from sale of forest produce and it has been given the power to raise loans. Whereas municipal or local funds are required to be spent for providing civic amenities, there is no such obligation on the respondent to do so. Merely because section 17 of the U.P. Forest Corporation Act states that the fund of the corporation "shall be a local fund" that would not make it a local fund as contemplated by section 3(31) of the General Clauses Act. In our opinion, therefore, the High Court was not correct in coming to the conclusion that the respondent was a "local authority" and entitled to exemption under section 10(20) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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